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Five Easy Ways To Save On Your Taxes

As you agonize over your 2013 tax return and see the sting the new tax law is inflicting, here are some ways to reduce the bite. Some are retro-active to last year so there is still time to act.

Briefly, the “American Taxpayer Relief Act of 2012” effective for 2013 eliminates virtually all of the tax preferences of the Bush administration. It increases the top tax rate from 35% to 39.6% and overlays an additional .9% Medicare surcharge on incomes over $250,000 for married tax filers and $200,000 for singles. For high incomes, the new law also eliminates personal exemptions, phases out the benefits of itemized deductions such as interest, state income tax, and property taxes, imposes a Medicare surcharge tax of 3.8% on excess investment income and higher capital gains tax rates. Federal taxes, when combined with state income taxes (especially in high-tax states such Oregon and California), yield tax rates over 50%.

So what can you do?

If you have self-employed income such as consulting fees, you can open a Qualified Retirement Plan (“QRP”) with your broker by completing a few simple forms. A QRP is essentially a personal retirement plan that enables you to contribute up to 20% of the net profits from consulting or similar income up to a maximum of $51,000 for 2013. This is in addition to any 401(K) contributions that you may have from your regular job. You can still open an account now and make a contribution against 2013 taxes.

Second, if you have a new-high deductible health care plan you are now eligible for a Health Savings Account (“HSA”). An HSA is a separate account where you can contribute extra money to pay for medical costs that aren’t covered. If you are married, you can contribute up to $6,550 ($7,550 if over age 50) annually for 2014 and slightly less for 2013. The contributions are 100% tax deductible and there is no income limit. When you withdraw money for qualified medical expenses it is not taxed and you can carry over unused amounts in perpetuity. All income earned is tax free and you can even invest in mutual funds. This is a terrific benefit! You may want to look at your insurance needs and the combination of a high-deductive plan coupled with an HSA may be right for you. And like a QRP, you can still make tax deductible contributions now against your 2013 taxes.

Third, if you have children or young relatives and would like to give them a gift, I recommend setting up a college fund using your state’s 529 program. This is a fantastic way to fund college as income earned in the plan is tax free and qualified withdrawals are not taxed. In some states, such as Oregon, you can deduct the contributions against your state income taxes resulting in a nice benefit for doing a good thing.

Fourth is the tried and true use of tax-exempt interest income. This is one of the few items that passed thru the new law with minimal impact. It is even a better deal now with the new high tax rates and the very low rates on bank accounts and CDs. They normally take the form of city or state issued notes and bonds and the interest is excluded from your taxes so this may warrant a renewed look.

Last, I encourage you to review year-end brokerage statements and not rely solely on downloading the data directly into Turbo Tax. In my case I had several thousand dollars of “accrued interest” that required a manual adjustment; otherwise I would have paid tax on interest I did not earn.

I hope you find these useful with the usual disclaimer of reviewing your tax situation with a tax professional to fully understand all the issues.

Ray Link is a CPA and holds an MBA from the Wharton School. He is EVP/CFO of FEI Company (NASDAQ: FEIC), a world leader in nano-scale imaging for industry and science. He is also on the on the Board of Directors of Cascade Microtech (NASDAQ: CSCD) and nLight Photonics.

One Response to Five Easy Ways To Save On Your Taxes

  1. Scott says:

    Great additional benefits for added information Ray, while I miss the beauty of Portland, I don’t miss paying the taxes for it. These are some great ideas for me to look at further.

    Thanks,
    Scott
    One of the few conservative visitors

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Posted in Investing

Introducing the 2014 Bizzy Life Stock Picking Competition

Auggie gives the “thumbs up” to this year’s stock picking competition.

Financial Genius – Or Just Another Mexican Wrestling Fan?

Regular readers know that each year we sponsor a “Ten Best Stocks For the Year” contest, pitting stand-up comic Auggie Smith (who admittedly knows absolutely nothing about investments, and assumes that a broker is the guy that buys his weed in volume), against financial experts who have had years of training and experience at managing stock portfolios.

In our first contest two years ago, Auggie threw darts at the Wall Street Journal to build his stock portfolio. Not that Auggie has any Simian attributes – but we were testing the theory “could a dart throwing monkey pick better stocks than the experts?”

And the answer to that question?

Yes.

We tracked Auggie’s hypothetical $10,000 portfolio against Kiplinger’s Ten Best stocks for the year, and Auggie trounced the experts.

