Friday Financial Five – January 3rd, 2014
Friday, January 03, 2014
The New Year provides a fresh start for investors, fresh off robust returns in the equity markets in 2013. Numerous experts predict another positive domestic stock market this year, but everyone knows what those predictions are worth. Also not surprisingly, bond managers don’t see a reason to flee traditional fixed income holdings, despite last year being the worst returns on the aggregate since 1994. It’s always a good idea to review portfolio balances to ensure percentages aren’t completely out of whack. It also makes sense to review bond exposures to anticipate the ramifications of a changing interest rate environment.
Considering a C corporation
With a new calendar year, small practices with big revenue might consider a change in corporate tax structure. For example, consider a doctor who specializes in a particular field of medicine. The advent of the S Corporation meant the avoidance of the C Corporation’s “double taxation”. This meant not having income taxed at the corporate level, and subsequently as a wage paid to the doctor. The C Corporation allows numerous expenses to be run through the corporation as a deduction. In many cases, especially for those that utilize a defined benefit plan, this can help drive the corporate profit close to zero. This helps the doctor minimize tax liability, while taking advantage of some tax-friendly benefits through the corporation.
The unemployment rate sometimes raises questions, as it can remain stable or decrease, even with a lower number of people working. This occurs because the calculation is based on people actively searching for work. When those people stop looking, they no longer fall under the unemployment rate calculation. On December 28th, federal unemployment benefits ended for over a million people and it’s unknown if Congress is going to extend them once they reconvene next week. Looking for work is a condition of receiving benefits. This could create a near term phenomenon where the rate drops as many simply cease the search for employment as a condition of receiving benefits.
Bitcoin has a rough December
The month of December was not kind to the virtual currency, Bitcoin. China almost singularly halved Bitcoin’s value when the central bank stated that it did not view it as currency and forbidding financial institutions from accepting it. This led to the largest Chinese Bitcoin exchange to stop accepting yuan deposits. The currency’s value has been wildly volatile, but it is gaining traction in different areas of the world. The Federal Reserve has chosen to basically ignore it, but Bitcoin’s loss of over a billion Chinese consumers will make the battle for legitimacy even tougher.
IRS rulings can be costly
Keep in mind that IRAs only remain IRAs if the owner follows the rules laid forth by the IRS. When owners try to get cute or take advantage of a perceived gray area, things can get dicey. A recent court ruling involved the purchase of corporate stock inside an IRA, with a subsequent conversion of the IRA to a Roth. Due to personal loans the investors made to the corporation held inside their IRAs, the IRS deemed the investors had engaged in prohibited transactions. The Tax Court agreed, and the ruling added $250,000 in taxable income to the investors and over $50,000 in penalties. When considering an action slightly outside the box, it never hurts to get multiple unbiased opinions or even speak directly with someone working at the IRS.
Dan Forbes is a regular contributor on financial issues. He is a CFP Board Ambassador. He leads the firm Forbes Financial Planning, Inc in Providence, RI and can be reached at firstname.lastname@example.org .
Related Slideshow: 13 Biggest Business Stories in RI in 2013
13 Best Biz Cities in RI
GoLocal's examination of the Best Cities and Towns to do business in RI explored new ground for companies looking to relocate or expand.
Our researchers culled municipally-distinct data on tax rates, workforce availability, cost of living index, economic indicators for short term and long-term job growth, even average driving time to TF Green Airport, to quantify a blend of factors that make for a pro-business environment. Because every city and state in RI complies by statewide measures, those metrics weren't included in GoLocal's research.
Our coverage of the Superman building's threatened future started back in 2011, when a news story by GoLocal's News Team first unveiled the threat that Bank of America would leave the building and leave the city with the largest embarrassment.
In the story, The Superman Building: Downtown’s Ticking Time Bomb - former Mayor and developer Joe Paolino predicted the demise of the iconic building.
The failure to act by the Taveras Administration created the tallest embarrasment in America - one that has been reported by most every news organization in America.
GoLocal covered the demise of the building throughout the year.
11 JetBlue Factor
JetBlue's arrival to Rhode Island was first announced by GoLocal is the summer of 2012, but no one quite knew the impact of the JetBlue factor, until a promotion by the airline was launched in partnership with the Big Blue Bug, which rocked the internet and sold out $20 tickets in minutes.
