Archive for December, 2013:

tax tip: end of year charitable donations

Written on December 17th, 2013 by Jamesno shouts

Hard to believe we are only 2 weeks from 2014.  As we gear up for the holidays, charitable actions seem to be part of the season.  So as you do good for others, don’t forget some common tax rules so that Uncle Sam will reward you as well:

Charitable Cash Gifts:

  • The big thing to remember here is that to be deductible the organization must be a “qualifying” organization (church, charity, educational, etc).  Just because an org is a “non-profit” doesn’t mean it is a deductible charitable gift (political groups, HOA’s, civic leagues).
  • If you donate it is best to have either a cancelled check or receipt from the organization just in case the IRS requests verification
  • If you donate > $250 you must receive a written receipt stating how much was donated, the date and that “no” goods or services were given as a result of the contribution.

Non Cash Charitable Contributions:

  • If you decide to clean out your closets prior to year end and donate items to a local charitable organization the rules are similar as above, however…
  • You still need a receipt, but in addition you need an inventory of what you donated.  Don’t just drop a bunch of boxes and run, make sure you have a listing of each item as the IRS is very particular about you valuing each pair of blue jeans, shoes, sweaters, etc that you donate.  Without an inventory list you limit your ability to take a non-cash charitable deduction.


What if you are feeling really charitable this year?

Most of the organizations that you would commonly donate to are considered “50%” organizations, which means that you can deduct up to 50% of your adjusted gross income if you felt like donating that much.  If you went over the limit you are allowed to carry forward the deduction for up to 5 years until you use it up.

Lastly the charitable RMD IRA deduction:

If you or someone you know if over 70 1/2 and required to take their annual required minimum distribution from their IRA (IRS requirement), they might consider a charitable gift direct from their IRA.  If the person doesn’t need the money and doesn’t want the tax hit, then the  IRS will allow them to donate directly from their IRA to a Charity without taking a taxable distribution and the best part is the donation counts toward their required RMD.  The limit is $100,000 and no one is certain if this will be available after 2013, but something to think about.

Finally a shout out to Lazarex Cancer Foundation in CA.  If you are looking for a worthy organization to donate to these guys do good work.  Check them out on

tax free income time?

Written on December 12th, 2013 by Jamesno shouts

This year has not been kind to income investors is somewhat of an understatement.  From the minute Fed Chief Bernanke mentioned “taper” in May, income related investments have been punished.  But has the punishment created some potential nice buying opportunities?  As I scan the universe of Closed End Funds, the answer to me is yes.  Especially in Municipal Bond Closed End Funds.

So what is a Closed End Fund (CEF)?  It is a type of mutual fund that buys an underlying basket of investments and lists on the exchange through an IPO.  It then trades daily just like a stock (its cousin is the ETF).  The difference between a closed end fund and your more traditional open ended mutual fund that most people are familiar with, is that the open ended fund only prices at the end of the day, it can create as many fund shares as it needs and the fund company prices it based on NAV (net asset value).  The Closed End fund is publicly traded and the price is determined by supply and demand in the market and this is where opportunities can present themselves to patient investors.

Sometimes Closed End Funds are sold off such that the current market price is actually well below what the price would be based on the value of the underlying assets (NAV).  This is when Closed End Funds are said to sell at a discount to their Net Asset Value.  What has caught my eye is the extreme discounts that many of these funds are trading at.  While I focus on Municipal Bond CEF’s here, this is showing up in most all income oriented CEF’s that I follow.

As an example here is a Municipal Bond CEF.  It is trading at discount of 14% to the underlying value of the municipal bonds it is holding: (CLICK ON IMAGE TO ENLARGE)

So what the above graphic shows us is that right now the fund is at an almost $2 per share discount to where it should be based on the bonds it holds + it  has a 6.52% federally tax free dividend yield.  If your average tax rate is 25% you would need to earn the equivalent taxable yield of 8.71%.  So right now this Municipal bond fund is yielding higher than Junk Bond Funds.  This tells me that there is a disconnect.  Either the market is pricing in a huge interest rate increase in the near future or that lots of state, county and city governments are going to default. But the fear of that potential has driven this municipal bond fund down to very cheap levels.

And it isn’t just one fund.  It’s all of them.  Here is another group so that you can see the discount these are trading at.  (ticker symbols have been removed so that I don’t endorse a particular vendor): (CLICK ON IMAGE TO ENLARGE)


I will caution that this isn’t a pitch to run out and buy these blindly.  There are risks and if interest rates tick up, the share prices of these funds will go down.  With that said, it is something to keep on your radar and for patient investors there may be some nice tax free dividends to collect while you wait on the share price to go up.

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an article fit for a miser

Written on December 4th, 2013 by Jamesno shouts

While I love this time of year, my wallet screams out in pain.  I am naturally a self-proclaimed miser when it comes to spending money.  Just this week I spent 30 minutes on the phone with AT&T telling them to cancel my home phone service since it is a waste spending money for something we don’t use.  They convinced my to stay by lowering my combined phone/internet/cell bill by $65/month so I was happy.

But back to the holiday topic, my wife loves to decorate for Christmas.  Each day this week I have come home to notice more decorative items around the house.  My first thought is “that looks nice”, my second is “did she just buy that today?”, the third thought is “don’t we have an old one of those in a box in the garage?  did we really need a new one?”.

My wife and kids think I am a scrooge, but it comes with the occupation I guess.  Anyway this article popped up this morning on Marketwatch and thought that all of you misers would get a kick out of it:

I’ll definitely be emailing it to my wife……..

Long Term Scare

Written on December 2nd, 2013 by Jamesno shouts

An article in the Atlanta Journal yesterday confirmed industry news that I had been hearing for sometime, namely that as Americans we are woefully unprepared for the potential costs of Long Term Care.  The article stated that an estimated 70% of those turning age 65 will eventually need some form of assistance with the Activities of Daily Living (ADL’s) during their retirement years.  The problem is that only a fraction of those have any form of Long Term Care insurance so they will be forced to dip into their retirement savings to cover and/or have a family member help them.

The Activities of Daily Living are defined as someone needing help with: bathing, continence, mobility, dressing and feeding.

The story in the AJC highlighted a man who went to put his wife in an assisted living center only to learn that Medicare doesn’t cover it.  This is a very common misconception about medicare.  Medicare is designed to be coverage for healthcare, not custodial type care.  If transferred to an Assisted Living facility out of the hospital for recuperation, medicare will generally cover 20 days.  After than you are on the hook for $148/day co-pay until day 100.  After day 100 you are completely responsible for the cost of care.

I realize it isn’t the most encouraging topic to think about, but whether you are retiring or have parents in this age group the topic should be discussed.  For additional info on Medicare here are some links: