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Post by fastwalker on Feb 19, 2005 10:36:36 GMT -5
First of all this is not a solicitation to buy, sell or a recommendation to change your investment strategies, it’s simply one person’s opinion as to certain events that may or may transpire. It’s all speculation and conjecture and should be treated as such. Now having said that, I also want the reader to under stand some other rules with regards to whatever your target figure is for accumulation of wealth, that is your business, just as what you plan to do with it after the initial “glow” fades a bit from having and knowing you are rich. If you share trhat information thats cool...but keep in mind, it's your money and life to do with as you please. How rich will you be? Well someone on one of the boards said the following……. “Now u all understand, why urbie said for all of us to help others out, because all of us will be mega rich.. remember urbie said last year, that 1 million shares is all that u would need? and u would be fine? yes, be also forward splits too. i got berated for that statement, because everyone thinks a huge o/s.. or confusing a/s with o/s.. and here comes this little pinkie, still in BB land.. just a temp move to pinkies.”<br> While I never heard or read that statement by Urban, that’s not to say he didn’t make them or the opinion of the author for the above statement was / is incorrect. It would be a good thing, if it’s true and it looks, for all intents and purposes like CMKX is headed in the direction to realize a upward movement of it’s pps. But realistically speaking, you should consider all such things as rumors and or speculative “valuations” for CMKX. Until or unless it is a “real time” PR from CMKX and or a quote from the market place. Guys, until it’s trading on the market at a “decent price, it is all just interesting speculation….which may have it’s roots in some “facts,” keep in mind right now CMKX is still a pinkie stock and will remain so unless or until it has shown true valuation and is successfully trading on a “higher exchange.” Which brings us to this post and to the question … “I wanted to be wealthy …now what do I do? What are the ramifications of trading on a higher exchange? Well for one thing a possible rapid upward movement of the pps, if such is indicated by the combined filing of the company’s “health.” report. What if I want to remain in the market after I’m rich? To that end, we should look at and assume for the sake of “SPECULATING,” that maybe soon we’ll be in that position where we have a substantially higher pps and we have “realized” money that requires our attention to “detail” and we can “play” in the market as we determine what else we should do with our wealth? Some will simply take thir profits from CMKX and move on with their lives, especially since we have all experienced times when investing in CMKX looked like a sure thing, only to discover by recent the information in recent Pr’s, that we have been “lucky” things didn’t go south on us. If in fact that was your take on what was happening since 2003, it would be foolish to stay and sing the praises of UC and assume everything is somehow fine now and that we will not see any more problems. By bailing out at the first gap up, you may regret it. Then again you may not. But one thing seems apparent, limiting your thinking with any serious consideration for a defensive strategy with CMKX or other stocks, is not the smartest thing to do…at anytime you dabble in the market place. The decision to act when this puppy moves, may seem foolish to some, but, if you don’t act , and the stock drops to once again languish in a stagnate pool of mediocrity, who will remain afraid to move, scared that to make the wrong choice, you’ll miss out on another upward movement…The decision is yours though and not mine thankfully…lol. Ok. lets consider this, by venturing into and investing your money in the markets, to include the very highly speculative pinkie with out an “investment and exit pan,” is like allowing yourself to be fully exposed to many health risks without a health insurance policy to pay for a family. one mishap of a serious nature and you're financial stability done for. Consider this standard market plan , the longer you have to invest, the more the clock will make up for the inevitable short-term losses. But this classic defensive strategy is not the only effective means to maximize your investment potential. You must consider options that will, plain and simple, maximize your gains more.... ;D
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Post by fastwalker on Feb 19, 2005 10:37:23 GMT -5
while limiting your risk. I know sounds trite and overworked, but guys it’s very true and often; the simplest approach to anything is often the best. Is that the best one for you…maybe not, I like it though. Again make up your own mind as to what you want to do. It appears to be a given, that the single best way to protect yourself from a meltdown in one stock or industry is to spread your risk across several different investments. The more diversified your portfolio is, the less any one stock can hurt you by blowing up. Suppose, for instance, that Dell Computer is the only stock you own. Sure, it's been one of the market's best performers over the past decade, but if the PC business suddenly slowed down, the stock would drop and you'd be in hot water -- especially if you needed the money anytime soon. But, what if you owned a mix of Dell, Coca-Cola, Wal-Mart, and shares of your hometown bank?. In that case, you'd certainly feel the PC slowdown, but 80% of your portfolio would remain unaffected. If you've got the time and energy, you can create your own diversified portfolio. But it will mean keeping track of at least 20 different stocks or bonds at once -- a daunting task, to say the least. A much easier solution is to buy a range of mutual funds and leave the diversification worries up to professional management. By purchasing a fund that invests in large, blue-chip companies, another that looks for smaller growth companies and yet another that invests overseas, you can easily spread your money across