This lack of repeal will increase taxes for 17 million seniors an average of $2,034 per year according to the Heritage Foundation, a Washington D.C. non-profit think tank.  That is approximately $170 per month!  Many seniors will find themselves dipping into savings to pay the taxes, if they have savings at all.

             For 42 million families with children, the average tax impact will be an additional $175 each month.  In my experience of working with families, few have the reserves in their budget to be able to afford this additional tax increase.  This will further slow the economy in all likelihood. 

             Business owners will also see tax increases. Many of the 26 million small businesses in the US today are already struggling with the decline in revenue caused by the weakening economy.  Many will be forced to close their doors if they see an estimated tax increase of $3,637 per year. In addition, the death tax, which is the leading cause of termination of successful small businesses, will be reinstated.

              Finally, the marriage penalty tax will be reestablished, forcing married couples to pay more in taxes than single taxpayers.  In the year 2000 the average cost for couples punished by the marriage penalty tax was $1480 per year.  It is estimated that 44 million people will be affected by this tax increase.

             The Wall Street Journal has described this as “the biggest tax increase in our nation’s history.”  What most people fail to remember is that right after the Bush tax cuts were implemented, state and city governments immediately raised taxes and many of the federal funds for the states and cities were cut off.   Those high state and city taxes are still in place to this day.  Adding to the taxes that already exist will result in a substantial burden for individuals, families, seniors and businesses.

Age has privilege based on certain, milestones like turning 65 and gaining eligibility for Medicare, health care at a reduced rate, and reduced real estate taxes. At age 59½ money can be withdrawn from retirement with no penalties. At 24 a student receives financial aid based on his own salary and not his parent’s income.

If income is too low, one can receive food, free medical costs, reduced rent, free tax money, free education, free day care, reduced utilities, and free legal aid.

If net worth is low and income is low, people can have many of the privileges outlined in the previous paragraph. In addition, one may be eligible for free nursing home care.

 Specific occupations also have privilege. For instance, individuals in the military or clergy do not pay taxes on the expense of housing. Veterans receive discounts at many retail stores and can also receive, if qualified, free health care, funeral expenses, education, financial counseling and can receive job preference. If one works for certain non-profit organizations or for the government, student education loans can be forgiven. Parents who work for the government also receive preference for their children on financial aid for college.

With the right knowledge, small business owners can structure income to their advantage from an income tax standpoint. There are numerous benefits that can be offered to employees structured to the advantage of the owner of the business. Profits of the company or business can also receive preferential treatment tax wise.

More recently we see first time home buyers, car buyers, union members, Congress, and attorneys receiving preferential treatment, even in the face of incompetence. Certain large businesses like banks, insurance companies, and auto companies have received advantages created by legislation coming out of Washington. The difficulty in having this preferential treatment is that by the time people discover what benefits are available, the time period to take advantage of these benefits has expired. As a result it benefits only those who keep informed or those who lobby help. In addition, it always results in taking from some people and redistributing it to others. Those who benefit receive value not by their own efforts, but by circumstances.

In United States societies of the past (50’s and 60’s) the check for business greed was customer service and customer satisfaction. The check mate for government is our Constitution; but Congress, as well as the judicial and executive branch of government, has over-reached its authority. The result will lead to socialism. It is not, nor has it ever been, the role of government to give charity, because it always leads to corruption. The church needs to take back it’s authority over feeding the poor, healing the sick, strengthening the weak, and providing clothes and shelter to those in need.

             Proverbs 19:2 says, “It is not good to have zeal before knowledge.”  We live in a society that has zeal and limited knowledge so we miss out on the hidden manna that is available to everyone.

             We have seen many examples where people have sought help at the wrong place or with the wrong people.  Others have found the right people but didn’t know the correct questions to ask.  We know numerous veterans who may be eligible for help but aren’t receiving it because they do not know the rules.  It is often not enough to simply ask a question about taxes and expect to get the right answer from the IRS knowing there are over 71,000 pages of the code. 

             People assume that if they take their taxes to the accountant that the accountant will show them how to pay less in taxes next year.  If you only see your accountant between January and April 15, don’t expect this bleary-eyed person to come forth with all the ways you could have structured your income to pay less in taxes. 

