New Capital Gain Rates Effective 2001

There are new capital gains rates available for assets held for more than five years. The rules are different depending on what tax bracket the taxpayer is in.

For those in the 15% tax bracket, the long term capital gain rate is 8% on assets held more than five years and sold after December 31,2000. The 8% rate applies regardless of when the five-year holding period began and it applies to the extent that the taxpayer is in the 15% bracket.

For those in the 28% tax bracket or higher, the long term capital gains rate drops to 18 % for assets purchased after December 31,2000 if the asset is held for more than five years. Capital gains of assets held 1 to 4 years or purchased before January 1,2001 will still be taxed at 20%.

Note: Because the asset must be held five years and must be acquired after December 31, 2000, the 18% tax rate will not apply before 2006.

In determining if the holding period begins after December 31,2000 for this special 18% rate, taxpayers must include the option holding period. So if an employer grants an employee incentive stock option in the year 2000, stock acquired by exercising the option will not be eligible for the 18% rate, even if the stock is acquired in 2001.

Special Election to use the 18% Rate instead of the 20% Rate

Taxpayers other than corporations can elect to treat capital assets, business assets, and stock held on January 1, 2001, as if they are sold for their fair market value in order to reset the acquisition date so the future appreciation can qualify for the 18% rate. The gain from the deemed sale is taxable, however any loss resulting from this election is not allowed. This election is irrevocable.

Note : This election can not be used on a personal residence.

When to use this election: A taxpayer should use this election when a stock has a small gain and the taxpayer expects appreciation in the future and he plans on holding the stock for more than five years after January 1,2001.

Carol J. Patrick, CPA

December 2000 Tax Planning

To reduce the amount of tax you owe when you file your 2000 return next year, you may have some tax decisions to make between now and December 31.

The secret to successful year-end tax planning is to consider your tax situation two years at a time. The idea is to reduce the tax you will pay over both years (’00 & ’01), not just one. You need to look at the income and deductions which apply to ’00, which fall into ’01 and which are available in either year.

It is usually better to defer income and accelerate deductions. This way you will delay, for the longest period of time, the tax you pay. This will be especially true if there is an across the board tax decrease in ’01. (Possible, but don’t hold your breath!). If you expect to be in a higher tax bracket in ’01 the opposite strategy, delaying deductions and accelerating income, would probably be more beneficial.

Your investments offer a way to shift income at year-end. You can decide when to take the gain or loss, this year or next. You shouldn’t let taxes be the sole driving reason for making changes in your investments. Whatever decisions you make should make overall economic sense.

Retirees can juggle payouts from IRAs for the best tax result.

Tax planning using deductions may be the most successful. Three types of itemized deductions are easiest to shift:

Charitable Contributions – Deducted in the year your check is mailed. Also consider donating appreciated securities. You get to deduct the full value of the asset (if held for more than one year) and avoid paying income tax on the appreciation.

State and local taxes - This works especially well with estimated state income taxes. You can pay the estimate that is due in January ’01 in whichever year it produces the best result. The second half of property taxes due in April can also be considered for prepayment in December if needed. Care should be taken to make sue that the alternative minimum tax does not come into play.

Interest Expense – You may consider paying the January mortgage payment in December. It is important to make sure the Mortgage Company receives the payment before the end of the year. This way it will be reflected on Form 1098 that shows the interest paid by you for the year.

Other itemized deductions can also reduce you income tax bill:

Medical – The deduction is limited to 7-½% of AGI. Shifting payments from one year into the next may allow you to exceed this limitation and get a deduction in at least one of the years.

Miscellaneous – The deduction is limited to 2% of AGI. This deduction includes investment and tax advice, job-hunting expenses, unreimbursed employee business expenses, IRA fees and safety deposit box charges. Shifting these expenses into one year or the other may enable you to exceed the limits.

Some individuals, by careful planning, are able to itemized in one year and use the standard deduction in the second year.

The alternative minimum tax should always be carefully considered. If it applies to your tax situation many of these strategies will just not work!

Careful tax planning can make a difference in your income tax liabilities. Please contact your tax advisor for more specific tax saving ideas that may be used in your specific tax situation.

