By Andy Pulsfort
The last month has brought an increase in volatility to stock markets and investment accounts. As global and domestic issues work out, it is important to keep a clear head and take a focused approach. The S&P 500 was up 80% from its low before the recent tumble. A correction in equities was overdue and we are experiencing that now.
One important fact is that global financial markets are in much better condition now than they were a year ago, so we did enter this recent uncertainity on much better footing.
We are 14 months into the current bull market, which is close to the average time for the first correction (17 months). It is usually found that markets begin to correct after a 60% recovery. In 2009 and early 2010 we blew past that threshold by a third again as much. This welcome, but unsustainable return suggested that any correction would be swift and perhaps a bit more significant than others.
What defines a correction? Most financial gurus consider a decline of 10% or greater as putting the market into correction mode. So far we are a bit over -12%. This can be expected from the greater than average run up in value. The success of the market recovery also caused the one clear area where this market correction differs. in that generally it takes 54 days to reach the -10% mark, and in this case it took only 27.
While no one has enjoyed seeing their earnings relinquished, it is important to remember that the activity we are seeing now is normal. Stock markets progress better when operating efficiently, which means investors making choices based on sound financial knowledge. Since 1928, 70% of the years have experienced a correction at some point.
While its important not to ignore what is occuring around the globe, it is also important to continue taking prudent approaches to investing. Many will even argue it is time to buy.
Wednesday, May 26, 2010
Monday, May 24, 2010
Never Lose Hope
by: Harvey Mackay
In Greek mythology, Pandora opened her fabled box and let out all evils except for hope, which the Greeks considered to be as dangerous as the world's other evils. Soon they discovered that without hope to offset their troubles, humanity was filled with despair. So Pandora let out hope as well. In the myth, hope was more potent than any of the other major evils.
In modern times, we consider hope to be anything but evil. It's what gets many of us through our worst days. Lingering unemployment, foreclosures, dwindling retirement funds, businesses folding -- any of these could make a person lose hope.
Fortunately, Pandora recognized the relevance of hope -- an element that is critical to our very existence. In the current business climate, hope is what keeps us from throwing in the towel. I'm a realist, but I'm also an optimist. And while hope and optimism are not exactly the same, they are intrinsically linked.
For example, I am optimistic that the economy will eventually improve, and I am hopeful that we can learn lasting lessons from events that led to our business challenges. But I can't just wait and hope. I have to help things happen.
Hope looks at what is possible and builds on that. As former television executive and author SQuire Rushnell (yes, that's the way he spells his name) puts it, "Take the 'imp' out of impossible!" Instead, he says, read it as "I'm possible."
In one of my favorite inspirational books, Tough Times Never Last, but Tough People Do, my friend Robert Schuller offers up this observation: "Understand the power of this word: impossibility. When uttered aloud, this word is devastating in its effect. Thinking stops. Progress is halted. Doors slam shut. Research comes to a screeching halt. Further experimentation is torpedoed. Projects are abandoned. Dreams are discarded. The brightest and the best of creative brain cells turn off. In this defensive maneuver, the brain shelters itself against the painful sting of insulting disappointments, brutal rejections, and dashed hopes.
"But let someone utter the magic words, it's possible. Buried dreams are resurrected. Sparks of fresh enthusiasm flicker. Tabled motions are brought back to the floor. Dusty files are reopened. Lights go on again in the darkened laboratories. Telephones start ringing. Typewriters make clattering music. Budgets are revised and adopted. 'Help wanted' signs are hung out. Factories are retooled and reopened. New products appear. New markets open. The recession has ended. A great new era of adventure, experimentation, expansion and prosperity is born."
This advice, penned more than 25 years ago, is just as pertinent today. In fact, when you consider the advances of the past quarter century, look at how we have changed the face of businesses: Did anyone have a website in 1985? What was your cell phone number? Were you video-conferencing with your South American office with the touch of a button?
What will the next 25 years hold? I suspect that coming generations will use their technologies in ways we are just beginning to imagine are possible. I am certain that products will be developed that will make life easier, safer, and better. I have every hope that we have the brainpower and the will to do just that.
But we cannot accomplish much at all if we don't have hope. Hope is believing that every cloud has a silver lining, and when that cloud rains, it makes things grow. And then the sun comes out again.
British anthropologist Jane Goodall has spent more than 50 years conducting landmark research on wild chimpanzees and great apes and observing the tremendous power of nature to restore itself. She shares these thoughts:
"I carry a few symbols with me … to remind me of the hope that there is in the world: the human brain, with the technology that we are now working to try and live in greater harmony with the environment; the resilience of nature; the tremendous energy, commitment, excitement, and dedication of young people once they know what the problems are and we empower them to act to do something about it. And finally, the indomitable human spirit, those people who tackle impossible tasks and won't give in … that are shining inspiration to those around them."
Mackay's Moral: Hope for the best and then find a way to make it happen.
[This article appears courtesy of Early to Rise]
In Greek mythology, Pandora opened her fabled box and let out all evils except for hope, which the Greeks considered to be as dangerous as the world's other evils. Soon they discovered that without hope to offset their troubles, humanity was filled with despair. So Pandora let out hope as well. In the myth, hope was more potent than any of the other major evils.
In modern times, we consider hope to be anything but evil. It's what gets many of us through our worst days. Lingering unemployment, foreclosures, dwindling retirement funds, businesses folding -- any of these could make a person lose hope.
Fortunately, Pandora recognized the relevance of hope -- an element that is critical to our very existence. In the current business climate, hope is what keeps us from throwing in the towel. I'm a realist, but I'm also an optimist. And while hope and optimism are not exactly the same, they are intrinsically linked.
For example, I am optimistic that the economy will eventually improve, and I am hopeful that we can learn lasting lessons from events that led to our business challenges. But I can't just wait and hope. I have to help things happen.
Hope looks at what is possible and builds on that. As former television executive and author SQuire Rushnell (yes, that's the way he spells his name) puts it, "Take the 'imp' out of impossible!" Instead, he says, read it as "I'm possible."
In one of my favorite inspirational books, Tough Times Never Last, but Tough People Do, my friend Robert Schuller offers up this observation: "Understand the power of this word: impossibility. When uttered aloud, this word is devastating in its effect. Thinking stops. Progress is halted. Doors slam shut. Research comes to a screeching halt. Further experimentation is torpedoed. Projects are abandoned. Dreams are discarded. The brightest and the best of creative brain cells turn off. In this defensive maneuver, the brain shelters itself against the painful sting of insulting disappointments, brutal rejections, and dashed hopes.