hundreds of separate stocks. You'll pay a little in fees, but the savings in time and aggravation are probably worth it. Dollar-cost averaging is another form of diversification -- only instead of spreading your money over a bunch of different stocks or bonds, it diversifies your investments over time. The natural human tendency is to buy lots of stock when prices are rising and to stop buying them altogether when prices are on the downswing. Dollar-cost averaging forces you to do the opposite -- you end up buying the most stock when prices are low. Here's how it works: Suppose you decide to put $300 a month into a mutual fund that invests in the stocks of large companies. Your broker or fund company can set up an account for you and the money is pulled straight from your paycheck on the same day each month. After a while, you hardly know it's gone. If a share of the fund costs $50 in October, your $300 will buy six shares. If the price rises to $75 in November, you buy four shares. If the price drops to $25 in December you buy 12 shares. The idea is that your money buys more shares when the price is cheap and fewer when the price is high. That lowers your total cost and, assuming the fund's overall trendline is upward, you capture more of the upside. That's not to say dollar-cost averaging protects you from a falling market. If the fund's value crashes, so does your overall investment. But the strategy does ensure that you invest new money when prices are low so that you can enjoy the runup when the market recovers -- as it always does with time. A lot of people also use dollar-cost averaging when they want to move a big chunk of money into the market -- an inheritance, say, or a year-end bonus. The idea here is to protect yourself from putting all your money in at once and having the market crash days or weeks later. It's true that if the market moves sharply higher, you've missed an opportunity. But in volatile times, that risk is worth it. Of course, if you're moving money from one stock account to another -- as many people do when they change jobs and roll over their 401(k) accounts -- dollar-cost averaging doesn't make much sense. If your money is already in stocks, you're not assuming any more risk if you simply transfer it into a new account. Asset allocation is yet another way to diversify. It takes advantage of the fact that when it comes to risk and reward, financial categories like stocks, bonds and money-market accounts all behave quite differently. more.... ;D
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Post by fastwalker on Feb 19, 2005 10:38:12 GMT -5
Stocks, for instance, offer the highest returns among those three "asset classes," but they also carry the highest risk of losses.
Bonds aren't so lucrative, but they offer a lot more stability than stocks. Money-market returns are puny, but you'll never lose your initial investment. An asset-allocation strategy looks at your particular goals and circumstances and determines what asset mix gives you the optimal blend of risk and reward.
Here's an example. Say your goal is retirement. When you're young -- in your 20s or 30s -- and have time to make up for short-term market losses, an asset-allocation scheme would put you heavily into stocks, maybe 100% of your savings. You might even spice it up with a mix of large-company stocks, small-company stocks and international stocks to diversify your exposure within the category.
As you moved into your late 30s and early 40s, however, you'd probably want to add some bonds to give your portfolio some stability and income. Maybe you'd shift to a 75/25 blend -- still favoring growth, but not overdoing it. The closer you got to retirement age, the more you would ratchet up the bonds and taper off the stocks. And in your last few years, when you simply could not afford big market losses, your portfolio would be heavy on short-term bonds or money-market funds -- the least risky of all investments. If you're serious about it, allocation models also help you buy low and sell high.
Say, for instance, small-company stocks are on fire one year, but large-company stocks are merely standing still. If the stock portion of your allocation model called for a 50/50 mix between the two, this sudden surge in small-company values would upset the balance. To make things right again, you'd have to sell some expensive small-company stock and buy some cheaper large companies. If you "rebalanced" this way each year, you'd always be trading expensive assets for those with more growth potential. So, as a “wealthy” CMKX shareholder, Once you start down the path to investing you “money” from CMKX, one thing that you'll notice is that the paperwork piles up fast. You'll get a confirmation every time you buy or sell a stock or mutual fund, and every time you move money into or out of an account. Each of your investment accounts will send you a statement at least once a quarter. And each of those account statements will probably include a couple of transactions, such as dividends you're received or interest that's been credited to your account. If you invest using dividend reinvestment plans (DRIPs), you'll have another set of statements to deal with, for each DRIP and for each transaction. Every time you buy a mutual fund, you'll receive a prospectus in the mail. Stocks you own will send you quarterly and annual reports and proxy statements. The bottom line: You'll be swimming in paper if you don't get organized. Besides the advantage of keeping your desk or dining room table clutter-free, being organized provides two other important benefits: You'll be better equipped to know how much of your investing profits you'll owe to the IRS, and can make better decisions regarding the tax implications of any investment decision. You'll be better equipped to figure out how well your portfolio has been performing and what problem areas you might need to address. If you haven’t already done so, invest in a solid, reliable computer system and an “accounting” software program and set up a “spread sheet database of your financials, in addition to opening a “daily journal” in a word processing file, into which you record the events of the day.
More…maybe later..depending if anyone is interested in these ramblings…<br> Into the breeze for now….got things to do on a Saturday...lol
8-)fw
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Post by fastwalker on Feb 19, 2005 12:02:11 GMT -5
Taxes are a part of our lives and there is no getting around that fact. That said, there is no legal or moral reason for you to pay any more than you are legally required to pay. With some planning and fore knowledge, you can keep your tax bill for your stock investing to a minimum. No don’t get me wrong, I’m not advocating that you engage in tax dodging or evasion, nor am I suggesting this is in any way a substitute for a competent tax counsel for complex tax issues. I have an agreement with my tax attorney – I don’t practice tax law and they take care of making sure my taxes are low. So far, it’s working out pretty well. What I would like to discuss two main ways income or profits from investing in stocks may be taxed:.. Capital gains tax and income tax. Once CMKX takes off and you decide to liquidate, both of these taxes may come into play and here is when and how they are different I have also include some information on other aspects of Capital gains…but first, lets establish what we are talking about… Capital Gains Tax, A capital gain occurs when you sell an asset for a profit. That asset could be a house, land, machinery, stock, or a bond. When that happens, the capital gains tax comes into play. Since we are discussing stocks, I’ll stick with how the tax applies to investing. You can figure the capital gains tax on the difference between your “basis” in the stock and the sales price. This difference is your profit or loss. The basis is usually what you paid for the stock, however if you inherit the stock, the basis is the price of the stock on the day the owner died. If the difference between the basis and the sales price is negative, in other words, you lost money; you have a capital loss, which you can use to offset capital gains. There are two types of capital gains: Long-term Capital Gains and Short-term Capital Gains .Understanding the difference is very important. Long-term Capital Gains, You must hold the stock at least one full year to qualify for the long-term capital gains rates. This is extremely important and I encourage you to make absolutely sure by holding the stock one-year and a day at least. The tax on a long-term capital gain is currently 20% if you are in the 28% income tax bracket or higher and just 10% if you are in the 15% tax bracket. As you will see, qualifying for the long-term rates is important. Short-term Capital Gains If you hold a stock less than one year before selling it, the IRS classifies the sale as a short-term capital gain and taxes the profit as ordinary income. This means you could pay 28% or much higher of your profit in taxes. Unless there is a compelling reason, hold on to the stock long enough to qualify for the long-term capital gains rates. Income Tax: Companies that distribute profits through dividends create a taxable event for you. The IRS considers dividends ordinary income and taxes them at your current rate. There is not much you can do to avoid this, unless you hold your stock in a qualified retirement plan and have a dividend reinvestment plan. If you have made sure all of your capital gains qualify as long term, your next possibility is to look at any losing stocks you may want to dump. You can take a capital loss in the same year you have a gain and offset it. This is one of the reasons the stock market some times dips toward the end of the year as investors dump losing positions to offset gains. However, don’t sell a stock just for tax reasons. If there is good reasons to expect the stock will rebound, it doesn’t make much sense to sell it. The IRS has a rule in place to prevent investors from selling a stock in a losing position to offset a gain, only to turn around and buy the stock right back. It is called the “wash rule” and it says you can’t sell a stock and buy it back within 30 days and claim a capital loss. If you sell a stock and buy it back within 30 days, the IRS will disallow the capital loss and you will lose the offset. If you are careful you can keep the tax bite to a minimum, however always seek competent tax counsel with questions about complex tax questions. more...
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Post by fastwalker on Feb 19, 2005 12:02:33 GMT -5
The total capital gains tax you pay is largely determined by the length of time an investment is held. Uncle Sam prefers rewarding long-term shareholders of American businesses. Although the individual tax rates are apt to change, the holding periods generally are not. It is absolutely vital that you realize the buy and sell date the government uses to determine the length of time you held the asset is the trade date …(the day you ordered your broker to buy or sell the investment), not the settlement date (the day when the certificates changed hands). Capital gains tax on assets held less than one year least favorable capital gains tax treatment.. Capital gains tax on assets held more than one year but less than five years The Internal Revenue Service considers assets held longer than one year to be long-term investments. In recent years, the capital gains tax on these types of holdings has been 20%. The tax code clearly gives an advantage to those holding their investments for longer periods of time, making it easier for patient investors to build wealth. Just remember, all investment performance should be reviewed net of taxes. Also for your perusal….your edification…. The Capital Gains Tax Problem. Capital gains taxes are a tax on the profit we make when we sell assets. The asset may be real estate, personal property, investments and securities, a business, an art collection, etc. Any long term asset sold at a profit is subject to a capital gains tax of some rate. Figure 1 illustrates this concept. The left side represents the price paid or the cost of the asset. This cost is called the "Basis". Moving to the right side of the graph is a progression thru time. Over time the asset grows in value or appreciates. The right side of the graph represents the point of time at which the owner wants to sell the asset. Unfortunately the seller does not get to keep all the profit, the capital gains, and is taxed at some rate. The rate for a significantly sized sale of an asset owned for one year or longer (referred to as long term gains) will be 15% for federal taxes. Most states charge 5% to 10% on top of that, making the total tax run as high as 25%. If there is depreciation recapture in the asset sale, that is taxed at 25% federal rate, making the tax on recapture higher than the capital gains tax. That