September 22, 2019

Wealth Matters: Get a Grip on Taxes Before the Storm Hits

This year, tax advisers agree, was benign in terms of changes to the Internal Revenue Code. But that comes after two tumultuous years. In 2009, tax preparers waited nervously for action on the expiring estate tax that never came. Then, in late 2010 came a jumble of unexpected tax actions: from reinstating the estate tax for this year and next, with a higher exemption level than most tax advisers expected, to extending the Bush-era tax cuts for two more years.

So how to handle these last few weeks of the tax year? As is true every year, taxpayers should run a checklist for everything from selling securities that have lost money to taking advantage of annual gift allowances.

But even then, seemingly straightforward deductions are not always so. The $500 energy tax credit, for example, limits the amount you can deduct for new windows to 10 percent of the value up to $200. In other words, you had to spend $2,000 on windows to get the full window credit.

And charitable deductions can be more broadly defined to include costs incurred while volunteering, said Mark Steber, chief tax officer at Jackson Hewitt, a tax preparation company. “You can’t deduct the value of your time, but you can deduct your out-of-pocket expenses,” he said.

But beyond the usual recommendations, the tax advisers I spoke to stressed that you should use this year to get your affairs in order for what promises to be an uncertain two years of tax policy.

“For high-net-worth individuals, chances are the next year or so is going to be a challenging time,” said Chris Johnson, head of United States wealth advisory at Barclays Wealth. “There is going to be a lot of attention focused on ways to extract additional tax dollars.”

If Congress does not act to extend a series of smaller tax deductions, next year could be costly for middle-income taxpayers as well. Here are some of the more pressing issues to consider.

WHAT MAY EXPIRE AFTER 2011 Every year Congress passes a series of so-called patches, renewing some 70 tax breaks for another year or two. In the past, this has been a formality, much as raising the debt ceiling used to be. This year, it remains to be seen what Congress will do.

Mark Luscombe, principal federal tax analyst at CCH, a publisher of research and software for tax lawyers and accountants, noted that when these patches expired in 2009 and were re-enacted retroactively at the end of 2010, the delay wreaked havoc with tax planning.

The deductions vary. Teachers, for example, can deduct $250 toward classroom expenses.

Other patches affect broader swaths of the population. One allows residents to choose between deducting state income and sales tax against their federal tax. This is a favorite of people in states like Florida and Texas that have no state income tax.

In high-tax states, the big worry is what happens to the alternative minimum tax, a parallel system of taxation that cancels out many deductions. The A.M.T. was originally meant to keep wealthy people from paying too little in taxes. Because it was not indexed for inflation, however, Congress has had to approve periodic fixes to keep it from affecting many more people than intended.

Without a fix next year, Stephen A. Baxley, director of tax and financial planning at Bessemer Trust, said, the A.M.T. “will hit an additional 20 million people, and most of them are middle-income taxpayers.” It normally claims around four million taxpayers.

Two of the big triggers for the A.M.T. are high state taxes on property and income, which hits residents of New York, New Jersey, Connecticut and California disproportionately, said Alfred Peguero, partner in PricewaterhouseCoopers’s private company services practice.

For older people, there is again a chance that the provision allowing them to directly donate the required minimum withdrawal from their retirement account to charity may be delayed or not renewed. Currently, people over 70 1/2 can donate up to $100,000 to charity. If this patch were to disappear, the federal income tax on the withdrawal and the charitable deduction would cancel each other out. But some states do not allow charitable deductions above a certain income, or at all.

“Higher taxpayers have their itemized deductions reduced in New York,” Mr. Baxley said. “In Connecticut and New Jersey, you don’t get any benefit from itemized deductions.”

WHAT CHANGES IN 2012 There are several provisions that take effect or lapse regardless of Congressional action.

One set to start in 2012 is a requirement that brokers report the purchase price on mutual funds and exchange-traded funds to the Internal Revenue Service for capital gains purposes. (They began doing this for stocks this year.)

