Friday, March 30, 2012

The IRS has a Deal for You!

Normally, when the government says, “I’m here to help you”, I would advise you to run like heck! But the IRS’ Fresh Start initiative looks like it may actually bring some needed relief to unemployed folks, as well as those who have hit upon hard times.

If you meet these criteria, you can get a little extra time to pay, and can eliminate some of the more heinous penalties the government usually docks you if you file late:

·         If you’ve been unemployed for at least 30 consecutive days during 2011 (or during 2012, up to the April 17 tax deadline)
·         If you are self-employed and have experienced a reduction in business income of 25% or more in 2011 (primarily as a result of the economy)
·         Your adjusted gross income must be less than or equal to $100,000 ($200,000 if married filing jointly). Your 2011 balance due must be less than or equal to $50,000

If you meet these parameters, the IRS will give you an extra 6-months (to October 15) to pay your taxes, and…while you will be charged interest on your unpaid taxes, Uncle Sam will not charge you a “failure-to-pay penalty), if you pay your tax debt in full by October 15, 2012.

As well, the IRS is giving taxpayers several options for payment, including:

·         Short-Term Extension of Time to Pay, if you can pay within 120 days
·         Installment Plan Agreement, for taxpayers who owe $50,000 or less (note, there are some provisions for those who owe more than $50,000)
·         Offer in Compromise, for taxpayers who have endured significant financial upsets, who seek a settlement (a compromise) on the tax debt they owe

The most important thing for you to know: Don’t let April 17 go by without contacting your tax preparer or the IRS to make arrangements for payment. If you ignore the deadline, you will find yourself steeped in penalties that will make a bad situation worse. My advice: Take advantage of this unusual generosity of the IRS

My 2 Favorite Stocks for Next Week

My 2 Favorite Stocks for Next Week

The stock markets continued their upward trend this week, with just a little volatility. Indexes were aided by the great numbers posted by Michigan Sentiment, which came in at 76.2, compared to the 74.3 forecast.

As well, GDP (third estimate) remained steady at 3%, and personal spending rose. While unemployment claims were a bit higher than expected, they weren’t too far off the mark. Result: A decent end to the week.

Sector-wise, technology ruled the roost, with an average return of1.07% for the week, followed by Healthcare, at 0.90%.

The market continues to look undervalued to me, and my search this week found more than 40 companies that were worth a second look. Here are two of my favorites:

Glu Mobile (Nasdaq: GLUU) develops mobile games for the global market. Titles include: Big Time Gangsta, Blood & Glory, Bug Village, Contract Killer, Contract Killer: Zombies, Eternity Warriors, Frontline Commando, Gun Bros, Men vs. Machines, Stardom: The A-List, Super K.O. Boxing and Toyshop Adventures.

Price: $4.80
Market cap: $314.44 million
Target: $7.00 (conservative estimate)

Why I Like It: Discounted value, takeover candidate, and new analyst interest.

Merge Healthcare (Nasdaq: MRGE) sells software solutions that automate healthcare data and diagnostic workflow.

Price: $5.85
Market cap: $534.23 million
Target: $8.75

Why I Like It: Reported a good quarter, forming new business divisions, in a quick-growing sector, due to the need to create electronic patient records.

These stocks are both small-cap, so please understand that investing in them may entail more risk than buying shares in their larger competitors. Consequently, if you decide to purchase them, please make sure that they constitute only a small portion of your portfolio.

Note: I intend to establish a portfolio of similar picks, some 25-30 stocks that I’ll update on a regular basis. I will discuss them from time-to-time in my blog and on this web site, but a full analysis of each stock—as well as detailed updates—will be available only via subscription. If you’d like more information, just contact me directly, at

Friday, March 23, 2012

My 2 Favorite Stocks for Next Week

We’ve had a bit of a rest in the stock markets this week, but I expect the upward momentum to continue very soon. And although we have recently lost a little speed, we have seen growth in all 11 Morningstar sectors so far this year.