The promotion launched on GoLocalProv showed the world of advertising has changed forever.
10 New England's Business
GoLocal's business team loves to collect and breakdown critical data to help Rhode Islander's get a beat on the story or even the bigger story.
One massively wide-read story was one that pivoted off the data of the Milken Institute and its rankings of all the cities in America.
The Best-Performing Cities study is published annually in order to highlight the cities and metropolitan areas in the U.S. that are prospering, and to point out those that are struggling from a structural point of view. By examining job, wage, and technology metrics over a five-year period, the publication utilizes a data-driven approach to provide a comprehensive measure of economic strength.
9 Arcade is Back
GoLocal has been tracking the Arcade since we came online in 2010 - from investigative video reports about the homeless living in the building to restoration and the reopenning.
While the financial district is only a shadow of itself - kudos need to go out Evan Granoff for pouring millions into the restoration of the classic Greek revival edifice.
8 38 Studios Defendants
An exclusive report by GoLocal's Investigative Team unveiled that defendant's in the 38 Studio's lawsuit had filed responses, and they had a very different opinion of what caused the collapse and the loss of $100 million to the State of Rhode Island.
Almost every defendant pinned the blame on Governor Lincoln Chafee for failing to give oversight and then hitting the panic button and forcing the ultimate collapse of the company.
7 Social Media
Social media continues to flex its muscle and demonstrate that it is far more influential than legacy media.
Twitters IPO and the progression of the Facebook model have redefined business.
One article in GoLocal's on going coverage of the metamorphosis of social media was a great guidance article by Johnson & Wales' Sierra Barter which functionally went viral.
Amazingly, one of the biggest stories of 2013, the effort by union leaders to force John DePetro off the air for calling female teacher protestors "WHORES," has been battled almost exclsuively on social media.
6 Alex and Ani Growth
Rhode Island's homegrown Alex and Ani continues at rocket speed growth.
The Cranston-based, Made in America jewelry company continues to bundle the very best of Rhode Island: jewelry design, old school manufacturing and smart marketing.
• Generated $80.04 million in revenue, including $22.06 million in sales in the state of Rhode Island, $51.42 million in sales in other U.S. states, and $6.57 million in exports.
• Supported 1,094 full-time equivalent (FTE) jobs in Rhode Island, from which 296 are direct FTE jobs and 798 are induced FTE jobs.
• Created $35.4 million in income for Rhode Island households. Direct earnings totaled $10.32 million and induced earnings totaled $25.1 million.
5 College Endowments
In Rhode Island, colleges and universities are big business. They are major economic engines and each of the local colleges readily announce the positive impact they have on the local economy and job creation.
GoLocal's look at the top 50 endowments of the college and universities in New England, found that Harvard's $30+ billion endowment overshadowed all other colleges in New England.
Brown ranked ranked 5th in New England and 28th overall with an endowment of more than $2.4 billion.
3 Twin River Rebound
Twin River is now a real casino with humans not video tapes dealing black jack.
Under the leadership of John Taylor, the company has rebounded from bankruptcy and become a model for gaming firms.
Now, Twin River is expanding and has made a strategic purchase in Mississippi.
With casinos coming online in Massachusetts sometime in the future, Twin River is doing a better job diversifying and planning for the future than the state of Rhode Island, who is so dependent on the revenue.
Rhode Island's unemployment situtation is a national embarrassment, and it is hard to see a governmental strategy designed for its improvement. In the post-38 Studios environment, decision-makers are affraid to champion significant initiatives.
The result is now that Rhode Island is last in America in unemployment and the crisis has gone on without improvement for years and years.
1 Demise of Newspapers
In the past year, the Providence Journal has laid off, demanded buyout or pushed retirements of over 50 reporters, editors and photographers - a staggering percentage of the newsroom.
Many of the those who departed were among the most recognized. Pulitzer Prize winning writer Mike Stanton quit to take a teaching job at UConn and now freelances for the Boston Globe.
Speaking of the Boston Globe, Red Sox owner John Henry bought the Globe from the New York Times for $70 million which represented a 97% loss in value for what the NYTimes had paid for the Globe and other related media.
As GoLocal's Pultizer Prize winning reporter Dean Starkman has written repeatedly about the need for media to invest in content. His words seem to fall on deaf ears.
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