             Equally complex is the college tuition eligibility and financial aid process for reducing college costs.  We have a process for no debt college.  To optimize the result, planning should begin in the eighth grade.  For some we have helped reduce the cost after graduation.

             Most people do not understand the whole process of borrowing and establishing your credit score.  The credit score determines the amount of interest you will pay on a loan.  Our job is to improve the credit score to reduce your interest rate and thus improve your cash flow.

             Food costs can be dramatically reduced by simply understanding how stores merchandize their products and by setting up rules for yourself before entering the store.  Making up lists, using coupons, and checking receipts will add additional money to your pocket.  Even the process of choosing the right store is important to know.

             Utility costs can be dramatically reduced with proper insulation, routine maintenance of your furnace and air conditioner, and attention to energy usage ratings of your appliances.  Additional savings can be found by using water restrictors, fluorescent bulbs, and water efficient toilets.  If the cap and trade agreement happens, you can expect increases of $150 to $250 per month in utility expenses.  Begin making your house energy efficient now. 

             There is so much information available to us today that it becomes overwhelming very quickly.   Be determined and discerning in your search for the best possible solutions.

             Robert Ostrander, CFP®

            SWS Advisors, Inc.

        If you are healthy and have no chronic diseases, life insurance offered through your employer will likely be more expensive than what is offered through non-group coverage. Proper selection of the coverage for reduced rates and adequate coverage is necessary and we can assist in that process. Group insurance may be the best alternative for someone with chronic diseases. It should be noted that a loss of employment will also mean a loss of group coverage.

        If you are without credit card debt, we generally recommend that you take advantage of matching contributions by your employer to your retirement plan. This is why we encourage young people to avoid debt early in their careers. Money invested early and accumulating over many years grows dramatically. Time and compound interest is often referred to as the eighth wonder of the world.

        If your employer offers a flexible spending account (FSA or 125) sit down and review all your medical expenses that you anticipate for the next year. This should include prescriptions, chiropractic medicine, eye glass care, dental, medical costs not covered by health insurance, and any other related expenses. You can find a complete list through your employer or with a Google search of section 125 medical expense deductions. Some plans allow .14¢/mile to and from the doctor’s office with proper documentation. This benefit has tax savings of a minimum of 20% and as much as 40% for some people. Be accurate in your estimates because if you do not use it, you can lose it.

        Some benefit plans allow for pre-tax payment of mass transit deductions to and from work as well as pre-tax parking. This is offered under Section 132 of the IRS tax code. If the cap and trade agreements take place this may be the preferred method of travel because of the high cost of fuel. If your employer does not offer it, suggest to you human resources manager that he/she look into adding it to the options. This plan benefits the employer as well, saving the FICA tax for the mass transit expense.

        Another benefit offered is tuition reimbursement under Section 127 of the code. This benefit allows the employee to be reimbursed for successful completion of educational courses offered that will bring value to the employer. Often it requires a commitment to the employer for a stated number of years. The permissible amount is $5,250 each year. I almost always recommend long-term disability for employees because it represents a catastrophic risk potential. In some cases I recommend supplementing group long-term disability with an individual plan.

        I also recommend short-term disability for those with limited financial resources. I have never been a fan of accident policies or disease specific policies. They require specific risks to occur for collection of the benefit. Sometimes a family history of disease will sway my thinking.

        Dependent care benefits can also be taken pre-FICA and pre-tax for adults or children. Up to $5,000 annually is permissible as a payroll deduction. It is important to have a review of this benefit to see whether to take the pre-FICA benefit or the child credit. Your accountant can assist you with this decision.

        If you are planning an adoption this year, be sure to take advantage of the pre-FICA and pre-tax benefit that allows up to $10,390 to be payroll deducted. In addition, there is also a tax credit available for adoption. Be sure to discuss this option with your employer because this benefit saves your employer as well.

        Proper selection of benefits can be a significant benefit to employees. This is why planning is so important. Each year most of the benefits must be determined in October or November for the next year. It is worthwhile planning how to take these benefits. Be sure to call us if you need help.

Robert Ostrander, CFP®

SWS Advisors, Inc.

