Fall/Winter 2013

If you are older, are you wiser? Should you be concerned about the 57 tax deductions set to expire at the end of 2013? Looking for some education tax tips? Who won a Nobel Prize this year? Guess who is working and making more? It’s all here in the latest issue of “Financially Speaking”! Enjoy and as always, we welcome your comments and questions.

Yes, Older Does Mean Wiser

The older your brain is, the more difficult it is to learn new information. However, a research team led by Ye Li, an assistant professor of management at the University of California, Riverside, recently published findings of a study that concluded: experience and acquired knowledge from a lifetime of decision making offsets the declining ability to learn more information.

In their study, older participants (ages 60 to 82) performed just as well or better than younger participants (ages 18 to 29) on tests measuring temporal discounting (how much people discount future gains and losses), loss aversion, financial literacy, and debt literacy.

The older group showed more patience in temporal discounting as well as superior financial and debt literacy to the younger group. Participants were asked a series of questions to measure their economic decision making traits and were given standard fluid and crystallized intelligence tests. Fluid intelligence is the ability to learn and process information, while crystallized intelligence is experience and accumulated knowledge.

This is all comforting news for those of us who regularly have trouble finding our keys!

Expiring Taxes: How You Probably Won’t Be Affected

You may have read that the last day of 2013 is scheduled to be the last day for an estimated 57 different tax deductions–unless the U.S. Congress turns its attention away from the next potential government shutdown and extends some or all of them. All of these deductions will be available to the 2013 tax return that you file by April 15, but as it stands now, they won’t be available next year creating a stealth tax increase in 2014.

How will this impact you? Only a few of the 57 are relevant to you at all, unless you qualify for the American Samoa Economic Development Credit, the “special expensing” rules for film and television production, the mine rescue team training credit or special three-year depreciation for your race horses that happen to be two years or younger.

You probably do, however, claim deductions for state and local taxes which expire at the end of the year, and people with kids and/or grandkids in college might miss the above-the-line deduction for tuition and related educational expenses. Many Americans will be at least slightly affected by the loss of the deduction for mortgage insurance premiums, and some retired Americans over age 70 1/2 will be distressed to learn that they can no longer make tax-free distributions of up to $100,000 from an IRA account to their favorite charity. School teachers will lose their classroom expense deductions of up to $250 for unreimbursed expenses.

Also, thousands of homeowners whose homes are worth below what they paid for them should realize that at the end of December, they will lose a provision that lets them exclude from their taxable income any reduction in their mortgage obligation (through debt modification or a short sale) up to a maximum of $2 million.

Other expiring tax breaks that may affect some of you are:

-Enhanced tax breaks for people who donate property (or easements on their property) to the Nature Conservancy or a local land trust.

-Tax credits for the purchase of 2- or 3-wheeled electric vehicles and a separate credit of $7,500 for those who buy certain 4-wheeled electric vehicles like the Ford Focus Electric and the Nissan Leaf.

-A maximum $500 tax credit for making certain energy-efficiency improvements in your home (like adding insulation), plus other credits for constructing new energy-efficient homes and a credit for energy-efficient appliances.

In the past, Congress has allowed tax provisions to expire and then, retroactively, extended them for another year or two. Many tax observers believe this will almost certainly happen with the state/local tax deduction, the corporate R&D tax credits, and quite possibly for the tuition tax credit as well. So when you read about the 57 expiring provisions and you are not in the biodiesel fuel business (with four expiring credits) or planning to claim the electricity production credit for building a renewable power plant, or actively mining coal on Indian lands, you shouldn’t get too excited. Chances are you aren’t going to get hammered on next year’s taxes (any more so than usual) and Congress may even get around to extending the provisions that you really care about.

“The important thing is this: To be able at any moment to sacrifice what we are for what we could become.”

–Charles Du Bos,
French literary and art critic

From The Data Bank

3-4pm on December 24th is the single busiest shopping hour of the holiday season. Four percent of shoppers wait until the last two weeks to begin their shopping. (bestfunfacts.com)

30 is the percentage of Americans, ages 65 to 69, who are in the workforce in comparison to 8.7 percent of residents of European Union member countries. (Center on Budget and Policy Priorities)

61 is the average age at which current U.S. retirees say they actually retired, up from 59 a decade ago and 57 in the early 1990s. (Gallup)

$214,200 is the national median existing home price for all housing types in June 2013, up 13.5 percent from June 2012. (National Association of Realtors)

$3.5 billion is the amount in baggage fees that U.S. airlines collected in 2012, up from $2.38 billion in 2011. (Bureau of Transportation Statistics)

$642 billion is the amount of U.S. budget deficit expected for 2013, the smallest shortfall in five years. (Congressional Budget Office)

Education Tax Tips For Students and Parents

Whether your favorite student is near graduation or just finishing her first semester, going to college can be a stressful time for students and parents. These tips about education tax benefits can help offset some college costs and maybe relieve some of that stress.