"But let someone utter the magic words, it's possible. Buried dreams are resurrected. Sparks of fresh enthusiasm flicker. Tabled motions are brought back to the floor. Dusty files are reopened. Lights go on again in the darkened laboratories. Telephones start ringing. Typewriters make clattering music. Budgets are revised and adopted. 'Help wanted' signs are hung out. Factories are retooled and reopened. New products appear. New markets open. The recession has ended. A great new era of adventure, experimentation, expansion and prosperity is born."
This advice, penned more than 25 years ago, is just as pertinent today. In fact, when you consider the advances of the past quarter century, look at how we have changed the face of businesses: Did anyone have a website in 1985? What was your cell phone number? Were you video-conferencing with your South American office with the touch of a button?
What will the next 25 years hold? I suspect that coming generations will use their technologies in ways we are just beginning to imagine are possible. I am certain that products will be developed that will make life easier, safer, and better. I have every hope that we have the brainpower and the will to do just that.
But we cannot accomplish much at all if we don't have hope. Hope is believing that every cloud has a silver lining, and when that cloud rains, it makes things grow. And then the sun comes out again.
British anthropologist Jane Goodall has spent more than 50 years conducting landmark research on wild chimpanzees and great apes and observing the tremendous power of nature to restore itself. She shares these thoughts:
"I carry a few symbols with me … to remind me of the hope that there is in the world: the human brain, with the technology that we are now working to try and live in greater harmony with the environment; the resilience of nature; the tremendous energy, commitment, excitement, and dedication of young people once they know what the problems are and we empower them to act to do something about it. And finally, the indomitable human spirit, those people who tackle impossible tasks and won't give in … that are shining inspiration to those around them."
Mackay's Moral: Hope for the best and then find a way to make it happen.
[This article appears courtesy of Early to Rise
Despite Market Swells, Advisors Maintain Allocations
By: Donna Mitchell
May 21, 2010
The financial planners at Seattle-based Moss Adams Wealth Advisors knew how to respond to the ongoing European sovereign debt crisis, which included the punishing market dip on Thursday. Largely, they did nothing, and that was alright with their clients.
There was no dumping of equities across the board. They did not pull up stakes and hunker down in cash positions. “We don’t change our allocations based on the markets dropping or increasing,” said Sheryl Rowling, a San Diego-based partner at Moss Adams Wealth Advisors.
The company generally takes a passive approach to investing, and uses institutional mutual funds for their low costs to investors. The firm does believe in using talented managers when the markets are less efficient, Rowling said, but there was no overwhelming sense that clients were clamoring for change.
After the so-called flash crash on May 6, and leading up to the $1 trillion debt bailout extended to Greece, Moss Adams emailed letters to its clients assuring them that such market upheavals happen, and that they should not react by changing their positions. “Not surprisingly, we got zero phone calls and emails expressing concerns,” Rowling said. “They understand that the market will be volatile, and they understand that what they have is a long-term strategy to meet goals in the long run.”
Certainly, the markets have given advisors and clients enough to spur them to action. The MSCI EAFE Index, a benchmark used by many international mutual funds, was down 13% through Wednesday night. Negative currency exchanges made matters worse, says Alec Young, an international equity strategist at Standard & Poor’s. On Monday, the Euro was down 20.3% against the dollar, and by Wednesday had hit a four-year low below $1.22. Early Friday, the Euro had recovered briefly against the dollar.
“That is more currency risk than clients are used to taking,” Young said. S&P, which lowered its recommendation on international stocks from overweight to marketweight, now says clients should hold back on making new investment decisions. “We are not recommending initiating any new positions.”
Further upstream, executives at asset management firm PIMCO, based in Newport Beach, Calif., say independent advisors on a whole are not shifting their portfolios around dramatically. Instead, they are making changes on the margins. They are hedging for inflation by picking up Treasury Inflation-Protected Securities. To ensure that clients will have money on hand for short-and longer-term needs, they are buying staggered durations of money markets, Doug Ongaro, a managing director at PIMCO, said in a phone call. Ongaro is head of its registered investment advisor channel and a member of the management team for the firm’s global wealth management group. Aside from that, advisors are mainly asking a lot of questions about what their appropriate allocations should be. “They have strategic allocations and methodologies that they stick with,” Ongaro said. “They are trying to be smart about what those allocations mean, and they are trying to be more flexible, in terms of what the markets are providing.”
But some professionals, like the ones at Rockingstone Advisors, a wealth management firm that manages separate accounts for high-net-worth clients, felt they had the answers to those questions: overhaul the portfolio. Rockingstone, based in Larchmont, N.Y., slashed its European equity positions, holding on to just one stock, the AerCap Holdings [AER] the Dutch aircraft leasing company. Emerging markets positions, which used to account for 15% of its clients’ holdings, were also dumped. But it did hold on to emerging market government bonds from markets like Chile and Vietnam. It kept long positions on large-cap technology companies like Apple [AAPL] and Intel [INTC], said Brandt Sakakeeny, the firm’s managing partner.
The market was disappointed with the $1 trillion debt bailout, and felt that Greece should have been allowed to default and leave the Euro, Sakakeeny said. But Germany’s unilateral ban on naked short selling of securities two weeks later really undermined the market’s confidence in European leadership during the crisis. In that practice, a trader sells assets he or she does not own hoping to buy them back cheaper at a later date.
“I confess, we were on the long side of this,” said Sakakeeny. “We thought the initial European response would have been sufficient, but clearly it was not.”
May 21, 2010
The financial planners at Seattle-based Moss Adams Wealth Advisors knew how to respond to the ongoing European sovereign debt crisis, which included the punishing market dip on Thursday. Largely, they did nothing, and that was alright with their clients.
There was no dumping of equities across the board. They did not pull up stakes and hunker down in cash positions. “We don’t change our allocations based on the markets dropping or increasing,” said Sheryl Rowling, a San Diego-based partner at Moss Adams Wealth Advisors.
The company generally takes a passive approach to investing, and uses institutional mutual funds for their low costs to investors. The firm does believe in using talented managers when the markets are less efficient, Rowling said, but there was no overwhelming sense that clients were clamoring for change.
After the so-called flash crash on May 6, and leading up to the $1 trillion debt bailout extended to Greece, Moss Adams emailed letters to its clients assuring them that such market upheavals happen, and that they should not react by changing their positions. “Not surprisingly, we got zero phone calls and emails expressing concerns,” Rowling said. “They understand that the market will be volatile, and they understand that what they have is a long-term strategy to meet goals in the long run.”
Certainly, the markets have given advisors and clients enough to spur them to action. The MSCI EAFE Index, a benchmark used by many international mutual funds, was down 13% through Wednesday night. Negative currency exchanges made matters worse, says Alec Young, an international equity strategist at Standard & Poor’s. On Monday, the Euro was down 20.3% against the dollar, and by Wednesday had hit a four-year low below $1.22. Early Friday, the Euro had recovered briefly against the dollar.
