As the eighth member of President Bush's 15-member cabinet resigned today (Tommy Thompson decided he needed to spend more time with his family), we're a little upset that we're not being considered for any of these high-level posts. Okay, perhaps Kellogg cereal CEO Carlos Gutierrez is a more suitable pick for Commerce than us, but we're flexible. Agriculture? Homeland Security? Health and Human Services? We'd even consider serving as U.S. ambassador to the United Nations. Would it kill them to at least put us on a short list?
As we await the nod, we hope you don't mind but we're heading home for the weekend. We've decided we need to spend more time with our families.
In today's Motley Fool Take:
- 10 Ways to Save Taxes Now!
- Wanted: Foolish Writers
- Forget IBM
- Discussion Board of the Day: Voluntary Simplicity
- The Best Way to Grow
- Quote of Note
- Funds Prep to Play Santa
- More on Fool.com Today
10 Ways to Save Taxes Now!
By
While the end of the year looms large, there are still ways to save tax dollars today and benefit yourself come April 15. Here are 10 of my favorites.
1. Invest in dividend-paying stocks.
Because of the more favorable tax treatment recently bestowed upon dividend income, holding stocks that pay dividends isn't as "taxing" as it used to be. This might make such investments more attractive than other cash-generating securities, such as bonds. Of course, you don't want to own a stock just because it pays dividends, but if you're analyzing a stock that appeals to you, don't forget to consider that dividends are the proverbial "bird in the hand" -- and more tax-friendly than they used to be.
2. Buy to hold long-term.
Dividends weren't the only type of income given favorable tax treatment. Long-term capital gains (gains on assets held for more than one year) were also given the government seal of approval. So when you decide to sell a stock, make sure you've held that stock for the long term to reap the tax savings.
3. Purchase business assets.
If you own a business, now may be the time to upgrade your furniture, fixtures, computers, or autos. The new rules governing bonus depreciation and the "expensing" deduction could save you substantial tax dollars. Of course, don't buy business equipment just because you're getting a tax break. But if there is business equipment that you'll need in the near future, now may be the time to purchase it.
4. Plan now!
Don't wait until Dec. 31 to plan your year-end tax moves. It's way too late by then. Instead, take a look at your finances and investments now -- today! -- and find ways that you might be able to structure your financial life in order to pay less when April 15 rolls around.
5. Don't forget loan points.
With the flurry of refinancing that we've seen over the last few years, many of you might be forgetting that you can receive a deduction for the loan points that you pay when you refinance. Points are really nothing more than prepaid (deductible) interest. In most cases, you'll have to claim the deduction over time. But a small deduction is better than none at all. And you'll find a pot at the end of the rainbow when the loan is finally paid off. If you've purchased a house, the news is even better -- you can deduct the points in full.
6. Take the worthless stock deduction.
Many publicly traded companies are no longer around or are in the process of drying up and blowing away. Many of the shares in those companies have been delisted and are impossible to trade. But that doesn't mean you can't claim a loss on a stock that has gone bad simply because you can't trade the shares. You can always claim the worthless stock deduction. Or better yet, sell the junk to a qualified relative, keeping the stock in the family (just in case it does amount to something in the future) while securing a loss in the year that best benefits you.
7. Make contributions to retirement accounts.
By contributing to your employer-sponsored retirement plan -- such as a 401(k), 403(b), or 457 plan -- you will reduce your taxable income, and you won't pay taxes on the investments in the account until you make withdrawals. Also, if you're at a lower income level, you'll actually receive a tax credit for the contribution that you make. Finally, if you're over age 50, you can make "catch up" contributions to your 401(k) or IRA above and beyond the normal contribution limits.
8. Make charitable contributions.
Part and parcel of Foolishness is giving to those in need. And Uncle Sam will reward your generosity with a tax deduction. But it's not just cash contributions that get you that deduction. Clean out a closet, donate the property, save the receipt, and get a deduction. You're not using that stuff anyway -- you might as well turn it into cash in the form of reduced taxes. Don't know how to value the stuff? Check out It's Deductible for help with valuing your contributions. You can also donate that clunker sitting in your driveway. And consider the contribution of appreciated stock for double-barreled tax savings.
9. Gifts to kids.
Consider shifting your income to your younger children. That means making a gift to them, generally of appreciated stock. You might want to wait until the child turns age 14 (in order to avoid the kiddie tax rules). But if you gift the stock to a child, and the child then sells the stock, the long-term gain will be taxed at the child's tax rate, which is likely much lower than your rate. Depending on the child's other income and the amount of the gain, the tax on the gain could fall all the way to zero!