isn't the end of the story for the total tax effect though. Capital gains must be added to the taxpayer's adjusted gross income (AGI). This means that capital gains or profits will raise the "floor" above which one can take a number of itemized deductions. This often results in a large decrease or total loss of those deductions. Also the higher AGI from adding in the capital gains is taken into account in computing the phase out of personal exemptions. Again, for many taxpayers this results in a large loss of deductions. This makes the effective, but hidden, capital gains rate much larger than the stated federal and state rates. As a result of the hidden and the recapture taxes the total tax effect on a capital gains sale can easily exceed 25%. To make matters worse the capital gains and depreciation recapture taxes must be paid within ninety days of the sale of the asset. With that background we will begin our overview of the Premier VI Private Annuity. Step 1, Selling the Property To a Trust. The process starts with a property owner depicted on the left of Figure 2. We will refer to this property owner as the "annuitant" in the rest of this discussion. We are assuming that the annuitant owns property worth $1,000,000, as illustrated in the lower part of the diagram. We know that 1,000,000 is the fair market value because the annuitant previously located a buyer who offered that amount for the property. Before the annuitant completes a sale to that buyer the annuitant transfers ownership to a dedicated family trust. This transfer isn’t a gift, but is a special type sale, as explained later. The trust is represented by the bank safe. The owners of the trust are the heirs of the annuitant, probably his children. They are the beneficiaries of the trust. The trust, representing the beneficiaries, becomes the owner of the property once it is transferred to the trust. more...
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Post by fastwalker on Feb 19, 2005 12:02:52 GMT -5
Step 2, Paying Annuitant for the Property. Next, the trust "pays" the annuitant for the property The payment isn't in cash, but with a special payment contract called a "private annuity". A private annuity is not an annuity issued by an insurance company. It is strictly a private arrangement between the trust and the annuitant. It is very important in understanding this entire program that this is a buy-sale transaction, not a gift to the trust by the annuitant. The form of payment is not outright cash, but is a life annuity. The payment amount is the property’s fair market value, also known in tax law as “full and adequate consideration”. A private annuity is something like an installment sale. Instead of specifying an exact number of payments as in an installment sale, the private annuity promises to make payments to the annuitant for the rest of his life. Since the property was worth $1,000,000, the face value of the annuity contract is also $1,000,000. The amount of the life time annuity payments will be in direct proportion to this face value. The annuity payments may begin immediately or they may be deferred for some period of months or years. The amount of the annuity payments in this example are detailed in a later topic. Step 3, Liquidation of the Property. The next step in the private annuity process is liquidation of the private annuity property. The trust, as the new owner, sells the property to the previously identified buyer. In the example we are following, the outside buyer pays the trust $1,000,000 cash for the property. Taxation for Annuitant. The tax ramification to the annuitant is that the exchange is not immediately taxable. Under IRS rules the annuitant is taxed only on payments actually received, as they are received, and not all up-front on the entire amount. This is similar to making an installment sale, then paying taxes only on the installment payments as they are received. If the annuitant chooses to defer his annuity, that is wait for some period of time before payments begin, there will be no taxes during the deferral period because no money is received. Once payments begin, whether immediately or at some deferred period, there will be a proportionate amount of taxes owed on each year’s payment. For details of how the payments are taxed, see the later topic, Taxation of Annuity Payments Taxation When Trust Liquidates Property. The tax ramification to the trust’s liquidation of the property is: Zero taxes. That is due to the fact that, in this example, the trust sold the asset for $1,000,000 to the outside buyer, and the trust paid $1,000,000 to the annuitant, by means of the private annuity contract. That leaves zero gain to the trust, and zero taxes. Deferral of Payments. Often annuitants will choose deferral because they have other income and don’t need the payments right away. Of course, annuity payments may begin immediately too; deferral is strictly an option. The deferral can be any amount of time, though payments must begin by age 70-½ . For the annuitant there are no capital gains taxes owed on the asset sale at any time during the deferral period. Figure 6 provides a time line illustration of what happens when there is a deferral. This annuitant is 45 years old at the time of the creation of the private annuity transaction, doesn’t need the payment and he chose a 20 year deferral. He receives no payments during the 20 year deferral and pays no taxes. At age 65 the payment period begins for the annuitant. At that age the annuitant has a 20 year life expectancy according to IRS tables. During the annuity payment period the annuitant will receive taxable annuity payments for as long as he lives, regardless of whether that is longer than, shorter, or exactly 20 years. Comparison With a Taxed Sale. It is important to understand that payment of the capital gains tax to the IRS is done with an "easy installment plan". There is no interest or penalty on these deferred payments of the tax. On top of that the tax payments will be made with depreciated dollars. The tax dollars will be worth far less than they are today due to inflation. Yet the underlying investment will grow in value, probably at more than the rate of inflation. In our example, the $1,000,000 property placed in the trust was sold for cash by the trust. The trust accrues interest to the annuitant on the $1,000,000. (The interest rate is dictated by the IRS under Section 7520 of the Tax Code.) So the annuitant has the entire untaxed value of the sale, $1,000,000, growing and earning interest for him. He may earn much more money than he would if he sold the property and paid the tax up-front. This is due to both the twenty year deferral to age 65 and the spreading of the tax payments over an additional twenty year period. more...