“That is more currency risk than clients are used to taking,” Young said. S&P, which lowered its recommendation on international stocks from overweight to marketweight, now says clients should hold back on making new investment decisions. “We are not recommending initiating any new positions.”
Further upstream, executives at asset management firm PIMCO, based in Newport Beach, Calif., say independent advisors on a whole are not shifting their portfolios around dramatically. Instead, they are making changes on the margins. They are hedging for inflation by picking up Treasury Inflation-Protected Securities. To ensure that clients will have money on hand for short-and longer-term needs, they are buying staggered durations of money markets, Doug Ongaro, a managing director at PIMCO, said in a phone call. Ongaro is head of its registered investment advisor channel and a member of the management team for the firm’s global wealth management group. Aside from that, advisors are mainly asking a lot of questions about what their appropriate allocations should be. “They have strategic allocations and methodologies that they stick with,” Ongaro said. “They are trying to be smart about what those allocations mean, and they are trying to be more flexible, in terms of what the markets are providing.”
But some professionals, like the ones at Rockingstone Advisors, a wealth management firm that manages separate accounts for high-net-worth clients, felt they had the answers to those questions: overhaul the portfolio. Rockingstone, based in Larchmont, N.Y., slashed its European equity positions, holding on to just one stock, the AerCap Holdings [AER] the Dutch aircraft leasing company. Emerging markets positions, which used to account for 15% of its clients’ holdings, were also dumped. But it did hold on to emerging market government bonds from markets like Chile and Vietnam. It kept long positions on large-cap technology companies like Apple [AAPL] and Intel [INTC], said Brandt Sakakeeny, the firm’s managing partner.
The market was disappointed with the $1 trillion debt bailout, and felt that Greece should have been allowed to default and leave the Euro, Sakakeeny said. But Germany’s unilateral ban on naked short selling of securities two weeks later really undermined the market’s confidence in European leadership during the crisis. In that practice, a trader sells assets he or she does not own hoping to buy them back cheaper at a later date.
“I confess, we were on the long side of this,” said Sakakeeny. “We thought the initial European response would have been sufficient, but clearly it was not.”
Thursday, May 20, 2010
Hiring Children to Work in the Family Business can Generate Tax Savings
When times were better, many college students looking for summer employment and graduates looking for permanent jobs thought of working for the family business only as a last resort. In today's tough job market, however, the family business may be the only place for some kids to find work. As this Practice Alert points out, employing a child may generate tax-savings regardless of how the family business is organized. Although the focus is on seasonal or part-time employment, the rules in the article also apply if the child works for the family business full-time.
Income shifting. Regardless of how a business is organized, its owners may be able to turn some of their high-taxed income into tax-free or low-taxed income by employing their children. The work done by the children must be legitimate, and the amount that the enterprise pays them must be reasonable for the wages to be deductible.
RIA illustration: A business person in the 33% tax bracket for 2010 hires her 17-year-old son to help with office work full-time during the summer and part-time into the fall. He earns $5,700 during the year (and doesn't have earnings from other sources). If that $5,700 otherwise would be paid to the business person, she saves $1,881 (33% of $5,700) in income taxes at no tax cost to her son, who can use his $5,700 standard deduction for 2010 to completely shelter his earnings.
Family taxes are cut even if the child's earnings exceed his or her standard deduction. That's because the unsheltered earnings will be taxed to the child beginning at a rate of 10%, instead of being taxed at the parent's higher rate.
Kiddie tax implications. The kiddie tax applies to the child if he or she does not file a joint return for the tax year and (1) hasn't reached age 18 before the close of the tax year or, (2) his or her earned income doesn't exceed one-half of his support and the child is age 18 or is a full time student age 19-23. (Code Sec. 1(g)(2)1). Thus, employing a child age 18 or a full-time student age 19-23 could cause his or her earned income to exceed more than half of his or her support. This, in turn, could help to avoid the kiddie tax on the child's unearned income (there is no earned income escape hatch from the kiddie tax for children under age 18).
Even if the kiddie tax applies, it only causes a child's investment income in excess of $1,900 (for 2010) to be taxed at the parent's marginal rate. It has no impact, however, on the child's wages and other earned income, which can be sheltered by the child's standard deduction.
Retirement plan savings. Additional savings are possible if the child is paid more (or works part-time past the summer), and deposits the extra earnings into a traditional IRA. For 2010, the child can make a tax-deductible contribution of up to $5,000 to his or her own IRA. The business also may be able to provide the child with retirement plan benefits, depending on the type of plan it uses and its terms, the child's age, and the number of hours worked.
Tax savings via education credits. Additional intra-family tax savings in the form of education credits may be available.
For 2010, taxpayers may claim an American opportunity tax credit (AOTC)/Hope scholarship credit equal to 100% of up to $2,000 of qualified higher-education tuition and related expenses plus 25% of the next $2,000 of expenses paid for education furnished to an eligible student in an academic period. Thus, the maximum AOTC) Hope scholarship credit is $2,500 a year for each eligible student. (Code Sec. 25A(a)(1), Code Sec. 25A(i)(1))
The AOTC/Hope credit may be elected for a student's expenses for 4 tax years, and only for students who have not completed the first 4 years of post-secondary education as of the beginning of the tax year. (Code Sec. 25A(b)(2), Code Sec. 25A(i)(2))
Subject to an exception, 40% of a taxpayer's otherwise allowable AOTC/Hope credit for 2010 is refundable. No portion of the credit is refundable if the taxpayer claiming the credit is a child subject to the kiddie tax under Code Sec. 1(g) or a resident of a U.S. possessions (who instead claim the credit where they reside). (Code Sec. 25A(i)(6))
Taxpayers may elect a Lifetime Learning credit equal to 20% of up to $10,000 of qualified tuition and related expenses paid during the tax year. The maximum credit for a tax year is $2,000, regardless of the number of students. (Code Sec. 25A(a)(2), Code Sec. 25A(c)(1)) For 2010, the credit is phased out ratably for taxpayers with modified AGI from $50,000 to $60,000 ($100,000 to $120,000 for marrieds filing jointly).
Where a parent pays the college education expenses of a child whom he claims as a dependent, only the parent may claim the education credits (if otherwise eligible). However, if a parent is eligible to but does not claim a student as a dependent, the student may claim the education credit for qualified expenses paid by him or the parent. (Reg. § 1.25A-1(f)(2), Ex. 2; IRS Publication 970, 2009, pg. 15)
RIA recommendation: It may pay for a parent not to claim the student as a dependent if (1) the parent can't claim education credits because of high modified AGI, and (2) the student pays or is deemed to pay the expense and has sufficient tax liability (e.g., from summer or part-time employment) to claim the credit.