        The first option is to sell the home so as to have a more affordable housing expense. Many times homeowners are reluctant because the home would sell below what the family originally paid. This would obviously result in the seller losing money and leave the mortgage company with an unsecured loan for the remainder of the debt. We would call this type of sale a short sale. For such a sale to take place, the mortgage company would have to agree. The homeowner would then have to pay off the unsecured portion of the debt. The advantage would be to protect the family’s credit rating and avoid bankruptcy.

        In some cases the mortgage lender will take a hit on the unsecured portion of the debt, up to 100% of the unsecured amount, to avoid the cost of bankruptcy. If the lender does take a hit, it can result in the issuance of a 1099 to the homeowner for the phantom income, resulting in an income tax on the unsecured portion of the loan. The tax of course would be less than the repayment of the loan. On a positive note, there are some situations where the tax could be avoided.

        There are rescue funds of up to $3,000 available to those in Ohio. Not everyone will qualify, but for certain situations in which a family is behind on their mortgage payments, funds may be available. It is imperative that you can be rescued with the additional funds. They are not inclined to put good money into a bad situation.

        A third option is to file bankruptcy. What hurts the credit score most are multiple late payments. If this is an option to be considered, do not drag out the process if you see that you have no other choice.

        Another, and possibly a more fruitful option, is to take advantage of our Saving Without Sacrifice process. We recently had a riteree come in who was struggling to keep her home. Through our process we were able to identify savings of $500 a month on her $27,000 annual income. It was more than enough for her to avoid foreclosure but because she waited too long, some of the savings could not be realized for one year.

        These are tough times and with some of the proposed changes in government we can only see more difficult times ahead. We encourage you to be more proactive in reducing your living expenses. We would consider it a privilege to be part of your solutions to reduce your monthly costs.

Robert Ostrander, CFP

SWS Advisors, Inc.

The complexity of good stewardship for today’s family has gone way beyond the average person’s comprehension and understanding.  As an independent financial advisor for over forty years, I have found it increasingly difficult to stay abreast of the constant changes in government programs, tax law, health care, debt management, portfolio analysis, technology, food cost reduction, consumer products, automobile maintenance, estate planning, retirement planning, college cost reduction, home financing, extended health care (nursing homes, assisted living, etc.), career management, employment benefits, and personal budget management.  Living expense reduction and asset management is my life’s work, but few financial planners specialize in both of these areas.  If I have trouble keeping up with all the changes, do you think most people in our society have missed taking full advantage of their resources?

 Recently a lady came into my office requesting help because she was about to lose her home.  Her situation was not unlike what I see every day.  In her case, she was eligible for health benefits that would cost her no more than $60 a month, but she was using a plan costing $400 a month.  In addition, she was paying $40 each month for insurance she could never use.  She was also not aware that she was eligible for a property tax reduction of $400.  Because she was behind on her mortgage, she was eligible for rescue funds of up to $3,000 at no interest, yet she had just used a check cashing place at 60% interest to try to keep her home.   There were at least ten other ways that we found for her to save money.  Sadly, she was not tithing during this time so the body of Christ was losing as well.

 You might be thinking the problem is ignorance on the part of the lady, but it’s not.  The systems have become so burdensome that our ‘experts’ don’t know of, let alone understand, all the changes taking place.  I reviewed the lady’s information with a CPA (without revealing her personal data) and he confessed he was only aware of a few of the items that we found would save her money.   A CPA!  And he isn’t the only one.  In the last few years I have helped a financial planner with 30 years experience save over $20,000 and another planner with 15 years experience save $6,000. 

 Saving Without Sacrifice specializes in reviewing over 300 separate ways to reduce expenses, increase income and reduce taxes by analyzing insurance policies, tax returns, business structures, utility bills, investment contracts, deeds, food purchase habits, real estate holdings, employment benefits, debt agreements, government benefits, college cost reduction techniques, and your future goals.   We also assist in providing ways to assist in all future budget purchases.  Our goal is not to change our clients’ lifestyle, although it may be important to do so.  Our goal is to help simplify their life and transform them into wise stewards of the resources that have been entrusted to them.

Every church has vast assets within the body of Christ that either lie dormant or are wasted because people lack the understanding of proper stewardship.  Most churches have responded to programs like Crown Financial Ministries’ ‘Journey to True Financial Freedom’ or Dave Ramsey’s ‘Total Money Makeover’, but for the most part they focus on debt reduction and cutting items out of the budget.  We use our unique principles of living expense reduction to help you save without sacrificing your lifestyle.  Our book, workbook and devotional can help get people started in the right direction.  Our methodical cost containment process will take people from a complex, stressful life of bondage to one of simplistic, peaceful stewardship.  Visit our website, savingwithoutsacrifice.com, for more information.  

