Queercents

Growing up, we never discussed the stock market. It just wasn’t part of my household, my neighborhood, or (to my recollection) the national zeitgeist.

My parents probably had some money tucked away in a mutual fund or two that were recommended by my Uncle. The Sunday newspaper had a thick section filled with the weekly summary of stock and mutual fund trading values printed in impossibly small print. The subject was a foreign language, full of arcane symbols.

The only investments ever discussed were savings accounts and certificates of deposits. I would take my birthday money to the bank along with my savings passbook. The clerk would fill out the deposit slip and enter the deposit amount in the passbook, initialing the entry.

Growing up with inflation

The bank paid 5% on deposits. We never shopped around for a better rate, because it would have been too inconvenient to travel elsewhere to transact business. During my high school years, inflation grew to 5%, then 7%, then 10%, finally reaching a peak of 13.5% in 1980. As I recall, the bank continued to pay about 5% on my savings. Even with my measly high school math I knew I was losing ground. Inflation was the story of the day. It dominated the nightly news. President Ford encouraged the nation to “Whip Inflation Now,” with his big red WIN buttons.

I don’t mean to bore you with tales from this old geezer’s childhood. I’m telling you this in case you are too young to have lived through inflationary times. Read the rest of this entry »

What do you get when you cross an artist with a $20 bill? Apparently the answer is: Art.

Moneygami is origami with money — especially when the final design highlights the portrait, or other distinguishing feature, on the bill.

Here, just for fun, are some sites showing the art:

• DesigniousTimes
• FunFever
• Origami Resource Center
• Crandall11

If you want to try it yourself, here are some videos to get you started: Read the rest of this entry »

You can claim the cost of your child’s summer camp as a dependent care expense if:

• the camp is essentially providing child care so that you and your spouse can work (or look for work),
• it is a day camp (sleepover camps are considered a luxury), and
• the child is under 13.

You can claim expenses of up to $3,000 for one child or $6,000 for two or more children.

The expense claimed is limited by the lesser of the earned income of the two spouses. For example, if one spouse’s annual income is $5,000, you cannot claim the full $6,000 expense for two children.

The claim is made on line 48 of the 1040. You must include IRS Form 2441: Child and Dependent Care Expenses.

The tax credit received is 20% of the dependent care expense if your Adjusted Gross Income is greater than $43,000. The percentage credit rises if the AGI is lower. Read the rest of this entry »

“The next thing I say to you will be true. The last thing I said was a lie.” — Devo

Two weeks ago, I wrote about my Three-Minute Portfolio based on low-expense-ratio index funds. That’s a great way to put your investments on autopilot. However, an index fund, by definition, will never beat the market.

If you’re willing to put a little time and attention into your investments you can make a portfolio that will (probably) do a bit better than the market.

Didja’ notice some wishy-washy words in that last sentence?

• “Probably”: No one can guarantee you returns that beat the market. Anyone who does is related to Bernie Madoff.
• “A bit better”: This is not a get-rich-quick scheme, it is a way to consider other sensible investments.

That being said, it is reasonable to consider what you would choose if you want to reach a bit beyond index funds.

A sensible place to look is to use Morningstar’s rating system. They rate all mutual funds from one to five stars. The worst 10% of all funds rank one star, 22.5% rank two stars, 35% rank three stars, 22.5% four stars, and the best 10% rank five stars. The funds are grouped by category (e.g. US Large Cap) and adjusted for risk. Read the rest of this entry »

“The perfect is the enemy of the good” — Voltaire

“I’m finally ready to begin investing, but I don’t know where to begin. Stocks. Bonds. Mutual funds. ETF’s. It’s all very confusing. I have some cash in a savings account, but I want my money to work harder. What do I do?”

The premise

Getting started with an investment portfolio doesn’t need to be difficult. The following steps will take you to a solid, low-cost, easy-to-maintain portfolio. You might not end up challenging Warren Buffett for the title of World’s Best Investor, but you’ll sleep well, and you won’t spend every waking hour worrying about your investments.

Well-managed index funds have low expense ratios, since you’re not paying anyone to scout out the world’s best companies. All the manager does is maintain a portfolio of stocks or bonds as indicated by the index, whether it’s the S&P 500 or the MSCI EAFE.* Mutual funds (including index funds) give you a little bit of ownership of hundreds of companies. If one company stumbles, you won’t lose too much money; conversely, your returns are not going to “hit it out of the park.” The idea is to move up and down with the market, with the assumption that in the long run, there will be more up than down. Read the rest of this entry »

With the economy in the doldrums, many folks are starting businesses to bring in a little side money. If you decide this is for you, there are a few important steps to take in forming your new venture.