RIA illustration: Mr. and Mrs. Green have AGI of $250,000 and are in the 33% bracket. For 2010, claiming their college-freshman son as a dependent would save $1,204.50 in taxes (33% of $3,650 dependency exemption for the son). The Greens spend $24,000 on the son's AOTC/Hope-credit-eligible qualified tuition, and the son has $10,000 of taxable income from his salary working for the family business. The Greens can't claim an education credit for their child because of their high income and would be better off not claiming their son as a dependent. This way, the son may completely eliminate his $1,081.25 tax liability (10% of $8,375 taxable income, plus 15% of the $1,625 balance). He also may claim a refund for another $1,000 of the AOTC/Hope credit (40% of $2,500), so the total credit (and total savings to the child, is $2,081.25, versus the $1,204.50 the Greens would save if they claimed their son as a dependent.
RIA caution: If a parent is eligible to claim child as a dependent but doesn't, the child still cannot claim an exemption for himself.
Income tax withholding. Regardless of how the family business is organized, it probably will have to withhold federal income taxes on the child's wages. Usually, an employee who had no federal income tax liability for the prior year, and expects to have none for the current year, can claim exempt status. However, exemption from withholding can't be claimed if (1) the employee's income exceeds $750 and includes more than $250 of unearned income (such as dividends), and (2) the employee may be claimed as a dependent on someone else's return (whether or not he actually is claimed). (Instructions to Form W-4 for 2010) Keep in mind that the child probably will get a refund for part or all of the withheld tax when he or she files a return for the year.
FICA and FUTA. Employment for FICA tax purposes doesn't include services performed by a child under the age of 18 while employed by a parent. (Code Sec. 3121(b)(3)(A)) This can generate some savings for a parent who runs an unincorporated business. For example, let's say a sole proprietor who usually takes $120,000 of earnings from the business pays $4,750 to her 17-year-old child in 2010. The sole proprietor's self-employment income would be reduced by $4,750, saving her $137.75 (the 2.9% HI portion of the self employment tax she would have paid on the $4,750 shifted to her child). This doesn't take into account a sole proprietor's income tax deduction for one-half of his or her own social security taxes. That's on top of the $363.37 (.0765 × $4,750) in employee FICA that the child saves by working for Mom instead of someone else. A similar but more liberal exemption applies for FUTA, which exempts earnings paid to a child under age 21 while employed by his or her parent. The FICA and FUTA exemptions also apply if a child is employed by a partnership consisting solely of his parents.
However, there is no FICA or FUTA exemption for employing a child in an incorporated business or in a partnership that includes non-parent partners. The children are subject to the same rules that apply to all other employees.
RIA caution: The Hiring Incentives to Restore Employment Act (HIRE Act, P.L. 111-147) carried two valuable incentives for employers that boost payroll this year: a payroll tax holiday for employers that hire unemployed workers; and an up-to-$1,000 tax credit for keeping such new hires on the payroll for at least one year. Neither of these tax breaks is available for hiring a child (see Federal Taxes Weekly Alert 05/06/2010).
Source: Federal Tax Updates on Checkpoint Newsstand tab 5/20/2010
Income shifting. Regardless of how a business is organized, its owners may be able to turn some of their high-taxed income into tax-free or low-taxed income by employing their children. The work done by the children must be legitimate, and the amount that the enterprise pays them must be reasonable for the wages to be deductible.
RIA illustration: A business person in the 33% tax bracket for 2010 hires her 17-year-old son to help with office work full-time during the summer and part-time into the fall. He earns $5,700 during the year (and doesn't have earnings from other sources). If that $5,700 otherwise would be paid to the business person, she saves $1,881 (33% of $5,700) in income taxes at no tax cost to her son, who can use his $5,700 standard deduction for 2010 to completely shelter his earnings.
Family taxes are cut even if the child's earnings exceed his or her standard deduction. That's because the unsheltered earnings will be taxed to the child beginning at a rate of 10%, instead of being taxed at the parent's higher rate.
Kiddie tax implications. The kiddie tax applies to the child if he or she does not file a joint return for the tax year and (1) hasn't reached age 18 before the close of the tax year or, (2) his or her earned income doesn't exceed one-half of his support and the child is age 18 or is a full time student age 19-23. (Code Sec. 1(g)(2)1). Thus, employing a child age 18 or a full-time student age 19-23 could cause his or her earned income to exceed more than half of his or her support. This, in turn, could help to avoid the kiddie tax on the child's unearned income (there is no earned income escape hatch from the kiddie tax for children under age 18).
Even if the kiddie tax applies, it only causes a child's investment income in excess of $1,900 (for 2010) to be taxed at the parent's marginal rate. It has no impact, however, on the child's wages and other earned income, which can be sheltered by the child's standard deduction.
Retirement plan savings. Additional savings are possible if the child is paid more (or works part-time past the summer), and deposits the extra earnings into a traditional IRA. For 2010, the child can make a tax-deductible contribution of up to $5,000 to his or her own IRA. The business also may be able to provide the child with retirement plan benefits, depending on the type of plan it uses and its terms, the child's age, and the number of hours worked.
Tax savings via education credits. Additional intra-family tax savings in the form of education credits may be available.
For 2010, taxpayers may claim an American opportunity tax credit (AOTC)/Hope scholarship credit equal to 100% of up to $2,000 of qualified higher-education tuition and related expenses plus 25% of the next $2,000 of expenses paid for education furnished to an eligible student in an academic period. Thus, the maximum AOTC) Hope scholarship credit is $2,500 a year for each eligible student. (Code Sec. 25A(a)(1), Code Sec. 25A(i)(1))
The AOTC/Hope credit may be elected for a student's expenses for 4 tax years, and only for students who have not completed the first 4 years of post-secondary education as of the beginning of the tax year. (Code Sec. 25A(b)(2), Code Sec. 25A(i)(2))
Subject to an exception, 40% of a taxpayer's otherwise allowable AOTC/Hope credit for 2010 is refundable. No portion of the credit is refundable if the taxpayer claiming the credit is a child subject to the kiddie tax under Code Sec. 1(g) or a resident of a U.S. possessions (who instead claim the credit where they reside). (Code Sec. 25A(i)(6))
Taxpayers may elect a Lifetime Learning credit equal to 20% of up to $10,000 of qualified tuition and related expenses paid during the tax year. The maximum credit for a tax year is $2,000, regardless of the number of students. (Code Sec. 25A(a)(2), Code Sec. 25A(c)(1)) For 2010, the credit is phased out ratably for taxpayers with modified AGI from $50,000 to $60,000 ($100,000 to $120,000 for marrieds filing jointly).
