The Markets Split Personality and Year End Tax Savings Solutions by Ken Mahoney

Does it ever seem to you that news headlines possess a split personality? That everything is always rosy or doom and gloom with no middle ground? This perception scares many people out of investing leading them to conclude that such unpredictability is a risk they can do without. Is this a recent phenomenon?
While it may be obvious that sensational headlines are designed to get an audience’s attention, media influence over public opinion is a long-held tradition. Consider a few headlines from years past:

Can Capitalism Survive? – 1975
Is There Light at the End of the Tunnel? – 1992
Awash in Troubles – 1984

Do any of these headlines sound familiar, even recent? If the years weren’t printed next to them, would you conclude that two of them are over 25 years old? Often, such dire predictions leave something out. In many cases, even as the news is inundated with pessimistic headlines, positive long-term trends are in development.

Just this Sunday, Fed Chairman Ben Bernanke appeared on CBS’ 60 Minutes. Included among his comments were positive statements such as, “I have every confidence that this economy will recover, and recover in a strong and sustained way. The American people are among the most productive in the world. We have the best technologies. We have great universities. We have entrepreneurs. I just have every confidence that as we get through this crisis, that our economy will begin to grow again, and it will remain the most powerful and dynamic economy in the world."

To our point, just an hour after the Fed Chairman’s interview, CNN lead with this headline: Bernanke on '60 Minutes': Grim Outlook. Granted, not everything Bernanke said was positive, but why did CNN choose to highlight the negative? Because sensational headlines sell. Remembering this fact can help you avoid making rash, emotional decisions, and may even help you sleep better at night.


Data as of 12/03/2010 1-Week Y-T-D 1-Year 5-Year 10-Year
Standard & Poor's 500 2.97 9.83 11.4 -0.64 -0.69
Dow 2.62 9.15 9.80 0.93 0.97
NASDAQ 2.24 14.2 19.3 2.80 -0.20
MSCI EAFE 3.68 2.32 0.30 -0.19 1.01
10-year Treasury Note (Yield Only) 2.86 N/A 3.38 4.52 5.51

Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized.
Sources: Yahoo! Finance, MSCI Barra. Past performance is no guarantee of future results.
Indices are unmanaged and cannot be invested into directly. NA means not available.

ECONOMIC CALENDAR:

Tuesday – Consumer Credit
Wednesday – EIA Petroleum Status Report
Thursday – Jobless Claims, EIA Natural Gas Report
Friday – International Trade, Consumer Sentiment, Treasury Budget

HEADLINES:

The U.S. Senate on Saturday defeated two attempts by Democrats to extend the Bush-era tax cuts for the middle class permanently. After the Senate voted, President Barack Obama told Democratic congressional leaders he would be open to a temporary extension of the Bush-era tax cuts for the affluent, but he would demand concessions from the GOP.

The United States has reached a tentative free trade agreement with South Korea, the White House said Friday. The agreement, which must be ratified by Congress, strengthens economic ties between Washington and Seoul at a time when the longtime U.S. ally faces an increasingly hostile northern neighbor. If ratified, the agreement would eliminate tariffs on over 95% of industrial and consumer goods within five years.

A surprising increase in the number of unemployed Americans wasn't enough to stall oil's momentum Friday as it cruised to a 26-month high. Benchmark oil settled up $1.19 at $89.19 a barrel on the New York Mercantile Exchange. It's the second time in less than a month that oil has reached the level where it was in the fall of 2008. There are widespread expectations that the price will hit $90 a barrel by year's end and head toward $100 a barrel by next spring when traders begin looking ahead to the summer driving season.
Nonfarm payrolls rose by 39,000 in November, far lower than the 155,000 gain expected by economists surveyed by MarketWatch and the upwardly revised figure of 172,000 jobs gained in October.