Last year Auggie took on Barron’s ten best stocks for the year, plus a diversified Vanguard fund. Instead of darts he fired a pellet gun at the financial pages while under the influence of a very earthy Pinot Noir - and once again, firmly destroyed the financial experts.  It wasn’t even close.

Coincidence?  Is Auggie some kind of financial savant?  Or is the stock market really just a crap shoot that goes where it wants to go, and really can’t be predicted, and the so-called financial experts just charge a lot as they throw their own darts?  Lets continue to try and answer these questions.

We are pleased to present our 2014 competition. This year, for some reason Auggie donned a bizarre and disturbing Mexican wrestling mask purchased in San Jose Del Cabo after downing a couple shots of high grade blanco tequila. He then had his lovely wife Julie blindfold him and spin him around until he was close to heaving, then she pointed him at the financial pages to put ink blots next to stocks.  As you can see from the photos, this was a highly innovative and scientific approach to financial management.  I like to call it “Auggie’s Parking Lot Picks”.   Not the kind of thing they would teach at Harvard Business School – but Auggie is a financial maverick.

So here are Auggie’s Ten Best Stock Picks for 2014:

  1. American Financial Group
  2. AmReit
  3. Allegheny Technologies
  4. Baltic Trading
  5. Walt Disney
  6. Manchester United
  7. Tapinator
  8. TCF Financial Corporation
  9. Xueda Education Corporation
  10. Grupe Aeropuerto

Hmmm, interesting choices.  He’s going a bit international this year.  I can’t say I am filled with optimism, but a year ago I would have guessed Barron’s had him beat.  This year we have a new competitor, InvestorPlace’s ten best picks. They queried experts from around the country, and chose these ten fine companies and funds:

  1. Tesla
  2. Proshares Short Emerging Markets
  3. Emerge Energy Services
  4. Fortegra Financial
  5. Financial Spider
  6. Banco Santander
  7. Vanguard Dividend Appreciation
  8. Citigroup
  9. Fleetcor
  10. MTN Group

Also interesting choices.  Banks and other companies that don’t really make anything but just repackage money, an innovative electric car company that has already had a big run….

It will be an interesting year.  Let the games begin!

 

 

 

 

 

 

 

 

2 Responses to Introducing the 2014 Bizzy Life Stock Picking Competition

  1. don says:

    this is great……..i follow it every year………great idea tim………..

  2. Robert Cook says:

    Tim – couple of things – really impatient for an update, and disappointed that a line of stock trader bb guns have still not found their way to market

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Posted in Investing

Bitcoins – Buyer Beware

It seems every time I pick up a magazine or watch a show on investing someone is touting Bitcoins. Even Congress and the White House have endorsed the benefits of an alternative currency system.

So what is a Bitcoin? It is an on-line digital currency supposedly created by a Japanese computer programmer under the pseudonym Satoshi Nakamoto (although no one has ever met this person). The idea of a Bitcoin is to replace government-issued currencies and the need to settle transactions through a central banking system. It is a virtual currency whose total issuance is controlled by a network of computers by a sophisticated algorithm. As opposed to a government that can continue to print money endlessly, thereby deflating its value, the network has a finite amount of coins or tokens that can be issued. The total supply of Bitcoins is theoretically limited to 21 million with approximately 11 million already issued.

So how did Bitcoins get created in the first place? To get a newly minted Bitcoin requires one to solve a complex equation whose answer is a 64 digit number. The people who attempt to solve this are known as “miners” as they are sort of mining for “gold” via an on-line network. Their reward for their work is currently 25 Bitcoins, but that amount will decrease over time and you will likely need a network of computers to be successful. The equation gets more and more complex over time with the amount of Bitcoins issued per year limited and decreasing each year with all issued by 2040. Of course you can buy a Bitcoin just like buying gold or common stock.

So what can I do with a Bitcoin? Bitcoins are becoming more widely accepted as a viable alternative to cash. You can actually buy goods and service by exchanging Bitcoins and a several networks have developed to exchange them. The underworld loves them as they do not have to launder a Bitcoin as they do with regular cash.

The value of Bitcoins, just like gold or shares of common stock, are determined by supply and demand. However the value of a Bitcoin is extremely volatile ranging from under $200 to over $1,300 in 2013 and now valued at around $750. On a daily basis the value often moves up or down by 10%. It often takes up to 50 minutes to process and settle a trade using Bitcoins.