Where a parent pays the college education expenses of a child whom he claims as a dependent, only the parent may claim the education credits (if otherwise eligible). However, if a parent is eligible to but does not claim a student as a dependent, the student may claim the education credit for qualified expenses paid by him or the parent. (Reg. § 1.25A-1(f)(2), Ex. 2; IRS Publication 970, 2009, pg. 15)
RIA recommendation: It may pay for a parent not to claim the student as a dependent if (1) the parent can't claim education credits because of high modified AGI, and (2) the student pays or is deemed to pay the expense and has sufficient tax liability (e.g., from summer or part-time employment) to claim the credit.
RIA illustration: Mr. and Mrs. Green have AGI of $250,000 and are in the 33% bracket. For 2010, claiming their college-freshman son as a dependent would save $1,204.50 in taxes (33% of $3,650 dependency exemption for the son). The Greens spend $24,000 on the son's AOTC/Hope-credit-eligible qualified tuition, and the son has $10,000 of taxable income from his salary working for the family business. The Greens can't claim an education credit for their child because of their high income and would be better off not claiming their son as a dependent. This way, the son may completely eliminate his $1,081.25 tax liability (10% of $8,375 taxable income, plus 15% of the $1,625 balance). He also may claim a refund for another $1,000 of the AOTC/Hope credit (40% of $2,500), so the total credit (and total savings to the child, is $2,081.25, versus the $1,204.50 the Greens would save if they claimed their son as a dependent.
RIA caution: If a parent is eligible to claim child as a dependent but doesn't, the child still cannot claim an exemption for himself.
Income tax withholding. Regardless of how the family business is organized, it probably will have to withhold federal income taxes on the child's wages. Usually, an employee who had no federal income tax liability for the prior year, and expects to have none for the current year, can claim exempt status. However, exemption from withholding can't be claimed if (1) the employee's income exceeds $750 and includes more than $250 of unearned income (such as dividends), and (2) the employee may be claimed as a dependent on someone else's return (whether or not he actually is claimed). (Instructions to Form W-4 for 2010) Keep in mind that the child probably will get a refund for part or all of the withheld tax when he or she files a return for the year.
FICA and FUTA. Employment for FICA tax purposes doesn't include services performed by a child under the age of 18 while employed by a parent. (Code Sec. 3121(b)(3)(A)) This can generate some savings for a parent who runs an unincorporated business. For example, let's say a sole proprietor who usually takes $120,000 of earnings from the business pays $4,750 to her 17-year-old child in 2010. The sole proprietor's self-employment income would be reduced by $4,750, saving her $137.75 (the 2.9% HI portion of the self employment tax she would have paid on the $4,750 shifted to her child). This doesn't take into account a sole proprietor's income tax deduction for one-half of his or her own social security taxes. That's on top of the $363.37 (.0765 × $4,750) in employee FICA that the child saves by working for Mom instead of someone else. A similar but more liberal exemption applies for FUTA, which exempts earnings paid to a child under age 21 while employed by his or her parent. The FICA and FUTA exemptions also apply if a child is employed by a partnership consisting solely of his parents.
However, there is no FICA or FUTA exemption for employing a child in an incorporated business or in a partnership that includes non-parent partners. The children are subject to the same rules that apply to all other employees.
RIA caution: The Hiring Incentives to Restore Employment Act (HIRE Act, P.L. 111-147) carried two valuable incentives for employers that boost payroll this year: a payroll tax holiday for employers that hire unemployed workers; and an up-to-$1,000 tax credit for keeping such new hires on the payroll for at least one year. Neither of these tax breaks is available for hiring a child (see Federal Taxes Weekly Alert 05/06/2010).
Source: Federal Tax Updates on Checkpoint Newsstand tab 5/20/2010
Monday, May 17, 2010
Success Through Goal Setting
By Brian Tracy
Becoming an expert at goal setting and goal achieving is something that you absolutely must do if you wish to fulfill your potential as a human being. Goals enable you to do the work you want to do, to live where you want to live, to be with the people you enjoy, and to become the kind of person you want to be.
Yet, according to the best research, less than 3 percent of Americans have written goals, and less than 1 percent review and rewrite their goals on a regular basis.
Why do so few people set goals? I think there are five basic reasons:
1. They are simply not serious.
Whenever I speak with a man or woman who has achieved something remarkable, I learn that the achievement occurred after that person decided to "get serious." In other words, until you become completely determined about your goals, nothing really happens.
2. They don't understand the importance of goals.
Young men and women who begin setting goals very early in life invariably come from families in which the importance of goals is emphasized.
3. They don't know how to do it.
One of the greatest tragedies of our educational system is that you can receive 15 to 18 years of education and never once receive a single hour of instruction on how to set goals.
4. Fear of rejection. The fear of rejection is caused by destructive criticism in early childhood and is manifested, in adulthood, in the fear of being criticized by others. Many people hold back on setting worthwhile goals because they have found that every time they do set a goal, somebody steps up and tells them that they can't achieve it or that they will lose their money or waste their time.
5. Fear of failure -- and this may be the most important reason of all.
People don't set goals because they are afraid they might fail. In fact, the fear of failure is probably the greatest single obstacle to success in adult life. It can hold you back more than any other psychological barrier.
If you can overcome all of these obstacles and set well-defined goals, it will enable you to channel your efforts and focus your energy toward something that's important to you. Goal setting gives you a target to aim at and enables you to develop the self-discipline to continue working toward your target rather than becoming distracted and going off in other directions.
Let me share with you five keys that will help you do that. Each of these keys starts with one of the letters in the word "goals." Whenever you find yourself getting off the track, simply repeat the word "goals," and think about how each letter stands for a key that just might apply to your current situation.
The first letter is G, and it stands for "Get to it."
Sometimes, the only difference between a successful person and a failure is that the successful person has the courage to get started, to do something, to begin moving toward the accomplishment of a specific goal.
The second letter, O, stands for "Opportunity."
Successful people do not wait for opportunities to turn their goals into reality. They make their opportunities, because they are perfectly clear about the kind of life they wish to create. Once you have taken the time to decide exactly what you want, you will experience an endless flow of opportunities that will help move you in that direction.
The letter A stands for "Ability."
Many people hesitate to set high, challenging goals because they lack the ability to turn those goals into reality. But remember that we all lacked knowledge and experience when we started out in our careers or fields of expertise. Since you gain the ability necessary for high achievement through knowledge and experience, if you increase the speed at which you acquire both of those, you increase the speed at which you move ahead.
