personal financial management

Market Comment from Pacific Wealth Management

by Jim Kuntz on March 22, 2013

As 2012 fades into the memory banks, the financial markets of 2013 are beginning the year in a very similar fashion to last year.  Despite estimates for the U.S. economy to grow at a tepid 2% pace, along with a deepening European recession, stock markets around the world are off to a very optimistic start in the new year.

These strong markets are being driven by the “developed world’s” central banks unending policy of money creation.  Essentially, the USA, UK, Switzerland, Europe and Japan are attempting to inflate their economies out of their economic malaise.  Domestically, Ben Bernanke and the U.S. Federal Reserve Bank are printing $85 billion every month and then purchasing that same amount of U.S. Government and Government Agency bonds.  This ongoing effort of financial market manipulation, to keep interest rates low, encourages investment capital to move out of the safety of money markets, treasury bills and C.D.’s and into the riskier investments of stocks and real estate.  Unfortunately, the central bank’s bond-buying-strategy cannot continue indefinitely and must end at some point.  Like an addiction, the longer the market manipulation, the more reliant the financial markets become on it and the more vulnerable these markets are to future volatility.  We do not expect the Federal Reserve Bank to change their levels of bond purchases any time soon, but as the “when to reduce and/or stop the policy” debate continues, the markets are likely to become increasingly nervous. Until our U.S. Congress and President come to a long-term resolution on the budget deficit, the markets will move in fits and starts.

In recent months, we have been shifting more investments into inflation sensitive securities, while reducing our bond holdings.  Pacific Wealth Management believes these extraordinary times continue to make prudent diversification an essential part of our wealth preservation strategy.

The Taxpayer Relief Act of 2012

by Justin Reckers on January 4, 2013

The fiscal cliff compromise extends the majority of tax cuts that were scheduled to expire at the end of 2012, in addition to retroactively reinstating some rules that had expired in 2011. The legislation also introduces a number of changes including a new top tax bracket of 39.6%, and an increase in the top long-term capital gains and qualified dividend rate to 20%. The changes under the act are permanent.

Tax Brackets

The top tax bracket rises to 39.6%, and applies to income in excess of $400,000 for individuals, and $450,000 for married couples. These thresholds are indexed for inflation (in a similar manner to all the other tax bracket thresholds). This change is effectively the same as just allowing the top tax bracket to lapse back to the old rates, as the top tax bracket was already at $388,350 in 2012. The remaining tax brackets are extended at their current levels.

Phaseout of Itemized Deductions and Personal Exemptions

The phaseout of itemized deductions and personal exemptions returns for 2013. The phaseout for itemized deductions reduces total itemized deductions by 3% of excess income over a threshold. The threshold amounts are now an Adjusted Gross Income of $300,000 for married couples, and $250,000 for individuals. These amounts are indexed for inflation.

The personal exemptions phaseout, reduces personal exemptions by 2% of the total exemptions for each $2,500 of excess income over a threshold.

Estate Taxes

The new rules make the current estate tax laws permanent, including the $5,120,000 (in 2012) gift and estate tax exemption. The top estate tax rate is increased from the prior 35% to a new maximum rate of 40%.

The portability rules for a deceased spouse’s unused estate tax exemption amount are made permanent.

Capital Gains and Dividends

The act makes permanent the 0% and 15% long-term capital gains tax rates, but increases the tax rate to 20% for any long-term capital gains that fall in the top tax bracket (the new 39.6% bracket with the $400,000 / $450,000 thresholds noted earlier).

Qualified dividend treatment is also made permanent. The top tax rate for qualified dividends has now risen to 20%.

Individuals subject to the new 20% top long-term capital gains and qualified dividends tax rate will actually find their capital gains and dividends taxes at 23.8%, due to the onset of the new 3.8% Medicare tax on net investment income that would also apply at this income levels.

Miscellaneous Extension Provisions

The American Opportunity Tax Credit (the $2,500 tax credit for college expenses that replaced the prior Hope Scholarship Credit in 2009) is extended 5 years and will now run until 2017. The Child Tax Credit and the Earned Income Tax Credit were also extended over the same 5-year time period.

A series of “extender” rules are retroactively patched for 2012 and extended one year through 2013, including the exclusion from income of discharged mortgage debt (necessary to prevent a short sale from triggering income tax consequences for the amount of debt that was discharged).

AMT Relief

The ongoing series of AMT exemption patches over the past decade are made permanent, and fixed retroactively. The new AMT exemption amount will be $78,750 for married couples and $50,600 for singles in 2012.

Source: Financial Planning Implications of HR8 – the Taxpayer Relief Act of 2012 – kitces.com | Nerd’s Eye View

http://kitces.com/blog/archives/463-Financial-Planning-Implications-of-HR8-the-Taxpayer-Relief-Act-of-2012.html

Pacific Wealth Management Market Comment

November 20, 2012

The long awaited elections are now behind us and, as we expected, nothing has changed in Washington D.C.  An equally divided American electorate has chosen to maintain the political status quo.  Our government leaders, unfortunately, do not inspire confidence and last week’s “post-election” stock market decline underscored the financial market nervousness regarding our economic prospects, [...]

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“More to Life” – Petco Park Tour

August 2, 2012

Pacific Wealth Management® is proud to announce another well attended More to Life event last Saturday morning.  The sunny day was pristine and everybody enjoyed the informative “Behind the Scenes” tour of Petco Park, one of Major League Baseball’s most beautiful ballparks. The More to Life series of events is designed to bring the company’s [...]

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Market Comment from Pacific Wealth Management

June 18, 2012

This year’s financial markets are imitating the volatile roller coaster ride we experienced in 2011. Like last year, the large majority of forecasts for the 2012 economy were optimistic, as most of Wall Street believed the worst of the global banking crisis was behind us.  As we saw in 2011, U.S. stocks moved higher in [...]

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Quarterly Market Comment from Pacific Wealth Management

March 20, 2012

The financial markets in 2012 are behaving in a very similar fashion to the early months of 2011.   Optimistic outlooks abound and many on Wall Street believe the worst of the global banking crisis is behind us.  After an initial surge of optimism last year, US stocks rode a roller coaster with dramatic dips and [...]

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Happy New Year Market Commentary

January 12, 2012

Happy New Year! With the holidays now behind us, we send our best wishes for a healthy, productive and prosperous 2012!  As expected, 2011 was a roller coaster year for financial markets around the world. The volatility that began over the summer continued through November with stocks finally enjoying a “Santa Claus” rally to finish [...]

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Market Commentary

November 28, 2011

With the holidays upon us and 2012 right around the corner we hope you are doing well and able to share this special time of the year with family and friends. The volatility that began over the summer is continuing as stocks around the world remain held hostage to the news of the day coming [...]

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Eurozone crisis a long way from being resolved

October 10, 2011

The news over the last few months continues to focus on Europe and what will be necessary to take care of Greece.  Unfortunately, Greece did not have a bright future before the European Union challenges are considered.   Since its formation in the 1820’s, modern Greece has been supported by three pillars.  First, given its location, [...]

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Summer 2011 Market Commentary

September 14, 2011

As we expected, the financial markets are experiencing another summer of dramatic volatility amidst signs the U.S. economy is slowing and, presently, very close to stall speed.  Disconcertingly, this follows a full dose of quantitative easing, which Federal Reserve Chairman, Ben Bernanke, initiated last fall.  Unfortunately, the $600 Billion of U.S. bond purchases did little [...]

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