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Post by fastwalker on Feb 19, 2005 12:03:40 GMT -5
Let's examine actual numbers and compare the annuity transaction to a straight forward, taxed sale. We start with the $1,000,000 property value. The annuitant's basis is 200,000 leaving a profit or gain of 800,000. We are estimating combined federal and state capital gains taxes at 160,000 which is 20% of the profit (assuming 15% federal and 5% state tax rates). This leaves net cash of 840,000 in a direct sale vs. 1,000,000 in the annuity deferral sale. We are assuming that the net investment cash earns 6.0% before income taxes for the next 20 years. The property owner or annuitant is age 45 at the beginning, so he will be 65 when he starts to take payments from either of these plans. Under the direct and taxed sale the property owner receives annual payments of 277,300 vs. 330,119 under the annuity plan. This yields an estimated life payout of 5,546,000 under the taxed plan vs. 6,602,380 with the annuity strategy. That is an advantage of 1,056,380 more money to the annuitant. This advantage is due to the larger amount of net cash that was initially available to invest for the annuitant. Fixed Nature of Annuity Payments. It is important to understand that the annuitant's income is locked in to a fixed payment amount that is determined by three factors: Private annuity face value, annuitant's age and the IRS stipulated interest rate. No matter how much the trust earns the annuitant cannot receive more than his fixed payments. Any excess that the trust earns must be held for or paid to the trust beneficiaries. This should not be viewed as a negative feature however. The annuitant will receive all his principal over time and all the accrued interest on the unpaid balance of his principal. And, he is receiving it in a tax advantaged manner. The annuitant's chief consideration should not be on what may be left behind in the trust. It should be on whether or not he is benefiting more from the private annuity than he would from a taxed sale (and that assumes he is self disciplined enough to invest and manage his own money from the taxed sale). Taxation of Annuity Payments. Knowing how the annuitant’s private annuity payments are taxed, you must consider his first, this annuitant has a cost basis in his property, and a proportionate share of that basis is returned to the annuitant each year. The basis portion is tax free to the annuitant. Another part of each year’s payment will be a proportionate share of the capital gains, and that portion will be taxed at capital gains rates. The last part of the payment is ordinary income, and is taxed accordingly. The reason the annuitant receives ordinary income is that the private annuity always earns interest on the unpaid balance, and interest is paid out each year on top of the basis and capital gains portions. The proportionate share of tax free return of basis and capital gains is determined by the annuitant’s life expectancy at the time that the payments begin. If the annuitant has a 15 year life expectancy, he will receive 1/15th of his basis and 1/15th of the capital gains each year. With a 20 year life expectancy the annuitant will receive 1/20th of basis and 1/20th of capital gains each year. If the annuitant lives longer than life expectancy, he will have received a 100% return of his basis and capital gains at full life expectancy. So all further payments will be treated as 100% ordinary income to him. Depreciation Recapture. While we have primarily focused on the capital gains tax, depreciation recapture taxes are also deferred with a private annuity. But in either a cash sale or an installment sale the depreciation recapture is taxed immediately. While an installment sale can spread the capital gains out over a number of years, it cannot do the same with depreciation recapture. Furthermore, installment sales have "related party rules" that prevent an arrangement such as the private annuity trust described above. The related party rules only permit an installment sale with an outsider. This prevents the selling family from using a trust to make a cash sale, with the trust making installment payments to the original property owner. Trust Investments. There is substantial flexibility in making investments with the trust’s funds. The money may be invested in securities, real estate, or even in a new or existing business. Many investment advisors recommend using the trust funds to purchase a commercial variable annuity as the best tax advantaged investment vehicle, while other advisors may recommend mutual funds or individual stocks for the trust. The primary requirement of the trust's investment program is simply to produce the cash flow necessary for the private annuity payments to the annuitant. Trustees. Annuitants cannot be the trustee nor have any direct control over the trust. The trustee may be any adult trust beneficiary or any person who is independent of the annuitants. For example, an adult child who is also a beneficiary may be the trustee. The annuitants' accountant, attorney, financial advisor, family friend or a relative who is not in the immediate family are all possible choices. There may be either one trustee, or two co-trustees. Another trustee option is to use a corporate trustee. The National Association of Financial and Estate Planning (NAFEP) can assist with corporate trustee choices, or the annuitant may use a local trust company. more...