The letter L stands for "Leadership."
Leadership is simply the ability to get results. And you begin to get results when you accept full responsibility for yourself, for your job, and for the outputs required in your position. You demonstrate leadership when you refuse to make excuses or blame anyone or anything for the problems you are having. The acceptance of the responsibility of leadership enables you to move ahead and take action.
The final letter, S, stands for "Stay with it."
This is the resolution to persist in the face of adversity until you succeed. Between you and every goal that you wish to achieve, there is a series of obstacles. The bigger the goal, the bigger the obstacles. Your decision to be, have, and do something out of the ordinary entails facing difficulties and challenges that are out of the ordinary as well. Sometimes, your greatest asset is simply your ability to stay with it longer than anyone else.
When you look around you, you will see that all achievement is the triumph of persistence. You will see men and women everywhere who are struggling with and overcoming adversity in order to accomplish something that is important to them. And so can you.
G-O-A-L-S. That's what you have to remember. And "G" is the first thing: "Get to it!"
Becoming an expert at goal setting and goal achieving is something that you absolutely must do if you wish to fulfill your potential as a human being. Goals enable you to do the work you want to do, to live where you want to live, to be with the people you enjoy, and to become the kind of person you want to be.
Yet, according to the best research, less than 3 percent of Americans have written goals, and less than 1 percent review and rewrite their goals on a regular basis.
Why do so few people set goals? I think there are five basic reasons:
1. They are simply not serious.
Whenever I speak with a man or woman who has achieved something remarkable, I learn that the achievement occurred after that person decided to "get serious." In other words, until you become completely determined about your goals, nothing really happens.
2. They don't understand the importance of goals.
Young men and women who begin setting goals very early in life invariably come from families in which the importance of goals is emphasized.
3. They don't know how to do it.
One of the greatest tragedies of our educational system is that you can receive 15 to 18 years of education and never once receive a single hour of instruction on how to set goals.
4. Fear of rejection. The fear of rejection is caused by destructive criticism in early childhood and is manifested, in adulthood, in the fear of being criticized by others. Many people hold back on setting worthwhile goals because they have found that every time they do set a goal, somebody steps up and tells them that they can't achieve it or that they will lose their money or waste their time.
5. Fear of failure -- and this may be the most important reason of all.
People don't set goals because they are afraid they might fail. In fact, the fear of failure is probably the greatest single obstacle to success in adult life. It can hold you back more than any other psychological barrier.
If you can overcome all of these obstacles and set well-defined goals, it will enable you to channel your efforts and focus your energy toward something that's important to you. Goal setting gives you a target to aim at and enables you to develop the self-discipline to continue working toward your target rather than becoming distracted and going off in other directions.
Let me share with you five keys that will help you do that. Each of these keys starts with one of the letters in the word "goals." Whenever you find yourself getting off the track, simply repeat the word "goals," and think about how each letter stands for a key that just might apply to your current situation.
The first letter is G, and it stands for "Get to it."
Sometimes, the only difference between a successful person and a failure is that the successful person has the courage to get started, to do something, to begin moving toward the accomplishment of a specific goal.
The second letter, O, stands for "Opportunity."
Successful people do not wait for opportunities to turn their goals into reality. They make their opportunities, because they are perfectly clear about the kind of life they wish to create. Once you have taken the time to decide exactly what you want, you will experience an endless flow of opportunities that will help move you in that direction.
The letter A stands for "Ability."
Many people hesitate to set high, challenging goals because they lack the ability to turn those goals into reality. But remember that we all lacked knowledge and experience when we started out in our careers or fields of expertise. Since you gain the ability necessary for high achievement through knowledge and experience, if you increase the speed at which you acquire both of those, you increase the speed at which you move ahead.
The letter L stands for "Leadership."
Leadership is simply the ability to get results. And you begin to get results when you accept full responsibility for yourself, for your job, and for the outputs required in your position. You demonstrate leadership when you refuse to make excuses or blame anyone or anything for the problems you are having. The acceptance of the responsibility of leadership enables you to move ahead and take action.
The final letter, S, stands for "Stay with it."
This is the resolution to persist in the face of adversity until you succeed. Between you and every goal that you wish to achieve, there is a series of obstacles. The bigger the goal, the bigger the obstacles. Your decision to be, have, and do something out of the ordinary entails facing difficulties and challenges that are out of the ordinary as well. Sometimes, your greatest asset is simply your ability to stay with it longer than anyone else.
When you look around you, you will see that all achievement is the triumph of persistence. You will see men and women everywhere who are struggling with and overcoming adversity in order to accomplish something that is important to them. And so can you.
G-O-A-L-S. That's what you have to remember. And "G" is the first thing: "Get to it!"
Thursday, May 13, 2010
Join Me in Being Outraged
As oil continues to pour into the Gulf of Mexico we are killing an entire ecosystem. Since April 20th the day of the explosion, I have avoided looking at the photographs. This has been my way of insulating myself from the horrors we as human beings are perpetrating on the plant and animal life in the Gulf of Mexico.
I went onto Yahoo today to find the latest oil spill news. In the top stories of the day only one pertained to the spill, it was about the Congressional hearing and holding oil executives accountable. As I searched further, ads from litigation attorney’s popped up asking if I was damaged in the oil spill. There was more news about celebrity homes, clothes, babies and cars than the Gulf story. Where are our priorities?
I asked a friend recently, “If the incident in the Gulf of Mexico is not sufficient to create a national outcry for alternative energy, what does it take?” His response was, “Personal hardship.”
As I reflect on this statement, I know he is correct. When the price of gasoline rises, it makes headline news. When we destroy an ecosystem, we turn our attention elsewhere.
Over the last few years I have altered my life substantially to reduce my carbon footprint. Most of those changes seemed awkward at first, but over time they have become part of the flow of life. I have reaped priceless rewards, in terms of my physical, mental and emotional health, in the connection with like-minded community sharing a common vision of a life lived in harmony with the natural world, and in my heightened appreciation and respect for the natural world.
What most of us do not realize is the personal power we each have to make a difference. We cannot change our lives overnight to be oil independent. Yet, we can make simple changes that add up.
Tonight, I will walk out to my raised beds and pick greens for my salad. The average item on a grocery store shelf has traveled 1500 miles to get there. Add to that the average 10 miles a person drives to get to the store, and my simple act of planting a few lettuce seeds, will save 1510 miles. Not bad for a little lettuce seed.
Don’t like to garden? Join a local CSA (Community Supported Agriculture) or buy from your local farmers market.