Diane K. Burch, CPA

API 4th Quarter Update 2007

 December 2007, 4th Quarter

It wouldn’t be January without a comment about my Trojan football team!
The Trojans (10-2, 7-2 Pac-10) won their final four regular-season games to earn an unprecedented sixth consecutive conference championship. It also gives them a record 32nd appearance in the Rose Bowl as well as a sixth straight BCS bowl berth. They easily won the Rose Bowl 49 to 17 over Illinois. Go Trojans!!

Money Magazine Makeover
I again had the pleasure of doing a money makeover for Money Magazine. The story is about a young school psychologist, Patty, who like so many others bought real estate at the peak of the market and will face mortgage resets in the near future. You can read the entire enclosed article to find out how Patty can bring herself out of her current bind without ‘mortgaging her future’.

Junk Mail and Going Green
Did you know that you can stop 90% of all bulk and junk mail from being delivered to you? Join for a $20 fee and they will stop your junk mail and plant 10 trees. I am doing what I can to become more “green” and help preserve the environment. I take my cloth bags to the grocery store, I recycle plastic, glass, cans and paper and dispose of paints, pesticides, florescent bulbs and batteries on a monthly basis at a designated drop off site. I got an artificial Christmas tree this year- also to stop my puppy from chewing a real one. If you want to cut paper use by Asset Planning, we can email your quarterly statements to you. Both TD Ameritrade and Schwab have electronic confirmation and monthly statements available.

2007: The year in review
What a crazy year this has been. The market has been more volatile this year with the subprime mortgage mess and the talk of recession in 2008. The S&P gained only 3.5% for 2007, the Dow gained 6.4% for the year. Large, mid and small cap value stocks were negative for the year and growth showed positive returns. This is the first year growth style equities had returns higher than value style during the past five years. Oil began the year at $51.57 and crossed $100.00 a barrel last week. Gold began the year at $650 per ounce and recently traded at $863, driven by the dollar’s steep decline against the euro. The euro finished at $1.4773 versus the dollar.
Will 2008 be a recession year? I believe the answer depends on how much lower home prices will fall and if the trouble with lenders persist. At the national level, a recession is commonly defined as two or more consecutive quarterly declines in real GDP. I think the GDP will grow by 1.5% in 2008, barely avoiding recession. I also think the Fed will cut rates again, but that will not help the homeowners that need to refinance their adjustable mortgages. Why? With home prices falling, most of the troubled homeowners cannot obtain an appraisal that will match or exceed their current mortgage. Also, lending standards have tightened and now require proof of income to obtain new mortgages. Foreclosures will increase, and market prices will fall further. The job losses in retail, mortgage and construction have impacted Orange County more than LA County. One positive is that 2008 is an election year and that usually bodes well for the market. Economists at Morgan Stanley and Merrill Lynch commented today that the U.S. Economy was transitioning into a recession at the end of 2007, based on the jobless rate of 5% in December.

Credit report
It is time to review your credit report for possible fraud and see who is accessing your credit information. You should review all your credit card accounts you have open and close those you do not use any longer. Having too much credit available will decrease your overall credit score. Go to and get your free report. You can also request the report by phone from any of the three credit reporting agencies and they will mail the report to you.

You may regret many things in life but you will never regret being too kind or too fair. -Brian Tracy

Election Jitters

WASHINGTON (CBS.MW) - Bush and Gore campaign officials continued to clash over Florida election results Friday, while uncertainty over the outcome of the presidential race weighed on Wall Street. Texas Gov. George W. Bush told reporters he was preparing for the transition to the White House, but noted that "there are still votes to be counted" in Florida. Bush said "each candidate and each team have to do what they think is in the best interest of the country. It's in the best interest of the country to plan (for transition) in a responsible way."

Could anyone have predicted this sort of an outcome from our recent election? It almost seems like a fiction novel. My only hope is that the outcome is decided quickly and the country and the financial markets are able to move forward.

If you missed the recent Los Angeles Times Money makeover, here is a link to the article. It is on an early retirement couple.