As the end of 2010 approaches we know you are busy with holidays, family, and travel, but it is also a good time to do some last minute tax planning. As a courtesy, we want to provide you with a few eleventh-hour tax tips you may find useful. Although tax planning is rarely fun, these strategies could help you keep more of your hard earned money:

 Vehicles: If you purchased a vehicle in 2010, including a motor home, you can deduct state and local sales taxes and fees. [1]

 Go Green: There is still a tax break available for the purchase or lease of certain hybrid vehicles. [2] In addition, energy-efficient home improvements like insulation qualify for deduction of 30% of the cost, up to $1500 and can be claimed on your 2010 taxes. There is also a renewable-energy credit that lets you deduct expenses for items like geothermal heat pumps, solar panels, and wind-energy systems. (Note: Some of these devices need to be installed this year to earn the credit. [3])

 Accelerated Payments: Paying your mortgage payments into the new year allows for an itemized deduction. You may also want to pay property taxes this year in order to claim the added standard amount on your 2009 return. [4]

 Charitable Donations: If you have stock you would like to donate, you can deduct the full market value and skip paying capital-gains (the charity doesn't pay either). [5] Remember to get a receipt and an acknowledgment from the charity for gifts of $250 or more.

 IRA Contributions and Distributions: You may want to consider IRA withdrawals to pay for education, including that of your grandchildren without owing the 10% penalty. [6] Depending on your income, you may be able to deduct your IRA contribution as well. [7]

 Alternative Minimum Tax (AMT): If your income is above about $75,000 and you have significant write-offs for personal exemptions, state and local income and property taxes or interest on a home equity loan not used to improve a house, you may want to discuss whether you qualify for the AMT with your tax professional. [8]

 Possible Deductions: This is an excellent time of year to get organized. Gathering cash receipts will help you calculate possible deductions and miscellaneous payments. Examples:
• Do you have a hobby or activity that might also qualify as for-profit income? If so, these losses might also be eligible for deduction. 6
• Prepaying college tuition for your children or grandchildren, could allow you to qualify for the American Opportunity Credit, [9] Lifetime Learning credits, or other deductions. [10] Paying ahead for next year's tuition costs could provide a nice write-off this year.
A few extra notes for those of you who are still working:

 401(k): If you are still working, maximize your 401(k) contributions, up to $16,500 or $22,000 if you will be over 50 in 2010.12

 Making Work Pay Credit: In July, you may have noticed an increase in your earned income thanks to this credit. Earned income went up by 6.2%, though certain AGI amounts will affect the amount you can claim. You may have received the credit, but earned too much to be entitled to it. Unless you adjust withholding before the end of the year, you may have to give the money back, either in the form of a smaller tax refund or a higher tax bill next spring.12

 Withholding Adjustments: You may also want to adjust your withholding if you have more than one job, both you and your spouse work, you can be claimed as a dependent, or you have taxes withheld from a pension check.12

 Stimulus Checks: Employed retirees can only keep $150 of their $250 economic-stimulus check. You may want to have money withheld from your check to avoid owing taxes next spring.12

 Flexible Spending Accounts: This time of year is when you probably need to specify how much salary you’ll contribute to your flexible spending accounts. Not only is it appropriate to review your changing needs, but tax-free withdrawals can then be taken from these accounts for medical and dental insurance premiums, uninsured medical and dental expenses, and child-care costs.6 You will forfeit any balance left in these accounts at the end of the year, so take advantage now by filling prescriptions early, making medical or dental appointments, or scheduling elective surgeries.6

Please check with your accountant or tax preparer as the applicability of the above

QUOTE OF THE WEEK:

There are always flowers for those who want to see them. – Henri Matisse



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Insert your broker/dealer disclosures here. i.e. Securities offered through “Your B/D Name Here,” Member FINRA/SIPC.

Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.
The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the Nasdaq. The DJIA was invented by Charles Dow back in 1896.
The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indexes from Europe, Australia and Southeast Asia.
The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
Google Finance is the source for any reference to the performance of an index between two specific periods.
Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
Past performance does not guarantee future results.
You cannot invest directly in an index.
Consult your financial professional before making any investment decision.
These are the views of Platinum Advisor Marketing Strategies, LLC, and not necessarily those of the named representative or named Broker dealer, and should not be construed as investment advice. Neither the named representative nor the named Broker dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your financial advisor for further information.