So are Bitcoins safe and something I should own? In my opinion a strong NO to both. Unlike the good old US dollar, a Bitcoin is not backed by anything. It exists only in cyberspace in a network whose issuance is controlled by a complex algorithm written by an unknown person. While you may say that there is nothing backing the dollar, I beg to differ. There is an established government that for over 225 years has made good on its debts. While we are off the gold standard and there is no hard asset per se backing the dollar, the US government still owns vast holdings including about 30% of all the land in the country. There is NOTHING backing a Bitcoin. Some point to the controlled network making Bitcoins “tamper-proof” with a limited supply as benefits. However, the network supporting them was recently hacked causing a sharp drop in values and now I am seeing more and more articles on how to steal Bitcoins. I suspect this is simply a large scale Ponzi-style scheme developed in Russia or China and the developers are just waiting to flood the market with newly minted tokens. Supporters say that they are like gold but can be exchanged easier but they fail to point out the near 30% crash in gold prices in 2013 whose price was inflated by speculation. And unlike Bitcoins, gold is actually an industrial commodity that has some intrinsic value. A Bitcoin only has value if someone will pay more for it.

My advice is to sell off any Bitcoins you have and do not accept them in your business. If you are smart enough to be a miner – go ahead but don’t hold onto the tokens for too long.
As a student of history and finance this very much reminds me of the tulip mania in Holland in the 1600s and the dot-com bubble of the 1990s and both ended badly for investors.

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Posted in Investing

Auggie Wins Stockpicker of the Year!

Once again comedian Auggie Smith – using his proprietary “pellet gun” stock picking technique, has beat the experts! A year ago Auggie used a Crossman air rifle to fire ten pellets into the stock pages of the Wall Street Journal. We tracked these ten random stocks against the ten best stocks Barron’s recommended for 2013, and the Vanguard Growth Fund.

If you had invested ten thousand dollars with each of the experts (and Auggie) – here is how you would have fared:

Auggie’s portfolio is worth $14,869.

Barron’s portfolio is worth $12,922

And the Vanguard fund is worth $12,563

A huge, and somewhat stunning victory for Auggie and his rifle!  While four of Auggie’s picks lost value, he was buoyed by his position in Yelp, which over the last year has risen from around $18 a share to a high of $75!  Best Buy was also an unexpected winner, more than tripling in value.

So what can we learn from this?  Are stock pickers actually just scam artists that charge big fees for faux expertise?  Or is the stock market truly random and irrational?  Or perhaps Auggie and his rifle are guided by some divine power?

In any case, keep an eye out for our new 2014 competition that will start in a few days!  Merry Christmas!

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Posted in Investing

Stupid Fitbit

I used to have a pretty interesting, and I’d like to think, a well-balanced life….until October 11, 2013 I was fairly active, I liked to ride a bicycle now and again, I lifted weights, I went out with my wife and friends, and every now and again I’d just take a “mental health” day where I’d basically lay around and watch television, play my guitar and do some reading. I was a fairly happy cat until I got an e-mail back in September from my sister-in-law Michelle. She mentioned that she and several members of our family were purchasing “FitBit” devices to monitor how far we walked. The idea is that if you can keep track of your daily steps and post the numbers in cyberspace so that we could compete in the hope that we’d all walk more and hopefully reverse the aging process, become better looking and perhaps solve global warming by reducing our dependence upon fossil fuels. So I purchased my FitBit at a local sporting goods store on October 11, 2013….the day my life effectively ended.

I’ve been accused of being somewhat competitive and I’ve always regarded that as a positive attribute given that I earn my income trying to convince juries that my opponent is wrong. I’m competing all of the time and if I’m being honest, I really enjoy what I do. So it was not completely unexpected that once I started the Fitbit program that I would walk more. What I did not fully understand is that I’d become a prisoner to the rubber band from hell that I have on my wrist.

According to my weekly progress report I walked just over 63 miles last week and I didn’t really go anywhere. I am part of a group that includes an 82 year old woman, two CEO’s of multi-million dollar companies, three lawyers, a software engineer, a dating web-site developer, a manager of a heavy industrial water works supplier, a pain in the ass bank executive and a clothing buyer. Pretty good company, right? Then why do I view these fine people as enemies who must be crushed? You guessed it, the Fitbit!