What is so incredible about focusing on sustainable living is that it produces so many other unintended positive outcomes. For example, buying local also means the money stays in the local economy. Eating local means your food has a higher nutritional content, so your physical health improves. As your physical health improves, your mental acuity increases. As you slow down your life you spend more time in community, creating heart connection with others, enhancing your emotional health. There are benefits for your pocketbook as well, as most things that reduce carbon footprint save you money.
Here are some simple ways you can make a difference in your carbon footprint today:
Drive a smaller car or hybrid. Car pool or take public transit to work or school. If you live close enough to work or school try biking. It lessens your dependence on oil and is a nice workout.
Unplug your appliances when not in use, your TV, microwave, electric blanket, etc use electricity even if they are not on. Unplug, be green and save some money.
Turn down your hot water heater a few degrees.
Get a clothes line. Hanging your clothes out can save you as much as 6% on your electric bill.
Plant your favorite vegetable. Front yard, back yard, etc, pick a place and turn it into a place of bounty in your yard.
Grow your own herbs. Most are perennial and will come back each year. They produce large bounties and are easily dried by simply hanging them upside down in a well ventilated area.
Join us the 3rd Sunday of any month for our monthly pot luck and farm tour. You’ll get even more ideas. If you live out of town, we have 2 guest rooms ready and waiting. Learn more at www.RedSunflowerFarm.com
Start or join a transition movement in your community, www.transitionus.org
Green your portfolio, there are many green screened investments available. Learn more at www.SocialInvest.org , call Andy or I at 859-331-7755 or e mail me at Mackey@CultivatingProsperity.com
What is happening in the Gulf of Mexico isn’t about someone else, somewhere else, it is about you and me. Let others do the finger pointing. Use your energy for personal change. Join me in being outraged, step up and make a difference, in your own life and in the future generations to come.
I went onto Yahoo today to find the latest oil spill news. In the top stories of the day only one pertained to the spill, it was about the Congressional hearing and holding oil executives accountable. As I searched further, ads from litigation attorney’s popped up asking if I was damaged in the oil spill. There was more news about celebrity homes, clothes, babies and cars than the Gulf story. Where are our priorities?
I asked a friend recently, “If the incident in the Gulf of Mexico is not sufficient to create a national outcry for alternative energy, what does it take?” His response was, “Personal hardship.”
As I reflect on this statement, I know he is correct. When the price of gasoline rises, it makes headline news. When we destroy an ecosystem, we turn our attention elsewhere.
Over the last few years I have altered my life substantially to reduce my carbon footprint. Most of those changes seemed awkward at first, but over time they have become part of the flow of life. I have reaped priceless rewards, in terms of my physical, mental and emotional health, in the connection with like-minded community sharing a common vision of a life lived in harmony with the natural world, and in my heightened appreciation and respect for the natural world.
What most of us do not realize is the personal power we each have to make a difference. We cannot change our lives overnight to be oil independent. Yet, we can make simple changes that add up.
Tonight, I will walk out to my raised beds and pick greens for my salad. The average item on a grocery store shelf has traveled 1500 miles to get there. Add to that the average 10 miles a person drives to get to the store, and my simple act of planting a few lettuce seeds, will save 1510 miles. Not bad for a little lettuce seed.
Don’t like to garden? Join a local CSA (Community Supported Agriculture) or buy from your local farmers market.
What is so incredible about focusing on sustainable living is that it produces so many other unintended positive outcomes. For example, buying local also means the money stays in the local economy. Eating local means your food has a higher nutritional content, so your physical health improves. As your physical health improves, your mental acuity increases. As you slow down your life you spend more time in community, creating heart connection with others, enhancing your emotional health. There are benefits for your pocketbook as well, as most things that reduce carbon footprint save you money.
Here are some simple ways you can make a difference in your carbon footprint today:
Drive a smaller car or hybrid. Car pool or take public transit to work or school. If you live close enough to work or school try biking. It lessens your dependence on oil and is a nice workout.
Unplug your appliances when not in use, your TV, microwave, electric blanket, etc use electricity even if they are not on. Unplug, be green and save some money.
Turn down your hot water heater a few degrees.
Get a clothes line. Hanging your clothes out can save you as much as 6% on your electric bill.
Plant your favorite vegetable. Front yard, back yard, etc, pick a place and turn it into a place of bounty in your yard.
Grow your own herbs. Most are perennial and will come back each year. They produce large bounties and are easily dried by simply hanging them upside down in a well ventilated area.
Join us the 3rd Sunday of any month for our monthly pot luck and farm tour. You’ll get even more ideas. If you live out of town, we have 2 guest rooms ready and waiting. Learn more at www.RedSunflowerFarm.com
Start or join a transition movement in your community, www.transitionus.org
Green your portfolio, there are many green screened investments available. Learn more at www.SocialInvest.org , call Andy or I at 859-331-7755 or e mail me at Mackey@CultivatingProsperity.com
What is happening in the Gulf of Mexico isn’t about someone else, somewhere else, it is about you and me. Let others do the finger pointing. Use your energy for personal change. Join me in being outraged, step up and make a difference, in your own life and in the future generations to come.
Monday, May 3, 2010
Do you get a payroll tax holiday and retention credit for hiring your spouse?
Practice Alert
The Hiring Incentives to Restore Employment Act (HIRE Act, P.L. 111-147) carried two valuable incentives for employers that boost payroll this year:
· a payroll tax holiday for employers that hire unemployed workers;
· and an up-to-$1,000 tax credit for keeping such new hires on the payroll for at least one year.
Practitioners have raised the question as to whether these tax breaks apply if a business person hires his or her formerly unemployed spouse. As this Practice Alert explains, the answer in many instances will be “yes.”
Background. Under Code Sec. 3111(d), as amended by HIRE Act Sec. 101(a), qualified employers are exempted from paying the employer 6.2% share of Social Security (i.e., OASDI) employment taxes on wages paid in 2010 to a newly hired qualified individual. This is an individual who:
1. begins employment with the employer after Feb. 3, 2010 and before Jan. 1, 2011;
2. certifies by signed affidavit, under penalties of perjury, that he or she hasn't been employed for more than 40 hours during the 60-day period ending on the date employment begins with the qualified employer;
3. does not replace another employee of the employer (unless that other employee left voluntarily or for cause); and
4. is not related to the qualified employer in a way that would disqualify the individual for the work opportunity tax credit (WOTC) under Code Sec. 51(i)(1). (Code Sec. 3111(d)(3))
The payroll tax relief applies only for wages paid with respect to employment beginning on Mar. 19, 2010 (the day after the HIRE Act was signed into law by the President) and ending on Dec. 31, 2010. The payroll tax holiday doesn't apply for wages paid during the first calendar quarter of 2010. Instead, the amount by which the qualified employer's OASDI tax for wages paid during the first calendar quarter of 2010 would have been reduced if the payroll tax holiday had been in effect for the first quarter is treated as a payment against the employer's OASDI tax for the second calendar quarter of 2010.
A qualified employer is any employer other than the
Popping the question. Does the payroll tax holiday apply if the taxpayer (e.g., a sole proprietor or someone operating a business as a corporation) hires a spouse as a bona fide employee? Although it's not clear that Congress intended this result, the answer is “yes,” assuming the conditions highlighted above are met.
Reasoning. Under condition (4), above, an individual cannot be an “individual described in Code Sec. 51(i)(1) (applied by substituting 'qualified employer' for 'taxpayer' each place it appears.” The fact is that while Code Sec. 51(i)(1) casts a very wide net in preventing related parties from qualifying, it does not include a spouse within its rule.
The portions of Code Sec. 51(i)(1) that are most likely to be relevant (i.e., situations other than those dealing with estates and trusts) are as follows (applied by substituting 'qualified employer' for 'taxpayer'):
· Under Code Sec. 51(i)(1)(A), an individual can't bear any of the relationships described in Code Sec. 152(d)(2)(A) through Code Sec. 152(d)(2)(G) to (1) the qualified employer, or, (2) if the qualified employer is a corporation, to an individual who owns, directly or indirectly, more than 50% in value of the outstanding stock of the corporation, or, (3) if the qualified employer is an entity other than a corporation, to any individual who owns, directly or indirectly, more than 50% of the capital and profits interests in the entity, (determined with the application of Code Sec. 267(c)).
· Under Code Sec. 51(i)(1)(C), an individual can't be a dependent (described in Code Sec. 152(d)(2)(H)) of the qualified employer, or, if the qualified employer is a corporation, of an individual described in Code Sec. 51(i)(1)(A).
Code Sec. 152(d)(2)(A) through Code Sec. 152(d)(2)(G) enumerate the taxpayer's children or their descendants, siblings or step-siblings, parents or a parent's ancestor, step-parents, nephews, nieces, uncles, or aunts, and in-laws. They don't mention a spouse. Also a person's spouse isn't his or her dependent, so Code Sec. 51(i)(1)(C) doesn't apply. So there's no rule in the Code barring the payroll tax holiday from being claimed for a person just because he or she is a spouse.
This conclusion is bolstered by IRS's recently issued Form W-11, Hiring Incentives to Restore Employment (HIRE) Act Employee Affidavit, which newly hired, but formerly unemployed, workers must sign (or its equivalent) in order for their new employers to treat the workers as qualified individuals (see Federal Taxes Weekly Alert 04/15/2010). The brief instructions to the Form essentially restate the Code Sec. 51(i)(1) restrictions and don't mention spouses. If IRS thought spouses shouldn't qualify for the payroll tax holiday, presumably it would have said so.
Retention credit applies, too. HIRE Act Sec. 103 also provides employers with an up-to-$1,000 tax credit for retaining qualified individuals, as defined for payroll tax holiday purposes. The workers must be employed by the employer for a period of not less than 52 consecutive weeks, and their wages for such employment during the last 26 weeks of the period must equal at least 80% of the wages for the first 26 weeks of the period. If a spouse is a qualified individual under the payroll tax holiday rules, and works for the requisite period of time, then the retention credit also should apply to him or her.
RIA caution: Depending on family relationships, there may be situations where a spouse will not qualify for either HIRE Act tax break. For example, if Dad owns 60% of a corporation, and Son who runs the company owns the 40% balance, then the corporation can't claim the payroll tax holiday or the retention credit if it hires Son's wife. In this situation, the wife is treated as “related” to a more than 50% owner of the qualified employer and therefore is ineligible under (Code Sec. 3111(d)(3)(D) and Code Sec. 51(i)(1)(A).
Source: Federal Tax Updates on Checkpoint Newsstand tab 5/3/2010
5 Most Important Money Lessons for Kids
1. Life isn’t about stuff. The most important lesson a child needs to learn to lead a healthy money life is that stuff isn’t the most important thing. A great way to teach this to your children is to lead by example, and have conversations with your kids about what their perceptions of rich and poor are. It’s sometimes shocking what comes out. Another way to instill this important principle is by giving gifts for birthdays & other special events that aren’t things but memories to make. A family play day at a park, or hosting a sleep over for friends.
2. Money is earned! Kids have a completely abstract concept of money. They need or want something and money appears to acquire whatever that something might be. Instead of just purchasing something for your child make them earn it. Everyday they make their bed, take out the trash, or put their toys away they earn money toward their new toy.
3. You can’t always get what you want. Instant gratification is not just a problem for children. Many adults have to deal with it too. This is why so many people end up with mountains of credit card debt. Instead of buying them a new video game when they see it in the store make them wait a week and see if they still really want it. Most of the time they have already forgotten about it.
4. Save for big ticket items. Too many adults rely on credit to buy a new big screen TV. If they want a new bike have them save for it. Get your child a savings account. ING has a free one online. See if they will start saving on their own, and as an extra incentive match what they save. Every month sit down and look at how much they have saved, how close they are to their goal and how much interest they have earned.
5. Have a rainy day fund. My mother always said, “keep a quarter in your pocket so you can call home.” This is obsolete now, but the idea is still important. This is a hard lesson to teach children since we want to make sure our children are taken care of. But next time the unexpected happens, the air conditioner breaks or the car needs repaired sit your children down and talk to them about how you financially deal with the unexpected.
By: Gracie Mohr
2. Money is earned! Kids have a completely abstract concept of money. They need or want something and money appears to acquire whatever that something might be. Instead of just purchasing something for your child make them earn it. Everyday they make their bed, take out the trash, or put their toys away they earn money toward their new toy.
3. You can’t always get what you want. Instant gratification is not just a problem for children. Many adults have to deal with it too. This is why so many people end up with mountains of credit card debt. Instead of buying them a new video game when they see it in the store make them wait a week and see if they still really want it. Most of the time they have already forgotten about it.
4. Save for big ticket items. Too many adults rely on credit to buy a new big screen TV. If they want a new bike have them save for it. Get your child a savings account. ING has a free one online. See if they will start saving on their own, and as an extra incentive match what they save. Every month sit down and look at how much they have saved, how close they are to their goal and how much interest they have earned.
5. Have a rainy day fund. My mother always said, “keep a quarter in your pocket so you can call home.” This is obsolete now, but the idea is still important. This is a hard lesson to teach children since we want to make sure our children are taken care of. But next time the unexpected happens, the air conditioner breaks or the car needs repaired sit your children down and talk to them about how you financially deal with the unexpected.
By: Gracie Mohr
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