Thursday, April 28, 2011

Will Gas Hit $5 A Gallon?

WILL GAS HIT $5 A GALLON?

How about $6? $7?
When will we see relief?

Presented by Kip A. Hoover

How high will pump prices go this summer? Many analysts think we will pay $5 a gallon for gas this summer – and some think gas will cost much more than that. On April 20, the AAA’s Daily Fuel Gauge Report had regular unleaded averaging more than $4 per gallon in six states – Hawaii, California, Alaska, Connecticut, Illinois and New York.1

Is collusion behind this, or simple economics? While the Justice Department has announced a task force to investigate fraud and manipulation in the oil industry, most economists see this as little more than a public relations move coming out of the Obama administration – the U.S. had no way to control global price pressures on oil in 1979 and it has no way to control the price of the commodity in 2011.

One of the biggest influences on oil and gas prices can be found in your wallet: the U.S. dollar.

Commodities are priced in U.S. dollars on the world market, and we have a weak dollar right now. A feeble dollar means we have to pay more to buy foreign oil. It also means foreign currencies are able to buy more of the commodity for the same amount of money.

If foreign nations take advantage of a weak dollar and buy more oil, you’ve got rising global demand. When demand rises, oil prices are poised to rise. Since oil prices are set in U.S. dollars, we feel the impact of price spikes in a way that nations using other currencies may not.

Global Hunter Securities economist Richard Hastings attributes about one-third of pump prices to the weak buck. He recently raised eyebrows by stating to CNBC.com that gas could hit $6.50 a gallon this summer given high demand and the potential impact of “one or two hurricanes”.2

Emerging markets exert another big influence on oil and gas prices. Tremendous economic growth in China, India and other developing nations means they have a sustained demand for oil and gasoline, and it is not declining. Oil and gasoline prices are also subsidized in some emerging-market nations. This artificially breeds high demand.

Factor in recent political unrest in some oil-exporting nations, and you have the core reasons for $4 gas down the street.

One analyst sees potential for a new recession. Craig Johnson, president of the retail forecast firm Customer Growth Partners, just noted to CNBC that consumers are currently spending more than 6% of their income on energy costs. He cites that percentage as a “tipping point”, noting that five of the six recessions since 1970 have happened when personal consumption expenditures (PCE) for energy costs surpassed 6%. While rising fuel prices by themselves may not seem like a recession trigger, Johnson also mentioned the simultaneous jump in food prices – they are up 6.5% since the end of 2010. He estimates that consumers now spend about 15% of their incomes on food and energy prices.3

What would bring gas prices down? Well, boycotting the gas stations in your region for a day is not likely to do the trick. Relief might appear as follows: high oil prices often encourage oil producers to increase supply, as they can make even more profit from sustained demand. But that can lead to a glut – too much supply at prices too high, a circumstance in which prices would be poised to pull back. In fact, Saudi Arabian Oil Minister Ali Naimi recently commented that the world oil market was oversupplied.4

Another factor is our own consumer demand. You are hearing stories about people only driving on weekdays, or foregoing trips or cycling or taking the bus to work. Affirming this phenomenon, March credit card data from MasterCard SpendingPulse showed U.S. retail gasoline expenditures down 2.1% year-over-year.5

Tom Kloza, who is chief analyst for the Oil Price Information Service, recently shared his belief on NPR that prices will “correct or ease back a little bit and we'll [see] a driving season where we pay something between $3.25 and $3.75 for gasoline” with moderating demand and a slightly less heated commodities market. Let’s hope he’s right.5

Kip A. Hoover may be reached at 440-729-0036 or kip.hoover@lpl.com     
www.teichmanfinancial.com

This material was prepared by Peter Montoya Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information should not be construed as investment, tax or legal advice. The publisher is not engaged in rendering legal, accounting or other professional services. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. If assistance or further information is needed, the reader is advised to engage the services of a competent professional.

Citations.
1 - cnbc.com/id/42681321 [4/20/11] 
2 - cnbc.com/id/42683030 [4/20/11] 
3 - cnbc.com/id/42704213 [4/21/11] 
4 - abcnews.go.com/Business/gas-prices-hit-384-memorial-day-weekend-approaches/story?id=13399636 [4/18/11]
5 - npr.org/2011/04/21/135605266/-4-a-gallon-gas-prices-whos-to-blame [4/21/11]
6 -montoyaregistry.com/Financial-Market.aspx?financial-market=who-needs-wealth-management-services&category=4 [4/24/11]

Saturday, April 23, 2011

How to build good credit (and improve your credit score).

HOW TO BUILD GOOD CREDIT (AND IMPROVE YOUR CREDIT SCORE)

Some little things that may make a difference in the number.

Presented by Kip A. Hoover

740 is the new 720. If you want to refinance or buy a home or pass muster with a lender, a landlord, an insurer or even a possible employer, it will help to have a credit score of 740 or better. While the median FICO score in America is still 720, many lenders have now set the bar 20 points higher.1

Fannie Mae has also raised its requirements: FNMA used to request that you had a credit score of at least 580, and now you need a 620 or higher.1

Fair Isaac, the credit rating agency behind the FICO score, says that 13% of Americans have credit scores of 800 or better. You may not, and if your score is nowhere near that lofty mark, here are the steps toward possibly improving it.1

First, look at your credit reports. Go to annualcreditreport.com - a free, centralized online service created by Equifax, Experian and TransUnion - and request a free credit report from each of the big three consumer credit reporting firms. (You can do this once a year.) You need credit reports from each of them, because a creditor doesn’t have to report to all three credit bureaus. In fact, some community banks and credit unions may not even report your credit history to them.2

Look for any errors. Errors on credit reports are more prevalent than you may think. Sometimes information about you is years out of date or just plain wrong. Account histories can be inaccurate, and sometimes people make typing mistakes. The report will include a dispute form; you can use the dispute form to report mistakes or write a letter detailing them. Who knows - you may find something within the report that can help you boost your score.

Does it sound involved? This is actually the easy part. Some work lies ahead of you.

Stabilize your credit profile. It is true - a personal bankruptcy will stay on your credit report for 10 years, and late payments on credit cards will stay on your credit history for 7 years. Yet over time, credit bureaus generally give more weight to the consistency of credit payments than to disruptive events. So consistency is a key. Moderation and caution are also helpful when it comes to rebuilding your credit history. So pay attention to these instructions...2

·         Plan to solve any immediate crises in your financial life. If you can’t pay your bills, for example, you won’t be improving your credit score anytime soon. As for debts, pay off the smallest first, then the next smallest, and so forth as your finances allow in the coming months and years. Negotiate with any collection agencies and demand a statement in writing showing that you have paid in full.
·         Cutting up a credit card won’t help. While cutting up a card may feel like a clean break, it does not close your account with that credit card issuer. If you want to close an account, do it by paying down your balance, calling the issuer, confirming that zero balance, and verbally canceling the card. Then check your credit report later to see that the account has been "closed at customer's request".
·         Stay on the radar of credit card companies. Stopping card use may actually do you a disservice, as the FICO scoring formula favors at least occasional activity. So keep your account active, and maintain between two and four credit cards.
·         Keep balances low or wipe them out. Make every effort to pay off 100% of the balance each month.
·         Set moderate credit limits. If a credit card company offers you a card with a really generous limit or offers to raise your limit, refrain from accepting the offer.
·         Start a new savings account or build up the one you have. Creditors look for signs that you have cash reserves and that those reserves are being boosted or replenished.

Incidentally, if a lender says “no” to you, you can now learn why. At the start of 2011, a new federal law went into effect – essentially an update of the Fair Credit Reporting Act. If you apply for a loan or a line of credit and are offered clearly less favorable terms than someone with a high FICO score would get, the lender has to tell you why this happened in writing. It has to say which credit report it based the decision on and how you can obtain a free copy of it within 60 days of the notice. (Things will be spelled out even more clearly soon: as of July 21, 2011, the lender must provide you with a free credit score in the letter.)3
                                                                                           
Credit scores can be improved. If your score is way down there, it may seem as though you are facing a mountain that will take years to climb. It may; credit scores improve gradually, and the biggest positive influence on a credit history is a pattern of consistently paying off debts and bills. There is no magic wand that will instantly and dramatically improve your score, but it is better to start the process of rebuilding your credit history today rather than tomorrow.

Kip A. Hoover may be reached at 440-729-0036 or kip.hoover@lpl.com.
www.teichmanfinancial.com


This material was prepared by Peter Montoya Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information should not be construed as investment, tax or legal advice. The publisher is not engaged in rendering legal, accounting or other professional services. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. If assistance or further information is needed, the reader is advised to engage the services of a competent professional.

Citations.
1 - money.msn.com/credit-rating/raise-your-credit-score-to-740-weston.aspx [9/21/10]       
2 – bankrate.com/brm/news/cc/20011008b.asp [7/2/08]              
3 - bucks.blogs.nytimes.com/2011/04/14/get-bad-loan-terms-now-youll-get-some-clues-why/ [4/14/11]
4 - montoyaregistry.com/Financial-Market.aspx?financial-market=what-is-tax-efficiency-and-why-does-it-matter&category=31 [4/17/11]




Friday, April 15, 2011

EARLY DISTRIBUTIONS FROM RETIREMENT ACCOUNTS

EARLY DISTRIBUTIONS FROM RETIREMENT ACCOUNTS

Some tax consequences to remember.