WSJ New Book Smell 2013-12-02American Opportunity Tax Credit (AOTC): This credit can be up to $2,500 per eligible student. The AOTC is available for the first four years of post secondary education. Forty percent of the credit is refundable. That means that you may be able to receive up to $1,000 of the credit as a refund, even if you don’t owe any taxes. Qualified expenses include tuition and fees, course related books, supplies and equipment. A recent law extended the AOTC through the end of December 2017.

Lifetime Learning Credit (LLC): With the LLC, you may be able to claim up to $2,000 for qualified education expenses on your federal tax return. There is no limit on the number of years you can claim this credit for an eligible student. You can claim only one type of education credit per student on your federal tax return each year. If you pay college expenses for more than one student in the same year, you can claim credits on a per-student, per-year basis. For example, you can claim the AOTC for one student and the LLC for the other student.

Student loan interest deduction: Other than home mortgage interest, you generally cannot deduct the interest you pay. However, you may be able to deduct interest you pay on a qualified student loan. The deduction can reduce your taxable income by up to $2,500. You do not need to itemize deductions to claim it.

Like many tax breaks, these education benefits are subject to income limitations and may be reduced or eliminated depending on your income. Call us if you have questions and we’ll help you optimize your education benefits.

Special thanks to Windes & McClaughry Accountancy Corporation for sharing this.

“If you can’t do something willingly and joyfully, then don’t do it. If you give up drinking, don’t go moaning about it; go back on the bottle. Do. As. Thou. Wilt.”

–Peter O’Toole,
We remember the actor, best known for his role in “Lawrence of Arabia,” who died recently.

Eugene Fama Named 2013 Nobel Prize Winner in Economic Sciences

We are pleased to announce that Eugene Fama has been awarded the 2013 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel. Professor Fama’s groundbreaking work on asset pricing and markets inspired the founding of Dimensional Fund Advisors, and his ongoing contributions have guided their investment approach for more than three decades. We extend our congratulations to Gene for this well-deserved recognition and thank him for his profound impact on Dimensional and investors worldwide.

Moms Sole or Primary Provider in 40 Percent of Households with Children

A record 40 percent of all households with children under the age of 18 include mothers who are either the sole or primary source of income for the family, according to a new Pew Research Center analysis of data from the U.S. Census Bureau. The share was just 11 percent in 1960.

These “breadwinner moms” are made up of two very different groups: 5.1 million (37 percent) are married mothers who have a higher income than their husbands, and 8.6 million (63 percent) are single mothers.

The income gap between the two groups is quite large. The median total family income of married mothers who earn more than their husbands was nearly $80,000 in 2011, well above the national median of $57,100 for all families with children, and nearly four times the $23,000 median for families led by a single mother.

The growth in breadwinner moms is tied to women’s increasing presence in the workplace. Women make up almost half (47 percent) of the U.S. labor force today, and the employment rate of married mothers with children has increased from 37 percent in 1968 to 65 percent in 2011.

Office Notes

WE HAVE AN APP FOR THAT!Download_on_the_App_Store_Badge_US-UK_135x40
For our clients that have an iPhone, we are pleased to announce that you can now access your Private Client Portal using our new free app. Go to the “App Store” on your phone and search “Inspired Financial” then touch the “Free” icon and it will begin to download on your phone. Your user ID and password are required for access. Be sure to contact our office if you need help!

app_store_iconKevin attended a week-long intensive training at the Financial Planning Association (FPA) Residency in Lake Arrowhead in October where he received the equivalent of three months experience by working with some of the top advisors in the country.

Evelyn and Mark continue to be very involved in the advancement of the financial planning profession. Evelyn was elected to the national board of the Financial Planning Association (FPA) for 2014. The FPA has nearly 100 chapters and approximately 24,000 members from more than 30 countries around the world.

Christmas Tree 2013Mark just finished a three year term on the national FPA board and was recently elected onto the local FPA Orange County chapter board as Director of Government Relations. He was also elected as Treasurer to the recently-formed FPA of California Council.

In early January, Evelyn and Mark are taking her grandmother on a 10-day Panama Canal cruise to celebrate her 90th birthday (Grandma’s, not Evelyn’s). I’ve decided the best way to celebrate a 90th birthday is with family under balmy skies on sparkling blue waters with a fruity drink in hand!

The entire team and our spouses recently enjoyed an evening of fine dining at the Napa Rose restaurant in November to celebrate ten successful years as a firm. We’ve made reservations for 2023 to celebrate our 20th anniversary.

We’ve celebrated many exciting milestones with you this year and anticipate that 2014 will be equally extraordinary. Thank you for your ongoing trust and we wish you peace and joy during this happy time of year!

2013-11-21 IF Group Photo at Napa Rose1

Your Team at Inspired Financial

Note: The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) or strategy may be appropriate for you, consult with your attorney, accountant, financial advisor, or tax advisor prior to investing or taking action.