I’ve written before about the importance of forming a limited liability company (LLC) to protect your personal assets. Today, I’d like to discuss the advantages (and disadvantages) of forming an S corporation.

Self-employment tax

Whenever you earn money not as an employee, you owe self-employment tax, in addition to income tax. It doesn’t matter whether you’ve formally incorporated, filed as an LLC, or are just going door-to-door peddling homemade soap; it’s income, and you need to pay Uncle Sam his share. The self-employment tax is 15.3% of income (revenue less expenses), which is a hefty bite. Unlike income tax, the self-employment tax rate is fixed — not progressive — the smallest street vendor pays the same rate as a high-end attorney.

Self-employment tax pays for Social Security (12.4% — up to the first $106,800 (2009)) and Medicare (2.9% — no income limit). If you are an employee, you and your employer each pay half of this amount; as a self-employed person, you get to pay it all. Read the rest of this entry »

Asset allocation is perhaps the most important consideration when designing an investment portfolio. Selecting an appropriate mix of stocks, bonds, and cash and maintaining the proportions through regular rebalancing, is about as sure-fire a winning strategy as it gets.

And the online financial service firms are there to help, right? If I just follow the directions on the website, it’ll be easy as pie, right? Wait a minute, hombre, not so fast. Let’s compare the offerings of three large online services: Schwab, Fidelity and Morningstar.

What exactly is “aggressive”?

The first step in selecting an appropriate asset mix is to determine what “investing” style matches your investment time horizon and your tolerance to risk.

If you’re nearing retirement, you want to have a more conservative portfolio than if you’re just starting out. Workforce newbies have the most to gain from a high-risk-high-gain allocation, and more time to recoup, should the markets sour. Likewise, if you’re the type who loses sleep when the markets see-saw, you might be more comfortable with a lower volatility portfolio, and accept that you might have to work an extra year — that may be a good trade-off for you. Each website offers a walk-through questionnaire to help you evaluate where you fit on the spectrum of risk tolerance. Read the rest of this entry »

Yesterday, NPR had a short interview on end-of-life planning for same-sex parents:

As a follow-up to a recent Tell Me More conversation focused on ways parents can plan ahead for their children in the event of a tragedy, the program explores the unique sensitivities faced by same-sex couples. Money coach Alvin Hall and attorney Shauntese Curry Trye, a specialist in family law, spell out the complexities and offer tips for getting around them.

In sum, they emphasize:

• the importance of wills,
• the importance of a non-biological parent adopting the child, and
• the importance of reviewing and updating wills and other directives when you have a child or adopt or marry, move to another state, separate, or divorce.

But you don’t need me to summarize it for you. The interview is short, concise, and well worth a listen.

By day, Helen engineers new materials to make computer chips cheaper, better, and faster. When the son goes down (pun intended), she writes about personal finance at Affine Financial Services.

The IRS will be holding a series of public discussions for input on establishing standards for tax preparers. It’s about time, I say.

July 14, 2009: The Internal Revenue Service today announced a series of public forums at which individuals and representatives of diverse constituent groups will be able to provide input on the development of tax preparer performance standards. The public forums, a crucial part of an effort launched in June by IRS Commissioner Doug Shulman to help ensure tax preparers are qualified, ethical and provide a high level of service, will kick off on July 30 in Washington, D.C.

“These public meetings will be an important part of the dialogue as we move toward a set of comprehensive recommendations by the end of this year,” Shulman said. “We want an open discussion on how to strengthen the overall integrity of our tax system.”

Knock wood. Tax preparation isn’t an occupation known for deceptive practices. Read the rest of this entry »

Gay and lesbian couples who choose to have children often do so later in life. After all, no children are conceived “accidentally” in LGBT families. A parent who chooses to stay home to raise the children can take advantage of a great tax break. It’s difficult to adjust to not having an income, but one upside is that it puts you at a very low — even zero — tax bracket. If you have a 401(k) from previous employment or a traditional IRA, take advantage of the opportunity to transfer the money into a Roth IRA. You’ll have to pay income tax on the amount transferred, so be sure to have money on hand to cover the taxes. Once money is in a Roth, you never have to pay tax on it again. You don’t have to transfer the entire amount at one time, so if you plan to stay home for the first three years of Junior’s life, you can break up the transfer over the three years — that should help keep you away from the higher tax brackets.

Example: Susan and Carol are expecting a new baby and plan to have Susan stay home for five years until the child enters kindergarten. Carol has a good paying job and can cover the bills, if they tighten their belts a bit. Susan previously worked for seven years in telecommunications and has $50,000 in a 401(k) with her former employer. Susan can transfer the 401(k) funds into a traditional IRA, or as of 2008, you can distribute funds directly from a 401(k) into a Roth. Read the rest of this entry »