10. Sell your home.
There is a huge tax break ($500,000 for married couples and $250,000 for unmarrieds) on the gain of the sale of your principal residence. There are still many folks out there that believe that this is a one-time break, but it's just not true. This break is something that you can use every two years. So if you don't mind moving often, and are lucky enough to invest in a home that has increased in value and now have the itch to move, don't forget to make use of this valuable (and legal) tax dodge.
There are many more tax slashing tips that you'll be able to find by wandering around the tax article archives. Check 'em out...see how many you can find!
Roy Lewis lives in a trailer down by the river and is a motivational speaker when not dealing with tax issues, and he understands that The Motley Fool is all about investors writing for investors. You can take a look at the stocks he owns as long as you promise not to ask him which stock to buy. He'll be glad to help you compute your gain or loss when you finally sell a stock, though.
Wanted: Foolish Writers
Do you read the Fool's content and say to yourself, "I could have written that!" Do you post thoughtful arguments on our discussion boards? Do you have an opinion on everything from Amazon.com to Wal-Mart? Then we're looking for you. We're seeking the best and brightest minds out there to contribute to Fool.com. We're taking applications for both full-time positions and freelance Fools. Visit jobs.fool.com, and check out the listings under Editorial and Writing.
F orget IBM
By
Seth Jayson (TMF Bent)One of my favorite recurring bits from investor Peter Lynch's writing is his annual lament which, to paraphrase, goes something like, "Why in the H-E-double-toothpicks do I still own IBM(NYSE: IBM)?"
That heretical query was the first thing that came to mind when the market started to cheer this morning's major rumor-cum-news that IBM was planning to sell its personal computer business to a Chinese firm for around $2 billion. My response was, "Are they nuts?"
After all, most of us got our introduction to IBM and desktop computing through the PC, not the over-amped, back-room Braniacs that created the firm's first fortune. This is akin to Microsoft(Nasdaq: MSFT) giving up on Windows to concentrate on some kind of command-prompt nightmare.
How could IBM give up the PC? It's not like the products aren't popular. They sell to the tune of 10 billion bucks. And a cursory check of the most recent 10Q shows that the PC biz has been the strongest revenue grower for the company so far this year. It's been growing at a 17% clip, nearly four points better than hardware as a whole, and double the pace of the biggest revenue generator, global services. That puts PC sales at 13% of total revenues this year.
Word on the street is that the PC unit is a perennial money loser, and if you dig deep enough into the 10K, you'll find the evidence -- though you might go blind before you realize that the red ink isn't so deep.
But here's the real question: How in the heck can one of the world's biggest names in technology fail to make a profit on such a big business?
Don't tell me it's just commodization and competition from Dell(Nasdaq: DELL), Hewlett-Packard(NYSE: HPQ), or dozens of smaller firms. At any time during the PC revolution -- even now, some might argue -- IBM should have been able to use its buying power, reputation, and technological expertise to outrun the competition or squash it. IBM couldn't, because it's impossible for a 100-ton dinosaur to run a 4.3-second 40-yard dash, or aim a size 500 foot at an insect.
So while everyone else is celebrating the day that IBM shed its PC anchor to compete more directly with Sun Microsystems(Nasdaq: SUNW), HP, Red Hat(Nasdaq: RHAT), or whomever, I'll be wondering this: Why would anyone think that Big Blue will fare any better in the upcoming race against smaller, faster opponents?
For related Foolishness:
- So what will IBM do with these hot new chips?
- Is IBM a real nano-player?
- Meanwhile, another Fool thinks IBM has some value.
Seth Jayson will almost always bet on the quick mammal, not the dinosaur. At the time of publication, he had positions in no firm mentioned. View his stock holdings and Fool profile here. Fool rules are here.
Discussion Board of the Day: Voluntary Simplicity
Stressing out over forgetting whom you're sending out holiday cards to this year? Still behind on your seasonal shopping? Want to embrace a simpler approach that is outwardly simple yet inwardly rich? All this and more -- in the Voluntary Simplicity discussion board. Only on Fool.com.
The Best Way to Grow
By
Nathan ParmeleeShares of Kenneth Cole Productions(NYSE: KCP) crossed my radar about a month ago when they were regularly making 52-week lows. Since my wife and I have more pairs of Kenneth Coles than I care to divulge -- all bought on sale, of course -- I made a note to follow up, and I'm glad I did.
There is more to Kenneth Cole than fashionable shoes with cute names. The company has established a strong brand in shoes domestically and is now well on its way into apparel and accessories. However, if you're looking for an overnight growth boom, you may want to look elsewhere.