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Post by fastwalker on Feb 19, 2005 12:04:01 GMT -5
Benefits for Original Property. There are certain benefits for the property which the annuitant transfers to the trust. They are: 1. The entire value of the property is removed from the taxable estate of the annuitant. When the annuitant dies the payments to him cease and the annuity becomes null and void. This leaves nothing in the estate. Whatever is left in the trust will pass to the beneficiaries completely free of estate and gift taxes. (If the annuitant dies before receiving all the payments from an installment sale, the balance of the unpaid payments will be in his taxable estate.) 2. This arrangement does not trigger any gift tax consequences no matter how much the property is worth. The private annuity is treated by federal tax laws as an arms length, buy-sell transaction for full and adequate consideration. 3. The property will not need to go through probate when the annuitant dies. The property is removed from the annuitant's estate by the buy-sell annuity transaction. Added Benefits to Annuitant and Family. The deferral of capital gains taxes can produce a dramatic increase of cash in your pocket. But that is far from being the only benefit from using a Premier VI Private Annuity. Let's discuss some of these other benefits: 1. The family of the annuitant controls the trust and all the money. Everything from the sale proceeds and all trust earnings either goes to the annuitant or to his heirs. When the annuitant dies everything left in the trust will go to his heirs. 2. The trust can make a cash sale. It is not forced to make an installment sale to the outside buyer in order to spread out the capital gains tax. This is an advantage because you never know whether the outside buyer will make all the payments on an installment sale. 3. The private annuity is the equivalent of receiving a tax free loan from Uncle Sam. The $160,000 of deferred taxes in our example above was used to benefit the annuitant for a period that covered 40 years. 4. The formal mechanics of the trust arrangement provide the discipline that some find helpful in providing for their own retirement. The private annuity works equally well for single or married annuitants. Married couples can have the private annuity written as a joint, last to die contract. Private Annuity vs. Charitable Remainder Trust. A competing strategy to the private annuity is a program known as a “charitable remainder trust” or CRT. The private annuity has several advantages over the CRT, and virtually no disadvantages: 1. Private annuity payments are often higher, due to the fact the annuity returns all principal, with interest, whereas the CRT pays income (interest) only. 2. The private annuity allows much greater flexibility in investment choices. This is due to the fact the annuity is not “qualified”, not regulated by the IRS, whereas the CRT is. 3. A large advantage the private annuity has is that all the benefits stay in the family, where a charity will receive some of the benefits of a CRT. For example, if the private annuity trust earns more money than it needs to make the private annuity payment, that excess may be paid to the beneficiaries. In a CRT there is no such thing as “excess”. Further, when the annuitant dies the family receives all the remainder in the private annuity. With the CRT the remainder goes to the selected charity. 4. Mortgaged property cannot be transferred to a CRT program, but it can be with the private annuity. One problem with the CRT approach is that the annuitant could die early, leaving the family with no further benefits. If the annuitant died right away, as sometimes happens, the entire asset would be lost to the family. To solve this problem, most CRT’s are sold with a life insurance policy on the life of the annuitant. Of course that further reduces the amount of money the annuitant gets from the CRT. Finally, if in spite of the private annuity advantages the annuitant is charitably inclined, the private annuity may still be the strategy chosen, using a charity as the beneficiary of the private annuity trust. Then there really is no advantage to the CRT.
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Post by fastwalker on Feb 19, 2005 12:04:36 GMT -5
The Private Annuity As A Gift & Estate Tax Strategy. An important use of a Premier VI Private Annuity is in the transfer of large estates to the next generation free of gift and estate taxes. Many people think the Tax Act of 2001 eliminated gift and estate taxes. But federal estate taxes are scheduled to remain in place through 2009, and then be somewhat replaced by a partial loss of step-up in basis. Gift tax exemptions are scheduled to increase, but the actual gift tax was not eliminated by the 2001 Tax Act. (For complete info on estate and gift taxes, see www.nafep.com, “Estate Planning Under 2001 Tax Act”.) Further, most states have their own estate or inheritance taxes. These were not eliminated and they can be quite substantial. The private annuity process results in an exchange of the annuitant’s property for a lifetime annuity income, with that income being based on the full value of the property. The annuitant will receive all the principal and all the accrued interest under actuarial assumptions. In other words, the annuitant is given “full and adequate consideration” for the property. Therefore, the property transfer to the trust is not a gift, not subject to gift taxation. Likewise, when the annuitant dies there are no estate taxes because the property was sold, and the annuity expires null and void at that point. So the private annuity arrangement is a type of insurance policy for the annuitant's gift and estate tax planning. As long as the annuitant is alive he will continue to receive his payments to help with living expenses, but the balance of the annuity property is out of his estate immediately when he dies. Hope this helps a bit…want to add some "fun stuff" next or real soon...back later 8-)fw
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Post by fastwalker on Feb 20, 2005 10:25:03 GMT -5