Article source: http://feeds.nytimes.com/click.phdo?i=93bf35d26430b2e05f43b128d48d2b38

Wealth Matters: Picking the Brains of the Super-Rich, and Picking Up Tips

The most startling statistic came from the World Wealth Report, the granddaddy of analyses of the rich, conducted by Capgemini and Merrill Lynch. In 2010, the report estimated, a mere 103,000 people of the nearly seven billion people on the planet controlled 36.1 percent of the world’s wealth. (This was up from 35.5 percent in 2009.) North America, the report went on, had the largest number of so-called ultrahigh-net-worth individuals, with 40,000 people worth more than $30 million.

But not all the reports were this revelatory — or scientific. One study, from an online “dating marketplace,” rated cities based on how generous men were in paying for first dates. Denver ranked first for expensive nights out, Cincinnati last.

Then there was the report from Barclays Wealth that found that many high-net-worth individuals wished they had more self-control over their finances.

All of this time and money being put to surveying the rich, particularly at a time when most people are feeling anything but wealthy, prompted me to wonder about the value of this information. Can anything be gleaned from the reports for everyone else? Or are they, at best, sources of trivia? So I sifted through them to see what I could find. Here are some of the highlights.

THE FUN STUFF The World Wealth Report, released Wednesday, found that last year was not just a good year for the really wealthy. It was also a good year for the merely rich. The number of people with more than $1 million to invest was 10.9 million, up 8.3 percent, while the amount of money they had, $42.7 trillion, had risen by 9.7 percent. (The wealth of this group excludes the value of their primary residences, collectible items and consumable goods.)

“The wealth is growing around the world, but it doesn’t seem that way,” said John W. Thiel, head of United States wealth management and the private banking and investment group at Merrill Lynch Global Wealth Management.

One consensus is not surprising — that Asians continue to gain on the rest of the world. A report released in May by the Boston Consulting Group said that the United States still led the world in the number of families worth more than $100 million, 2,692. But it said that China experienced the fastest growth rate, with a one-year jump of 30 percent, to 393 families.

The Merrill report noted that the number of high-net-worth people in Asia, 3.3 million, surpassed the number in Europe, 3.1 million, for the first time. China ranks fourth behind the United States, Japan and Germany for the number of high-net-worth citizens.

PricewaterhouseCoopers’s Global Private Banking and Wealth Management Survey of people who work at wealth management firms, which came out this week as well, predicted that fees from managing money in Asia would grow by about 18 percent in 2011, as against a growth rate of 6 percent in the Americas.

While most reports are pointing to the growing wealth in China, an analysis from Deloitte noted that South Korea was set to join the top 10 list of countries with the most wealthy people by 2020.

ADVICE FOR EVERYONE ELSE These reports also offered some practical insight for those who are not super-rich.

For one thing, the wealthiest people around the world put more money into equities last year and plan to continue to do so. The World Wealth Report said the wealthy increased their percentage in equities in 2010 to 33 percent, from 29 percent, and the report expected them to increase that to 38 percent by 2012.

The Boston Consulting Group report said people in North America had the highest percentage of their wealth in equities, with 44 percent, up from 41 percent in 2009.

Regardless of what they were investing in, the wealthiest indicated that they were spreading their investments around the world to reduce the risk from political, economic and financial uncertainty. The Institute for Private Investors’ Family Performance Tracking survey, which looks at how its members invest, said the wealthiest people had at least a third of their portfolios outside their home countries. One in five had 50 percent of their money invested internationally.

The wealthy in Latin America had the least amount of their money tied up in their own region, according to the World Wealth Report. Those in North America had the most.

But identifying that safe place is more difficult. The rich generally agreed that they were concerned about the American economy and the potential for political and economic unrest elsewhere.

A study due for release next month from Zogby and Insite Security of people with more than $3 million found that most had a negative view of the global economy and many were worried that the United States would not be able to improve its fiscal situation anytime soon.

Article source: http://feeds.nytimes.com/click.phdo?i=fdee8a3536ccaf1dd7535f33e24cbd80