My favorite trait in a small-cap growth investment is the ability to fuel growth with cash flow from operations, even if that means a bit slower growth. A little bit of debt is not a worry, but expansion fueled or hurried with debt, a la Gap(NYSE: GPS) a few years ago, makes me nervous. Kenneth Cole on the other hand is like a decaffeinated Starbucks(Nasdaq: SBUX). The balance sheet is debt-free, but since the company is pushing $100 shoes and not $4 lattes, the growth is a bit slower.
To keep costs light, Kenneth Cole designs its shoes in-house and outsources to manufacturing partners primarily in Europe and Brazil. This gives the company flexibility, and to date the company seems to have managed this arrangement well. Outside of the footwear department, Kenneth Cole licenses its name to other manufacturers for items such as fragrances and clothing. By working closely with licensees to ensure supply and focusing on value and style at a reasonable price, Kenneth Cole has been increasingly successful at expanding beyond its footwear roots.
An interesting bit of info in last year's annual report reveals that department store sales are consistently higher in cities that also have a company-operated retail presence. Instead of cannibalizing sales -- as I expected -- Kenneth Cole believes that the stores enhance brand awareness and drive sales increases. I'd question this logic, but while my wife will pass by a Tommy Hilfiger(NYSE: TOM) or a Ralph Lauren(NYSE: RL) without a second thought, we always have to stop at a Kenneth Cole shop when she spots one.
Kenneth Cole shares have appreciated by over 25% since hitting lows in October. However, the price is still reasonable, with the company's trailing price-to-earnings ratio of 17, buckets of cash, a debt-free balance sheet, and plenty of room for product expansion and brand development. And for Income Investors who are interested in tapping into the small-cap growth pool, there is a dividend yield of just under 2%.
For related Foolish analysis, see:
Fool contributor Nathan Parmelee is impressed by the creativity Kenneth Cole used in launching his company. He owns shares in Starbucks, but none of the other companies mentioned.
Quote of Note
"You're only given a little spark of madness. You mustn't lose it." -- Robin Williams
Funds Prep to Play Santa
By
Josie RaneyCheck your stocking: 'Tis the season of giving, and funds across the land are getting in on the gifting game by doling out end-of-the-year distribution payouts to shareholders.
Distributions are paid out as dividends or capital gains, with dividends and long-term (one year or more) gains enjoying a 15% tax rate and short-term gains typically carrying a higher tax load. Taxes on any kind of payouts apply to all shareholders as of the "date of record," a day specified by the fund company that falls shortly before the distribution payout date.
As long as you own a fund on the date of record, fund companies don't care if you've held the fund for five days or 5,000 -- you're getting the payout. As such, you'll want to hold off buying (or adding a big pot o' money to) that fund that makes your heart pitter-patter until after the date of record. Otherwise, you'll pay for gains you didn't get when it's time to cut that April check to Uncle Sam. (While you're waiting, be sure to take a gander at our Champion Funds newsletter service, where we unwrap only the best of the best.)
Among the more prominent diversified domestic stock funds set to spread the joy: Fidelity Magellan(FUND: FMAGX), a large-cap behemoth that has considerable sums invested in the likes of Citigroup(NYSE: C), General Electric(NYSE: GE), and Microsoft(Nasdaq: MSFT) just now. Magellan currently expects to pay around $1 a share this Monday, Dec. 6. Though this is a fund so swollen with investor dollars that it's currently closed to new money, we're not so keen on it. Other Fido funds with sizable anticipated December payouts include Fidelity Value (estimated $4 per share), Fidelity Capital Appreciation (estimated $1.24 per share), and Fidelity Equity Income (estimated $1.37 per share). Vanguard, another portfolio regular, will post expected distributions for its funds sometime early this month. The date of record for favorites Vanguard 500(FUND: VFINX) and Total Stock Market(FUND: VTSMX) falls on Dec. 22, so if you're eyeing either, don't buy in just yet.
If you own mutual funds solely through your 401(k), IRA, or other tax-deferred account, distributions don't affect your tax bill until withdrawal time. So go on, finish your nap.
Curious about the payouts from other funds in your portfolio or on your wish list? Check for estimated distribution amounts and dates on your fund companies' websites. And remember, no early shopping!
Fool contributor Josie Raney owns shares of Vanguard 500.
More on Fool.com Today
Philip Durell takes a look at three gold mines for value investors in Hunting for Value: Part 2.... In Daddy's No. 1 Stock Pick, Paul Elliott knows you can make money on independent research.... This is a good time of year to be thinking of your IRA plans, David Braze says in Roth IRA Conversion Considerations.... In Gaining an Investment Edge, Whitney Tilson demonstrates how to beef up your portfolio and beat the market.... We can help teens you care about make some good money, Selena Maranjian says in Big Bucks for Teens.
In other news:
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