No more on the taxes after this. Simply answer these questions and you will have a decent start on what needs to be done figuring your taxes. • As a married couples can you maximize income tax and capital gains tax savings by transferring assets from one spouse to the other... and then back again? • Can you extract every drop of tax saving from your annual capital gains tax exemption, and those of your spouse and children? • Can selling investments to exploit your CGT exemption be a BAD idea? • What are some of the other things you need to know about the various capital gains tax relief such as taper relief and indexation relief, and how they can be used to cut your tax bill to almost zero? • How unit trust investors earn 20-66% more than other share investors? • How ISAs, used correctly, can produce an incredible 60% more income than other investments? • How ISAs, used incorrectly, produce not one penny in tax savings? • Why share dividends are more attractive than other forms of income? • Shares vs Property - which offers the most attractive tax breaks? • What are the benefits of gilts and corporate bonds and HOW you should invest in them to derive the highest possible after-tax return? • Have you done a detailed comparisons of the various tax shelters available, such as VCTs and Enterprise Investment Schemes? • How can you gain extra tax savings from your losses? • Do you have a plain English understanding of how to calculate capital gains tax when you sell shares, unit trusts and other assets, and do you understand the complex 'share matching' rules? • Do you know how to complete the capital gains tax pages of your tax return? • Are Offshore tax planning strategies for stock market investors, a good choice for you, what are the risks and benefits?. • Have you done Inheritance tax planning for your family?. • Are you familiar with the tax benefits of obtaining 'share trader' tax status? • Do you know how to cut your tax bill by 30% by setting up your very own share trading company? Aside from a lowering of the federal tax rates for the upper income tax brackets (25% and higher), the Jobs and Growth Tax Relief Reconciliation Act of 2003 included a meaningful reduction in the tax rate for both long-term capital gains and dividends. This change applies to assets held in personal (taxable) accounts and not dividends and capital gains received in or withdrawn from retirement accounts. Long-Term Capital Gains - A long-term capital gain is defined as a realized gain (profit) derived from the sale of an asset owned for at least one year. Such gains are now taxed at a maximum rate of 15% for 2003, down from 20% in 2002. Short-term capital gains (profits from assets owned for less than one year) continue to be taxed as ordinary income. That rate could be 25%, 28%, 33% or 35% depending on your marital status and income level. Dividend Income – Dividends derived from sources in personal accounts are now taxed at a maximum rate of 15% as opposed to being treated as ordinary income. Remember that distributions taken from retirement accounts are taxed as ordinary income whether they were derived from dividends and/or capital gains. So investors lose the benefit of this rate reduction to 15% in retirement accounts. For example, retirees in the 27% tax bracket would have to pay federal taxes at the 27% rate for dividends and capital gains earned in a retirement account and taken as a withdrawal. On the other hand, if those same retirees amassed substantial long-term capital gains and received dividend income from stocks and mutual funds in personal accounts, they enjoy the full benefit of the reduced 15% tax rate. In effect, they save 12%, the difference between their tax rate, 27%, and the tax rate on dividends and capital gains, 15%. The higher one’s tax bracket in retirement, the greater is the savings. But don’t forget that these investors also enjoyed tax-deferred growth over the years in which they invested in retirement accounts. Nonetheless, large tax bills can have greater negative impact on retirees who no longer have a paycheck. They must rely on pension income and/or withdrawals from personal and retirement accounts. In this instance, saving 12% or more on taxes can be meaningful for many citizens. Be advised that this reduced 15% federal tax rate on dividends and capital gains is due to expire at the end of 2008 unless extended by Congress. If you do not have answers to the above questions get professional help. One last question, do you have a Tax Attorney and a CPA, to keep your assets out of trouble? Ok, some fun stuff now to do with all that $$$$$
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Post by fastwalker on Feb 20, 2005 11:00:12 GMT -5
Hey guys, since we have been repeatedly “hit” by NSS and stagnation of the CMKX pps, we will hopefully, be in a position soon, to look back on all of this as a learning experience. One things that we have all talked about and should look into for our future needs, is the HEDGE Fund . Yeah, I know, the little issue of ethics, integrity and morality not to screw over the “average investor,” is a paramount issue now with CMKXers, since we firmly believe and or assume, these guys have been instrumental in hitting us with massive NSS of CMKX stock. Guys, for what it’s worth, even if you do not like the idea of hedge funds and stay out…bottom line is simple, they will not be going away any time soon and others will use them as the vehicle for getting and remaining wealthy. Why not avail yourself of the tools they “super rich” use? Some background information for your edification. Hedge funds are designed to make you richer, not just most years, but every year. The only trouble is that you have to be rich already to get aboard. But that shortcoming for CMKXers, may be about to change. Hedge funds are not the money you put away for a new set of garden shears, they are the best performing investment weapon in the armory of the super-rich. And now the techniques have proved themselves they are starting to become available