Robert Ostrander, CFP®

SWS Advisors, Inc.

 Current health care costs are estimated to be, on average, more than $8,000 for every man, woman, and child in the United States.  I think we can all agree that there is not enough money available to pay for that.  At the center of the problem is the need for law changes limiting excessive lawsuit settlements related to health care that cause the liability expenses for physicians and hospitals to soar.  In addition, the vast majority of physician offices are run inefficiently.  For the most part they are “mom and pop” organizations.  A uniform standard for reporting and for claims processing would go a long way in reducing costs.

I recently met with a physician who does research on longevity and asked him what the most essential steps are to extend life.  His answer surprised me.  Meditation (prayer) was number one, followed by stretching, aerobic and anaerobic exercise, and finally, nutrition.  As individuals we need to take control of our own health.  Most of us know how to be healthy, but we often lack the discipline to follow through to make it happen.

We know statistically is that 2.8% of the people cause 80% of the cost of health care in any given year.  A number of years ago I discussed with an occupational physician the idea of putting a plan together to simply manage the 2.8% of the people who need care.  Unfortunately, those in the position to understand the ways to reduce the costs have no authority in the health care system.  The authority primarily resides with hospitals and insurance companies, who by no coincidence, are also the beneficiaries of higher costs.  The premium payer is often a business, leaving most employees in the dark about the options they have and the costs they pay.

Congress is currently proposing a national health care program.  No country in the world has had success with this kind of a plan because, ultimately, it leads to rationed health care and debt beyond measure.  Congress might take steps to achieve success by introducing a public program for some and private pay for others.  Because the government can hide their expenses, most people fear that it will eventually lead to the demise of the private pay plans. 

Another part of the proposal is to tax health care expenses.  If this is done it will result in substantial increases in taxes for people who work.  It is estimated that 50% of our population pay little or no income tax.  This would reduce their already meager compensation.  To remove the deduction for health care is to tax anyone who pays social security, federal and local income taxes.  Those least affected by this proposal would be the young, those over age 65, and the non-working poor.  The tax increase would result in an average additional tax of $200 each month for every man, woman, and child.  Of course, no one is average so a disproportionate cost would be borne most by older Americans not yet 65 and the working middle class.

Because health care represents one of the most formidable costs in a family budget, our advisors have been diligent in recommending to our clients the proper use of cafeteria plans, health savings accounts and the benefits of employer-paid health care.  We may see the loss of these deductions in the future.  As a result, we are asking our clients to step up their plans to get healthy.  Rationed health care will demand we begin to take care of ourselves.  Remember, 2.5 million Israelites spent forty years in the desert and had no disease.  You can do it too!

Robert Ostrander, CFP®

SWS Advisors, Inc.

 As the productivity in this nation continues to turn down and resources become more scarce, housing costs will become an ever increasing problem for many families.  As we have mentioned in previous articles, the government has created a massive Ponzi scheme with the underfunded Social Security, Medicare and Medicaid programs which will result in significant inflation. With significant inflation and tighter controls on credit, finding affordable housing or rentals is expected to be more difficult in the future.  This will increase the number of homeless on our streets. Interest rates will soar.  The number of people who can make the high mortgage payments will decrease bringing values down, but not prices.

 Large square footage homes in the suburbs will be a risk primarily because many will find themselves facing reduced incomes precipitated by a decline in productivity.  The productivity decline is caused by the large tax burden (direct and indirect) placed on the goods and services produced by this nation.  If too many people move out of a community, the tax revenue will not be able to provide essential, emergency services. This would cause more people to move away because they would no longer feel safe or protected.

In addition, with the cap and trade proposals designed to reduce carbon emissions, many are estimating that utility bills will double.  This again will make high square footage homes less desirable because of the need to heat and cool them.  The cap and trade agreements also become another indirect tax for the poor to overcome.  It is important for proponents of the global warming theory to pass this bill before too many people find out that the earth is currently experiencing global cooling.