While the markets are in limbo, this is a good time to take care of other financial business. Have you reviewed your will recently? Have your beneficiaries changed names or addresses? Have you changed your wishes? Have you reviewed the title on all of your assets to be included in your living trust? Have all of your assets transferred correctly?
Are you going to make a charitable donation this year? Have you thought of donating stock in place of a cash contribution? This is a good time to do these year end chores.

Have a wonderful Thanksgiving!

Sandra C. Field,CSA,MBA,CFP

API 2nd Quarter Update 2008

I hate to say I was right

For the first half of 2008, the Dow has fallen 14.4% and is down 19.8% from the high in October 2007. An official technical bear market is when the market is down 20%. The S&P is down 12.9% for the first half of this year. For the quarter, the Dow lost 7.4%, the S&P lost 3.3% and the Nasdaq gained 0.6%. In the March 2008 newsletter, I made my prediction that the Dow would retest the low level of 11,500. When I wrote that, the Dow stood at 12,500. Sadly, the market has fallen, and true to my prediction, the Dow closed on June 30th, at 11,350. This is one time I hate being right. I have been fairly realistic in my views of the economy, the falling home prices and my worry over the subprime market.

Optimism is the one quality more associated with success and happiness than any other.
Brian Tracy

Wealth Manger’s Top Dogs

We are proud to announce that we have again been selected as one of the top Wealth Mangers in the nation. Our listing will appear in the July/August issue of Wealth Manager Magazine. My sincere thanks go to you, our client, for your trust and loyalty in our decisions and management of your portfolios.

Dollar gains, then falls, and will gain again

The dollar fell to a record low against the Euro in April and then began to slowly gain some strength. I think the dollar will strengthen by the end of the year. The Federal Reserve board is beginning to comment on the weak dollar. If the dollar gains, it will help offset the high commodity prices and oil.
China is letting its currency escalate faster against the dollar to contain inflation from commodity imports. A stronger yuan will help stabilize the trade deficit between our nations. This will make US exports more competitive with Chinese goods in their home market. This gives the US an edge against goods from Europe and Japan.

A dream is your creative vision for your life in the future. You must break out of your current comfort zone and become comfortable with the unfamiliar and the unknown.
Denis Waitley

Summer is here! The Olympics will begin 8-8-08
I did the Danskin Triathlon inside Disneyland Adventure. Swimming in the dirty lagoon water is something I never want to do again but it was a blast biking the closed streets all around Disneyland. The run went “behind the scenes” of the attractions and through Bugs Life, etc. I also swam the one mile Long Beach Ocean Festival swim. The problem was the buoys drifted away from us and we kept swimming and swimming, trying to round them. The swim ended up being twice as far as we all expected. I felt like Dory in the movie Nemo: “Just keep swimming, just keep swimming”. With sore shoulders, I finally saw the finish line and took 2nd place.


Notes from Carol

0% Capital Gains Rule

In 2008, the tax law allows for 0% capital gains rate for those in the 10% and 15% tax brackets from now until 2010. The cutoff for the 15% tax bracket is $65,100 for joint filers and $32,550 for single filers. While many of you will not be able to meet this income limit, there are some opportunities that your family members could benefit from. For example, you can transfer stock or other appreciated assets to a child or grandchild fresh out of school to help them payoff their student loans. Then they can sell the shares and pay 0% capital gains if they are under the income limits and not a dependent of anyone. This is considered a taxable gift to the donor but the tax law allows you to give $12,000 annually (or $24,000 from both spouses) to any individual without paying any gift tax. Please consult with us or your CPA if you think this applies to you.

Variable Rate loans

If you currently hold a variable rate loan, you should seriously look into converting into a fixed rate. The Fed is concerned about the weak dollar and will start to raise rates in order to strengthen it.

Asset Management Clients: We are following the market closely and strategically managing your portfolio based on your risk tolerance, long-term objectives, and market fundamentals. If there is a change in your cash flow needs, risk tolerance or long term goals, please let us know so that we can adjust the portfolio accordingly.

Financial Planning Clients: If you would like a review or update, please call to schedule.
Enjoy your summer!