How Does the Stimulus Plan Affect You?
It's Good To Get Some Advice Now
 The biggest benefit from the $787.2 billion federal stimulus package will hopefully be a noticeable improvement in the nation’s economy. But on an individual level, it’s wise to check if you might be eligible for benefits in health care, education, various tax credits and housing.
A visit with your Bull & Bear Capital Advisor can help you determine the best ways to use the following provisions that may affect you. It’s also a good idea to get a financial checkup in an uncertain economy, for the following reasons.
As much as it might hurt to look at the performance of your current retirement accounts and other investments, the economy will recover. When an upturn comes, it’s wise to position your holdings to take full advantage of the recovery.
Your future plans with regard to spending for your home, your family and your education come into sharp focus under the stimulus plan, and making these provisions work for you in the short-term should be part of a long-term plan.
If you fear your job might be in danger in the coming months or you might be facing pay or benefit cuts, it’s good to talk through your personal finances before your employer makes a move. The best time to prepare for a job loss is while you’re still making a salary. Not only is it a good opportunity to build an emergency fund, but it’s generally easier to look for new opportunities while you still have your current one.
Here’s a quick summary of the stimulus plan provisions that could affect your finances.
Educational provisions
College student aid: The package awards $15.6 billion to increase maximum individual student Pell grants by $500.
American Opportunity Tax Credit: This credit temporarily provides taxpayers with a new tax credit of up to $2,500 of the cost of tuition and related expenses, though it phases out for taxpayers with adjusted gross income in excess of $80,000 ($160,000 for married couples filing jointly). Forty percent of the available credit is refundable.
529 Plans: The scope of allowable education expenses expands to include computers and computer technology.
Tax credit provisions
One more cap for the Alternative Minimum Tax (AMT): Lawmakers put one more patch on the AMT to protect a wider number of people from getting hit. This latest break for potential AMT targets increases the exemption  amounts to $46,700 ($70,950 for married couples). The bill would also exclude interest on all private activity bonds issued in 2009 and 2010 from the AMT.
“Making Work Pay” Tax Credits: This is the refundable tax credit of up to $400 for individuals and $800 for families for 2009 and 2010 that would phase out for taxpayers with adjusted gross income in excess of $75,000 ($150,000 for married couples). This isn’t a lump sum payment, but instead is reflected in reduced payroll taxes.
Car Buyers Tax Credit: This allows a deduction for state and local sales and excise taxes paid on the purchase of a new vehicle through 2009. This deduction is phased out for taxpayers with adjusted gross income in excess of $125,000 ($250,000 in the case of a joint return).
Earned Income Tax Credit: This provision will create a temporary tax credit increase for working families with three or more children.
Housing provisions
Refundable First Time Homebuyer Credit: First time buyers can claim a credit worth $8,000—or 10 percent of the home's value, whichever is less—on their 2008 or 2009 taxes. The added bonus is that the credit is refundable, which means that filers will see a refund of the full $8,000 even if their total tax bill was less than that amount. Phase outs begin for those with adjusted gross incomes of more than $75,000, or $150,000 for married couples filing jointly.
Unemployment and healthcare related benefits
Extension of Unemployment Benefits: The package provides 33 weeks of extended benefits through Dec. 31, 2009.
Unemployment Compensation: The first $2,400 a person receives in unemployment compensation benefits in 2009 won’t be taxed.
Short-Term COBRA Subsidy for Involuntarily Terminated Workers: This provides a 65 percent subsidy for COBRA premiums for up to 9 months, which will put a dent in the considerable cost of COBRA health benefits for the unemployed.
April 2009 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by Bull & Bear Capital Advisor Robert Liggero, MBA, CFP®, a local member of FPA.
Slightly Less Black:
The Federal Reserve Reports A Slowing in the Economy's Decline
I think he's right, there is something about this, that's, that's so black, it's like; "How much more black could this be?" and the answer is: "None. None more black."—Nigel Tufnel, Spinal Tap.
The bad news is that we continue to see a mixed bag of economic news. The good news is that a mixed bag means that there is positive to go with the negative.
 This month’s “Beige Book” report from the Federal Reserve rallied the markets after it reported what looks like a slowing in the economy’s decline: “Five of the 12 districts noted a moderation in the pace of decline, and several saw signs that activity in some sectors was stabilizing at a low level.”
That counts as a positive in the current environment as we continue to read reports that bring conflicting data. Manufacturing production was down in a report this morning, employment remains soft and retail spending is slow, but mostly within the range of reasonable estimates and above the low end of many economists’ expectations. We are headed full speed ahead into earnings season, which promises to bring surprises on both sides (to date mostly to the positive but there is a long way to go), as well as further news that will come out of the financial sector, the bank “stress tests” and certainly more news regarding the auto industry.
How the markets will react day to day is, as always, unclear as there continues to be upward and downward movement based on isolated data points. What is pretty clear is that the markets seemed to be searching for the silver lining in mid March, to the tune of a 20% gain in the past five weeks.
In a commentary in early March, asset manager Jeremy Grantham of GMO closed an essay titled “Reinvesting When Terrified” with the observation that “the market does not turn when it sees light at the end of the tunnel. It turns when all looks black, but just a subtle shade less black than the day before.”
Have we seen the bottom? NOBODY KNOWS. On any given day you’ll be able to find an opinion one way or the other, depending on what the network booker or editor was looking for that day.
Nouriel Roubini (aka Dr. Doom), who has been a noted Bear for some time, is still decidedly pessimistic...but less so. He wrote in February that it was unlikely that we’d avoid a systemic financial meltdown, but revised his comments in early April to include his opinion that while “the road ahead is still very, very bumpy” that he sees a return to slow growth in early 2010.