Smaller, low square footage homes found primarily in the city will experience an increase in value and demand.  The need for mass transit will rise as people look for cheaper modes of transportation.  Mass transit will not be as available in the suburbs.

Another formidable hurdle for the housing industry is that currently one in every five homes has a mortgage that exceeds the value of the home.  Inflation will reduce this problem in the long term, but many may face financial burdens that will make it difficult for them to overcome the debt payments.    The government is looking at permitting people to refinance even if the mortgage exceeds the value of the house by more than 5%.  This is currently the permissible amount.  All of these steps result in placing people into more bondage with higher interest rates.  These agreements also weaken our economy because the government stands behind any defaults that may occur.

The current Washington DC power base has set us on a course for these events to take place.  We have a narrow window to reverse this trend.  The solutions cannot be found with business or government.  Artificial economic solutions (decisions not based on sound financial principles) created by government for business to carry out are not solutions at all.  Solutions can only be found with virtue, justice, integrity and a morality based on this nations traditional Judeo Christian values.  Families and faith based organizations will need to step forward to assume their traditional role of care for aging parents, the disabled, the homeless, widows, orphans and the poor, many of whom have been relying on programs like Social Security, Medicare and Medicaid for their survival.    

Robert Ostrander, CFP®

SWS Advisors, Inc.

HOPE FOR TOMORROW

The United States will soon face an economic storm of immense proportions created by a Congress, who for decades have made promises that they cannot fulfill. They have engaged in a process of buying votes in the present while postponing future financial needs.  The baby boom population (78 million people) is approaching 65 and will be asking for Social Security benefits and Medicare benefits that are underfunded.  In addition, the states have the responsibility to provide nursing care for the elderly who are impoverished.  This system is called Medicaid.  It too is largely underfunded. 

On top of this, the government is engaged in a process of selectively bailing out businesses who have mismanaged their assets primarily in the financial sectors and more specifically banks.  Banks are required to have 5% in reserve and before the crisis the average bank had less than .7%.  When the bailout occurred it is my belief that the funds were used to bring the reserves back to 5% leaving no money for new loans.  The economy needs credit to work efficiently for commercial loans, car loans, mortgages and the like.

The government has only three solutions for the need for money.  They can borrow, tax, or inflate the currency.  Borrowing comes in the form of treasury notes, bonds or bills.  We have been borrowing from the Chinese and the effective rate is higher because unlike the U.S. citizens the Chinese pay none of the interest back in the form of taxes. 

Taxing is the second alternative but raising taxes does not necessarily generate more revenue for the government.  Income taxes can cause people to cheat or look for legal ways to avoid them.  The rich set up sophisticated entities offshore and the poor trade services.  Corporate taxes can reduce the ability of companies to compete in a global economy and are really a tax on the consumer who buys the goods and services.

This then leads to the most likely scenario which is to inflate the currency.  I have in my possession currency issued by a bank in 1860.  It says on the currency that this receipt can be exchanged for one bushel of wheat, barley, rye, corn etc. Let’s assume you put on reserve a bushel of wheat and I, as the banker, issue you a receipt. The next day someone comes into my bank requesting money for services to the bank, and I issue them a receipt against your bushel and likewise the day after I issue another receipt against the same bushel.  In business we call that fraud; when the government does it, we call it inflation.  Inflation raises taxes because of our graduated tax scale without a vote by Congress and steals purchasing power.

  So what are the solutions to these problems facing each of us?

1.      We need to look for ways to live within our means.  Saving Without Sacrifice is a book and workbook (Saving Without Sacrifice in Action) that can help you achieve this goal.

2.      All debt, particularly variable rate debt, needs to be eliminated. 

3.      Homes on bus lines, with low square footage, and close to commerce will have higher value than homes that are not.

4.      Assets should be purchased that will protect you from inflation.

5.      Everyone needs a plan B that will create income in the event of loss of employment.  For those seeking to start a business as their income source, begin planning and strategizing before loss of employment and use Saving Without Sacrifice for Small Business to help you.   For those desiring employment through a business or government, begin building your network of people who can help you find work, if you lose your job.  Remember, you need to be a friend to have a friend.

6.      We anticipate a short term recovery for you to prepare for the next economic challenge.

Robert Ostrander CFP®

            President SWS Advisors, Inc.