Presented by Kip A. Hoover

There are times when people really need money – and in those times, a retirement account may seem like a conveniently liquid resource to tap. What’s the harm in taking an early distribution from a tax-deferred retirement plan? Well, the tax bite could be considerable.

Big taxes may await you. If you are younger than 59½, working, and you withdraw funds from your 401(k) or IRA just as you would from a bank account, you might really feel the pain next April. An early distribution from an IRA or a qualified retirement plan must usually be included in your taxable income for that particular tax year. So your federal tax bill could balloon for the year in which you take the distribution. If you take an early distribution from a Roth IRA, you won’t be taxed on the amount of your contributions. Any amount above that amount (which is attributable to the Roth IRA’s earnings) will be subject to tax.1

An additional 10% tax penalty may also apply. The federal government really, really doesn’t want taxpayers to raid their Roth and traditional IRAs, 401(k)s and 403(b)s when they are far from retirement age, so an additional 10% early withdrawal penalty is in place to further discourage premature distributions.1

There are some exceptions to this. This 10% penalty may not apply if you are using the money you withdraw to pay for

  • Deductible medical expenses (documented medical expenses that exceed 7.5% of your adjusted gross income).
  • Higher education expenses (for you, your spouse, or children or grandchildren either of you may have).
  • The purchase of your first home, or the building or rebuilding of a first home.2,3

You are also exempt from the 10% penalty on premature distributions if you are “totally and permanently” disabled, in the words of IRS Publication 575.2

Another notable exception: the 10% penalty on early distributions does not apply if you are the beneficiary of a deceased IRA owner. If a traditional IRA owner dies before age 59½, neither the owner’s estate nor the beneficiary will face the 10% early distribution penalty when those IRA assets are distributed. However, if your spouse dies and you decide to treat an IRA you inherit from him or her as your own, any distribution you take from it before your reach age 59½ may be subject to the 10% penalty.3

Do you really want to do this? As you can see, an early distribution from an IRA or a qualified retirement plan may amount to some very expensive money. It also reduces the invested assets within that retirement account – assets that could potentially grow and compound mightily over time.

This is why financial consultants may commonly warn their clients against making such a move. Sometimes couples and families feel they have no choice but to draw down their retirement savings, but a conversation with the financial services professional they know and trust may reveal other options.

Kip A. Hoover may be reached at 440-729-0036 or email: kip.hoover@lpl.com
www.teichmanfinancial.com

This material was prepared by Peter Montoya Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information should not be construed as investment, tax or legal advice. The publisher is not engaged in rendering legal, accounting or other professional services. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. If assistance or further information is needed, the reader is advised to engage the services of a competent professional.

Citations.
1 - advisorone.com/article/irs-top-10-tax-facts-about-early-distributions-retirement-plans [3/2/11]
2 - irs.gov/pub/irs-pdf/p575.pdf [2010]
2 - irs.gov/pub/irs-pdf/p575.pdf [2010]
3 – irs.gov/pub/irs-pdf/p590.pdf [2010]
3 – irs.gov/pub/irs-pdf/p590.pdf [2010]
4 – montoyaregistry.com/Financial-Market.aspx?financial-market=retirement-income-planning-the-basics&category=3 [4/9/11]

Friday, April 8, 2011

LITTLE-KNOWN TAX BREAKS

LITTLE-KNOWN TAX BREAKS

Some of these may provide big savings.

Presented by Kip A. Hoover

The Internal Revenue Code is around 700 pages thick – not as long as War and Peace or Remembrance of Things Past, but much drier reading. However, some very nice tax breaks may be found within its pages and amendments. Not all are well-known.  