Through all of this, it is certainly worth noting that he has remained invested, and according to the Financial Times, is invested 100% in equities in his retirement accounts. He’s not sure we’re through the worst of it, and his articles continue to sell ad space as long as we’re not, but he’s got money in the markets just in case he’s wrong in the short term. In the long term, even Dr. Doom understands the importance of exposure to equities.
We never know the bottom (or the top for that matter) except through the lens of history, but one thing that is certain is that, in the words of a recent article by Nick Murray, “They don’t ring a bell at the bottom.”
While Nick Murray’s article ends by directly addressing those in cash (where not even Dr. Doom is at this point), for those of us who already have a strategy and a well allocated portfolio, it serves as a reminder that it is folly to time the market and that what happens in one day or week in the market is largely fodder for selling advertising and less about the impact on a well crafted financial plan.
I have copies of both Nick Murray’s article and Jeremy Grantham’s commentary, both short and insightful, that I can email separately. If you’d like to read them, please let me know and I’ll pass them along.
As always, we’re looking forward to reviewing the past quarter and continuing to lay the groundwork for the road ahead.
April 2009 — This column is prepared by Bull & Bear Capital Advisor Gregory M. Pritchard, CFP®.
Exit Stage Left: Is It Time To Start Preparing Your Business For Life Without You?
Hold the phone.
If you ask a successful small business owner for start-up advice, he or
she would probably tell you that having a solid business plan increases
your chances for long-term success. After all, without a strategic plan
to grow the business, an owner can very easily get caught up in the
day-to-day challenges and lose sight of where the business needs to go.
 But ask the veteran owner whether he has a long-term plan for exiting
the business, and you might get a puzzled look. Even successful
business owners are often too busy managing the operations to focus on
what happens after they leave the business – either due to retirement,
illness, death or other circumstance.
Usually, the owner doesn’t think about an exit plan until shortly before
the business is ready to be passed on to family members or sold to
someone else. This is unfortunate because, while no one plans to fail,
the failure to plan can severely reduce (if not destroy) value in the
business. This, in turn, can have a negative impact on the owner’s
ability to meet or exceed all of his/her personal goals in retirement.
However, if planning is done early on, to include integrating the
business plan with the family’s estate plan, the owner can greatly
improve his chances of having enough money for a comfortable retirement
or taking care of a spouse should the owner die too soon.
Dancing the Two-Step
STEP ONE: THE BUSINESS APPRAISAL
One of the most overlooked (and simple) first steps in developing an
exit plan is to create a baseline for the value of the business. This
process for most businesses needs to be formalized with a professional
business appraiser. One of the first mistakes some owners make is using
a simple formula, a rule of thumb, or wishful thinking instead of hiring
a seasoned business appraiser. Obtaining an accurate value, and using a
clear methodology for determining value, will benefit the owner in
three critical ways.
Maximizing Business Value
For purposes of selling the business, the value of a business is the
value that a buyer would receive, which may not directly correlate with
how much income the owner currently generates. In cases where the
current owner has specialized skills that are critical to the business
and the owner will not remain in the business after the sale, the value
of the business will be less. Businesses that rely more on
revenue-generating processes versus revenue-generating key people will
be worth more to a potential buyer. Typically, a small business starts
out relying heavily on the skills and talents of its owner. But over
time, business processes can and should be built so that the value of
the business doesn’t die with the absence of the original owner. In
any event, a business appraisal will help an owner know where he or she
stands as far as current value of the business. It also can serve as a
benchmark for the owner to see if the business is increasing or
decreasing in value as time goes by. Owners that want to maximize value
for an eventual sale will now have insight as to where to concentrate
business improvements.
Creating a Safety Net
For most business owners, their business is the largest asset they have.
The business not only produces income for their family today but also is
an asset source to tap future income. Much like a business executive
needs a severance package in the event of employment loss, a business
owner needs a severance plan in the event the business needs to be sold
quickly (perhaps due to serious illness or disability). The business
appraisal can be the cornerstone of that severance plan, giving the
owner solid guidance in setting an appropriate sales price. The
appraisal can also be integral in the event that one business partner
needs to sell quickly to another.
Minimizing Tax Burdens
Many successful business owners don’t realize the impact their business
would have on estate taxes their family would pay if they died without
an estate plan in place. Obtaining a business appraisal with a clear value is the first step in developing an estate plan to protect the
family’s assets from government taxes. Never forget that the IRS is
in the business of generating revenue– which means that their valuation
experts may have a different interpretation of what the business is
worth, thereby increasing the estate tax bill your family has to pay.
Keep in mind, the person who understands the business the most may not
be around to argue these points to the IRS. In this situation, using a
professional business appraiser who has experience defending their
appraisals in tax court becomes increasingly important.
STEP TWO: THE EXIT STRATEGY
While the business appraisal is the first step in beginning to develop
an exit plan for the owner, the real work starts after the appraisal.
As mentioned, some business owners may choose to work on maximizing the
value of the business and may hire a business consultant to help with
that process. Other business owners may want to focus their energies on
alleviating their family’s estate tax burden by developing an estate
plan with an attorney. And owners who have business partners will need
to address buy-sell agreements in the event that an owner’s share needs
to be sold due to illness, death or other circumstance.
In next month’s newsletter, we’ll explore this second step in much more
detail, including the importance of having your professional advisors—attorney, CPA, financial advisor and business consultant—collaborate
on an exit plan that is tailored to your personal goals.
Provided by Bull & Bear Capital Advisor Chuck Ostholm, CFP®.
BULL & BEAR CAPITAL ADVISORS
6817 Southpoint Parkway, Suite 1003 · Jacksonville,
Florida 32216
phone: 904.363.3600
Securities offered through Bull & Bear Brokerage Services, Inc., Member MSRB, NASD, SIPC.
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