to investors of more ordinary means. Hedge funds are specialist investment funds which use a wide variety of investment techniques and aim to make their investors richer every year. That, you may think, is just what ordinary investment funds do, but it isn’t so. Most ordinary funds, such as investment trusts and open-ended investment companies (the new name for unit trusts) are ‘benchmarked’ to a particular universe of shares or investments, whose performance they try to beat. Whether you are richer at the end of a month or a year normally depends on what happens to the benchmark as much as the skill of a manager. If you are in an index tracker, of course, it purely comes down to what happens to the benchmark. Hedge Fund have the great freedom to invest in almost any financial instrument, and do not need to confine themselves to any particular market place or universe of investments. This means that they can use holdings, for example, in gold, cocoa, interest rate futures, currencies and stock market derivatives to get the performance they want. Most ordinary funds cannot do this, because financial regulation stipulates that investors should have some idea what risks and markets they are getting into. Hedge funds, however, are either based offshore, where financial regulation is lax, or where they are onshore are designed to be used by sophisticated (i.e. wealthy) investors. For example, US hedge funds are generally set up as private partnerships, and are limited by law to just 99 investors. Under Securities and Exchange Commission rules, at least two thirds of these investors must be worth $1 million or more. However, under a recent revision to the rules hedge funds can accept up to 500 investors if they are “qualified” which means they already have $5 million of available funds. The assumption is that such people know what they are doing, and are unlikely to go crying to the regulators because nobody told them they might be taking speculative positions in pork bellies or the Vietnamese Dong. Data suggest that US hedge funds dramatically outperformed the average US investment fund from 1988 to 2002. Hedge funds recorded average annual gains of 17.0% against 8.2%, and an 11.1% annual performance by the S&P500 benchmark over the period. Hedge funds were certainly in the news in that time. It was George Soros’ Quantum Fund that supposedly made $1 billion out of shorting the pound during Britain’s ERM debacle in 1992. However, Long-Term Capital Management, another hedge fund spectacularly blew up in 1998 with theoretical liabilities of $1.25 trillion. So big, in fact, it had to be rescued by the US Federal Reserve. Apparently, even LTCM’s most sophisticated investors didn’t understand the propellor-head type of derivative investments that the fund was making. more...
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Post by fastwalker on Feb 20, 2005 11:00:59 GMT -5
There have been problems more recently too. In the last month or two sharp falls in the stock markets of emerging markets and an unexpectedly sharp rebound in the dollar have hit many hedge funds, many of which borrowed in dollars to fund their overseas investments. This part we are all too familiar with….and that is the characteristic aspects of a hedge fund is the ability to go ‘short’, which allows the fund to make money when shares are falling. They do this by selling shares they don’t own in order to buy them back more cheaply in the future. How can you sell something you don’t own? In well-established futures markets such as commodities and currencies, shorting is a well-established technique. An investor may ‘sell’ (or promise to deliver) a million tonnes of nickel or 10,000 tonnes of cocoa in six months’ time at a fixed price, and will then over the coming days or weeks try to buy back that commitment at a profit. Shares, this was always a bit more complicated. Traditionally, financial institutions could short shares by approaching long-term holders of a particular stock, typically banks or insurers, and ‘borrowing’ for a fee their share certificates which would then be collateral for the sale. More recently, it has become easier to short stock with the advent of stock-based derivatives such as contracts for differences (CFDs) and spread-betting. The upshot is that hedge funds are able to take advantage of periods when markets are weak, to seize on overvalued individual shares and short-sell them, or to hedge (and that is where the name comes from) the risk that its conventional ‘long’ share positions might lose money. Most hedge funds give their investors a good idea of the types of money making opportunities they will be pursuing. Absolute return funds, which aim to make say 6%-8% a year irrespective of the state of the stock market, as well as shorting, will use arbitrage techniques which involve the simultaneous sale and purchase of similar types of security for a known return. Event-driven funds take advantage of temporary mis-pricing of bonds, shares or other assets. Macro funds exploit major economic or financial developments around the world that lead to big swings in asset prices, while merger-arbitrage fund managers look for opportunities that emerge during takeover bids. Finally, if you are interested….Hedge funds for you and me Now that hedge fund techniques have proven themselves, everyone wants a slice of the pie. Investors don’t see why they should be excluded from techniques which promise absolute returns just because they aren’t rich already. In the US there are already mutual funds (i.e. open-ended funds like unit trusts) which mimic the strategies of hedge funds for ordinary investors. This was made possible by a relaxation of the mutual fund short-selling rules in 1997. In 2003 US hedge fund group Baron Partners switched to become a mutual fund, and since then a whole new crop of so called “hedged mutual funds” have appeared. So the message for all of the small investors is this: what works for the rich boys could very soon be working for the CMKXers, if they so choose.
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