Reducing America’s debt. If you write a check to the federal government to help decrease the national debt, it counts as a deductible charitable contribution for that year’s federal return. You can do this by writing a check payable to “Bureau of the Public Debt” and mailing it to Bureau of the Public Debt, Department G, P.O. Box 2188, Parkersburg, WV 26106-2188. (The check doesn’t have to be mailed independently of your federal return – it can also be mailed with your return.)1

Hosting an exchange student. Do you have a student living with you under a formal agreement with a qualified organization that exists to provide educational opportunities for that student? Is that student a full-time student at a U.S. high school or secondary school? Is he or she not your dependent or relative? If you host an exchange student, all of this may apply. If it does apply, you are eligible for a tax credit of $50 for each month that the student lives with you (15 or more days of a month count as a full month).1

Personal expenses related to volunteering. Volunteer work in itself will not provide you with a tax break, but you may be able to deduct 14¢ per mile on your 2011 federal return for charity-related mileage or the cost of the gas you paid for your driving on behalf of the charity, whichever is greater. You can also deduct the costs of tolls and parking related to your driving. Away from the driver’s seat, you can also characterize the out-of-pocket expenses you pay on behalf of a charity or qualified non-profit organization as charitable deductions (if the organization hasn’t reimbursed you for them). Buying equipment for the charity, buying office supplies or stamps, buying and cleaning uniforms – these are just some of the expenses that are deductible.1

Travel expenses related to medical care. IRS Publication 502 states that you may deduct 16.5¢ per mile on trips you take to obtain medical care for yourself or your dependents. The trip has to be "primarily for, and essential to, medical care". Bus, taxi, plane and train fares and ambulance service fees all count as expenses toward the deduction as long as the travel was for medical care. Parents transporting children who need medical care and nurses traveling with a patient can also claim the deduction. Also, some who qualify for this deduction may also get a tax break of up to $50 per night for lodging related to trips taken for health care.2

Local & state income taxes. Did you buy a house, an RV or a boat in 2010? You may be able to exploit state or local income tax deductions. Only 7 states don’t have state income tax (Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming). Tennessee and New Hampshire merely tax forms of dividends and interest.3

Private mortgage insurance. This deduction is still around - it is scheduled to sunset at the end of 2011. Assuming you bought your home with less than 20% down, you probably have PMI – and you can deduct the premiums you paid in 2010 on your 2010 return. To get the break, your home loan must have been originated after 2006. If you refinanced your home after 2006, you are allowed to deduct PMI for that mortgage. However, phase-outs kick when your adjusted gross income exceeds $100,000 ($50,000 for those married and filing separately).4

Health insurance premiums. In 2010, did you spend in excess of 7.5% of your AGI on healthcare and other medical-related expenses? You can then deduct the amount you spent (but to do this properly, the expenditures should be itemized). You can’t deduct pre-tax insurance premiums. See more at www.irs.gov/taxtopics/tc502.html.5

Safe deposit box rental. In certain cases, you can deduct this cost. The IRS says you can if you rent the safe deposit box to store taxable income-producing stocks, bonds or investment-related papers and documents. If you store tax-exempt securities, jewelry or other personal items in the box, you can’t exploit the deduction.6

The Saver’s Credit. This is the up-to-$1,000 tax credit that you may be able to claim if you contributed to an IRA or qualified employer-sponsored retirement plan like a 401(k) or 403(b) last year. Your AGI has to fall below a certain level to claim it. For 2010, those levels were $55,500 (married filing jointly), $41,625 (head of household) and $27,750 (single, married filing separately or qualifying widower). The credit can be as large as $2,000 for joint filers.7
                                                                                           
Tax preparation costs. In 2010, did you pay a tax professional to prepare your 2009 tax return? The IRS commonly lets you deduct the fees you paid to such professionals. The cost of tax preparation software and tax publications counts toward the deduction, and so do e-filing fees.2

Many more deductions are out there. For a long list of potential tax breaks, see IRS Publication 529 (irs.gov/publications/p529/ar02.html). See your tax professional to determine whether some of these obscure credits might give you a break.

Kip A. Hoover may be reached at 440-729-0036 or kip.hoover@lpl.com
www.teichmanfinancial.com

This material was prepared by Peter Montoya Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information should not be construed as investment, tax or legal advice. The publisher is not engaged in rendering legal, accounting or other professional services. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. If assistance or further information is needed, the reader is advised to engage the services of a competent professional.


Citations.
1 - bankrate.com/finance/money-guides/cash-in-on-uncommon-charitable-tax-breaks-1.aspx [3/17/11]            
2 - irs.gov/publications/p502/ar02.html [3/31/11]         
3 - kiplinger.com/tools/retiree_map/index.html?map=1&si=1 [10/10]       
4 - bankrate.com/finance/taxes/deducting-private-mortgage-insurance.aspx [3/10/11]
5 - irs.gov/taxtopics/tc502.html [2/7/11]
6 - irs.gov/publications/p529/ar02.html [2/7/11]
7 - irs.gov/publications/p590/ch05.html [2010]
8 - montoyaregistry.com/Financial-Market.aspx?financial-market=wealth-management-for-executives&category=4 [4/3/11