Year-to-date, consumer cyclicals is the winner, with stocks averaging an 18.3% gain, followed by technology (16.8%), financial services (15.6%), and industrials (12.1%). Even the worst return—5.1%--posted by utilities, is pretty darn good!

As I said at the beginning of the year, I fully expect that momentum to continue into the foreseeable future, due to significant improvements in our economy. Rising corporate profits, reduced unemployment, a more active housing environment, and still-low interest rates, are all contributing to a more positive mindset from consumers and investors.

And with that in mind, I’ve decided to begin publishing “my two best stock picks” weekly. I’ll give you some basic information as to why I think they have room to grow—including how much potential I believe they have. Then you can do your own research to see if they fit in with your investing goals.

My screening criteria are basically fundamentally-oriented, asking the question: Is this a strong, well-run company? A few of my primary screens are: Good cash flow, low debt, low P/E, and increase in institutional interest. Those parameters are augmented by a few technical indicators, such as moving averages and momentum factors, which tell us if this is a good time to buy (or sell).

When I ran my screens this week, I came up with a whopping 37 companies! Here are two with the most potential:

Spectrum Pharmaceuticals (Nasdaq: SPPI) is a biotech company, operating primarily in hematology and oncology.
Price: $13.44
Market cap: $791.55 million
Target: $20

Why I Like It: Discounted value, focuses on two fields that are growing phenomenally, with the ability to be a takeover candidate for a larger pharma, as well as a buyer of its smaller competitors.

FSI International (Nasdaq: FSII) operates in the microelectronics industry, offering surface conditioning equipment that uses wet, cryogenic, and other chemistry techniques to clean, strip, or etch the surfaces of silicon wafers; and refurbished microlithography products to deposit and develop light sensitive films
Price: $5.14
Market cap: $200.96 million
Target: $8

Why I Like It: The semiconductor sector is on an upswing, along with FSII, which just reported a very good quarter. I also like the company’s cutting-edge technology—a good indicator of a business that might also make a great takeover candidate. And I think the company is undervalued.

These stocks are both small-cap, so please understand that investing in them may entail more risk than buying shares in their larger competitors. Consequently, if you decide to purchase them, please make sure that they constitute only a small portion of your portfolio.

Note: I intend to establish a portfolio of similar picks, some 25-30 stocks that I’ll update on a regular basis. I will discuss them from time-to-time in my blog and on this web site, but a full analysis of each stock—as well as detailed updates—will be available only via subscription. If you’d like more information, just contact me directly, at

You Don’t Want to Make the IRS Mad!

April 17th is creeping up on us, and if you are a habitual late filer of your annual income tax form, you are probably well aware of the penalties that you can incur. But if you are (I don’t know how to say this gently)—a tax cheat or a wannabe IRS renegade, or just have been too busy this year to worry about your taxes, you should think twice about missing the deadline.

Here’s why:

1.      Fraudsters, lookout! If fraud is involved, your penalty stacks up to 15% for each month or part of a month that your return is late, up to 75%, maximum.

And if you are under the mistaken impression that paying federal taxes is “voluntary”, just check out the 16th Amendment to the Constitution, which was ratified in 1913, and states, “The Congress shall have the power to lay and collect taxes on income, from whatever source derived”. Consequently, tax evaders may be subject to criminal prosecution for a fraudulent return, refusing to pay, declining to file a return or pay taxes that are due, or making fraud and false statements. And those penalties can mean up to $100,000 in fines and 5 years in jail! The

2.      If you just dawdle and miss the April 17th date (and, hey, we have a whole extra two days this year!), you might be socked with a failure-to-file penalty. That amounts to some 5% of the unpaid taxes for each month or part of a month that you file late. The good news—if you can call it that—is that the IRS won’t charge you more than 25% of the amount of your unpaid tax bite.

3.      For filers who drag their feet more than 60 days past the deadline, your minimum penalty will be at least $135, up to 100% percent of your unpaid tax.