I begin every day of my life with a three mile walk usually followed by a sauna where I’ve nearly passed out several times because walking in 128 degree heat is only good if you’re a camel. Since I live outside of Boston and its been unseasonably cold of late, I walk or run most mornings on a treadmill and no matter how hard I try to like it a treadmill is one of the dumbest inventions ever created. To cope with the mind numbing boredom I’ve pretty much erased all of my favorite IPod songs from my “workout” playlist in order to get better walking/running music so I find myself humming Lady Gaga or Rhianna songs all day. I do not like Lady Gaga or Rhianna and I’m not entirely sure why a song about a “Poker Face” was allowed to be made in the first place. Last week I met a fellow attorney for a drink after work and, just my luck, Rhianna’s” Only Girl in The World” was playing, without thinking about it I stood and started walking in place….if I didn’t pick up an additional 300 steps I would really think this is becoming a problem.

Early on in my quest to be the best walker I can be, and of course to crush the spirit of my “fitbit friends”, I walked the 7 ½ miles from my home to my office along some very heavily travelled roads and then back again at the end of the day. It is amazing the shit people throw out of their cars by the way. On the way home a client pulled up and offered a ride with a quizzical look on his face, “hey Mike…is that you? Do you need a ride?” As I politely declined the lift it occurred to me that a normal person might jump to the conclusion that I always arrive at when I see people I know walking along a four lane state road….”Drunk driving conviction”…..But I bagged nearly 40000 steps that day….take that Tim, Michelle and Christine (they are the persistent little buggers always biting at my heels as I walk the earth).

ugggghhh.  If I go shopping with my wife on weekends I tend to park in a different zip code from the store and I’ve had to master steering a fully loaded BJ’s Wholesale Club shopping cart with only my non FitBit hand so I can get credit for steps (they are recorded based upon the movement of your arm as you walk). Last week I nearly took down a display of industrial sized breakfast cereal due to a defective wheel. Each week the lawyers I work with and I walk a minimum of 2 ½ miles round trip to lunch every day and when we leave the Courthouse, which is exactly 345 steps from my desk, we intentionally walk “the long way” which is usually a 1200-1400 step walk in rain or biting cold. I’ve decided that it is far better to walk over to the Courthouse rather than call to speak with an attorney or clerk, I find myself running errands for just about everyone, two weeks ago I delivered a settlement check to a lawyer in a pouring rain because my steps were down that day. At the end of the day I usually cap it all off with a second jaunt on the treadmill, with the ever present goal of securing at least 20,000 steps per day. What the hell is wrong with me?

Two minutes ago my wife asked me if I wouldn’t mind walking to the market which is about a mile and a half from the house, I said yes despite the fact that is 28 degrees outside with a stiff breeze bringing the wind chill down to roughly 18 degrees.  When she asked me my first thought was not to say “what the f%$#’s wrong with you” it was “Gee, she really is a considerate woman”…So off I go, a brisk walk on the day following Thanksgiving to pick up a loaf of Tuscan style bread so that turkey leftovers can be enjoyed this evening. Hang on a moment, this ought to take no time at all…..OK so I’m back, good walk, the highway wasn’t crowded so crossing was a breeze….note to self….find one of those reflective vests that highway workers wear……and stop wearing paper thin running gloves….
So as I prepare for another week I can think of virtually nothing but how am I going to get my steps in tomorrow and whether my 82 year old mother-in-law will pull an all-nighter and surpass my weekly total. Don’t get me wrong, she’s a wonderful woman with a competitive streak a mile wide and when it comes to a Fitbit challenge, I don’t trust her as far as I can throw her. Stupid Fitbit.

7 Responses to Stupid Fitbit

  1. Scott says:

    Thanks for ruining the holidays. Gonna have to buy one of these things now so I can lose more weight. Guess I will put down the big mac and get a salad. : )

  2. ted says:

    I talked Joy into letting me buy one too!!!! can,t wait to see were i rank. if I can land somewhere between you and the 82 year old grandmother, i will be happy!!! see you on the road kid!!!! great article by the way!!

  3. Lori says:

    That is great!

  4. Bob says:

    Mike, I really enjoyed the article. You better make sure your mother in law has not attached the Fitbit to the ceiling fan!

  5. Bizzy Life Author Avatar Michelle says:

    I love it!! You can’t imagine the joy this brings me on so many levels. Did I mention I used to work for Michael?

  6. Mike says:

    Who did you work for? I recall you AND I working for that crazy little Italian lady who calls herself my mom…..at least you got paid…I was a veritable slave…..

  7. Margie says:

    love it…I needed a good laugh today, thank you!

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Posted in Man Cave