And if you don’t file your return and pay your tax by the due date, you may incur civil penalties. They may also apply to understating your tax or a transaction, filing a refund or credit in error, submitting a frivolous tax, or failure to supply your Social Security number or individual taxpayer identification number.

Moral to this story: File on time!

Friday, March 16, 2012

Don’t Let this Happen to You!

Rev up your savings engine now…

The economic and stock market recessions of 2007-2009 didn’t help those Americans who are nearing retirement age, did they?

While the stock market has mostly come back, folks who didn’t panic and sell out of their holdings during the downturn, are generally, ahead of the game these days. However, the economic recession forced many people who had been dedicated savers to forego their normal retirement investments. For several reasons:

·       Many were too scared to stay in or get back into the markets after seeing the Dow Jones Industrial Average fall to less than half of its value, so they just put their money under their mattresses or into very low-yielding assets

·       Others were afraid of losing their jobs, so they put as much of their income as possible into very liquid savings, incurring the opportunity cost of investing in lower-yielding assets instead of the stock market

·       The rest lost their jobs or had to take a cut in pay, putting their savings/investing on the back burner

The result: 60% of Americans, according to the Employee Benefit Research Institute, have less than $25,000 put away for retirement (not counting defined benefit plans and the equity (or none) in your home.

Is that scary, or what? If you’re brave, stay with me here, and let’s look at some even more frightening numbers:

Being Self-Employed is Great, but not at Tax Time!

All my friends are envious that I work mostly at home, on my own schedule. Of course, they don’t realize that being an independent contractor means that I work a whole lot more hours than most folks who receive a regular paycheck, and at all times of the day and night!

Being self-employed is not for the faint at heart! But it has many rewards, including flexibility, being your own boss, and knowing that the amount of effort you expend is directly related to your results.

However, when Uncle Sam comes ‘round every few months—with his hand out—I grit my teeth and just write out the inevitable check. Listen, I don’t mind paying my fair share, but the Self-Employment Tax pushes my goodwill to the limit.

And…it requires additional tax planning that many new independent contractors don’t understand.

You see, when someone else writes your paycheck, they also pay one-half your Self-Employment Tax, which is essentially Social Security and Medicare taxes. But when you are your employer, you have to pay it all! And for 2011, that means your nut is 13.3% of the first $106,800 of your self-employment income (10.4% for Social Security and 2.9% for Medicare). That is actually better than 2010, thanks to the 2010 Tax Relief Act that reduced the self-employment tax by 2% for 2011.

On the plus side, Uncle Sam also allows you to deduct one-half of your self-employment tax when calculating your adjusted gross income. Note thought, that the deduction only applies to your income tax—not to your net earnings from self-employment or your self-employment tax.

So, the next time your friends tell you how easy you have it being self-employed (and don’t forget how rich, either!), share this little story—maybe they’ll buy your dinner!

Thursday, March 8, 2012

Some Surprising Medical Deductions You Don’t Want to Miss!

It’s true—unless you itemize your deductions on Schedule A and your medical expenses are more than 7.5% of your adjusted gross income (AGI), you can’t deduct them on your tax return.

But, what some folks don’t know is that there are quite a few allowable deductions that fall into that category—some that may be very surprising to you, but deductions you don’t want to ignore.

Most people understand the normal deductions, including fees for:

·         Diagnosis
·         Cure
·         Mitigation
·         Treatment
·         Prevention
·         Equipment
·         Supplies
·         Diagnostic devices

But, the IRS also considers the following deductions allowable Tax Topics - Topic 502 Medical and Dental Expenses:

·         Acupuncturists
·         Eye doctors
·         Occupational therapists
·         Some weight-loss programs, foods, and health care memberships if prescribed by your doctor
·         Transportation costs to and from medical care—19 19 cents per mile from January 1 to June 30 2011 and 23.5 cents per mile from July 1 to Dec 31 2011
·         Amounts paid for qualified long-term care services
·         Limited amounts paid for any qualified long-term care insurance contracts
·         The cost of a medical conference (registration fees) if you suffer from a related chronic disease
·         Medical insurance premiums, but not pre-tax salary contributions you make to your employer-sponsored health insurance plan
·         Amounts you pay – if not covered by Social Security – for Medicare B supplemental insurance, Medicare D insurance, and Medicare A premiums
·         Even if your former spouse claims your children as dependents, you can still deduct any qualifying medical bills for which you pay

Lastly, don’t forget about those contributions you make to a health savings account (HSA). While not considered medical expenses, you can reduce your income by deducting 100% of your qualifying HSA contributions even if you don't itemize deductions.

Wednesday, March 7, 2012

Don’t Throw Away your 1099-K Form!

Did you recently receive a 1099-K tax form and had no idea what to do with it? You’re not alone!

The new form, called 1099-K, Merchant Card and Third Party Network Payments, is to report any payments you received in 2011 by credit or debit cards or through third-party electronic networks such as PayPal.

And you can thank the Housing Assistance Tax Act of 2008, which included a much-unnoticed blurb that—beginning in tax year 2011—required banks and other payment processors to send data on the payments they make to online merchants to the IRS. The government was afraid that some folks were not reporting their online income (imagine that!), and created Form 1099-K to make “volunteer” reporting easier.

Consequently, if you sell anything online and process your payments through a company like PayPal, you need to keep very good records.

So, don’t discard that 1099-K, or you can bet Uncle Sam is going to come calling.

You may want to know that some online merchants have found discrepancies between the reporting on the 1099-K and their own records. Most disagreements are related to how you record your payments and expenses—either cash (recorded on the date payment is received) or accrual (recorded when income is earned).

For instance, I read one article about Amazon, in which the seller objected to Amazon using date of sale vs. shipment date, to record revenues. Consequently, you or your accountant may need to make some adjustments to ensure you are reporting your income correctly. For more information on the form, visit Understanding Your 1099-K

Since most taxpayers had no prior knowledge of the 1099-K, you may have to work out a few kinks for this reporting season. But now that you know, you can set up your accounting system so next year’s reporting of your online revenues will be a breeze!

Thursday, March 1, 2012

Before You File Your 1040, Read This…

Just in case you thought the tax code wasn’t long enough at some 73,608 pages (according to CCH Group) there were a few additions you need to know about before you file your 1040.
Most of you are aware that this year we have a couple of extra days to file, extending the due date to April 17. And we can all breathe a sigh of relief that Congress extended the 15% capital gains rates. Additionally, for those folks who inherited estates in 2011 that were valued at less than $5 million, you are home-free, as far as federal estate tax goes. But should your pockets be deeper, you will face a 35% tax wallop.

And there are a few other changes that may affect your pocketbook Tax Law Changes for 2011 Federal Tax Returns:
·       You’ll have to file a new piece of paper, Form 8949, for Sales and Other Dispositions of Capital Assets, i.e., your capital gains and losses.

·       If you didn’t report the taxable amount of monies you converted or rolled over an amount from a traditional IRA to a Roth IRA or designated Roth in 2010 on your 2010 return, you will need to report half of it on your 2011 return and the rest on your 2012 return.

·       Alternative motor vehicle credit, but only if you purchased—or put into service—the vehicle in 2011, and it is a new fuel cell motor vehicle. Credit may also be available for the cost of converting a vehicle to a qualified plug-in electric drive vehicle. Use Form 8910.

·       Standard mileage rates, which are 51 cents per mile for January 1 through June 30 and 55 ½ cents per mile for July 1 through December 31.

·       You’ll be happy to note that the Alternative minimum tax (AMT) exemption amount increased to $48,450 ($74,450 if married filing jointly or a qualifying widow or widower; $37,225 if married filing separately).

In these tough economic times, every dollar counts, so make sure you get all the deductions you have coming!