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‘Long Arm of the Law’ Gets A Little Longer for US Taxpayers in 2013

US citizens and residents with funds and/or investments in foreign banks or companies have just less than 6 months before this sneaky legislation from the 2010 Hiring Incentives to Restore Employment (HIRE) Act takes effect in January 2013:

“Any funds transferred from the US to any overseas account are subject to a new tax equal to 30 percent of the total amount of the payment – unless the payment is sent to a foreign bank that has agreed to report all American-owned accounts automatically and electronically to the US government.”

The IRS provides a summary of key Foreign Account Tax Compliance Act (FATCA) provisions of 2009 which were expanded in relation to the components of the HIRE Act of 2010 intended to raise revenue to ‘off-set’ the costs involved with the HIRE Act and to enforce compliance of the additional disclosure and reporting requirements.

Stiff penalties are involved for those individuals failing to disclose and report foreign assets and financial accounts – $10,000 for the initial infraction up to $50,000 for continued non-disclosure.  In addition,  the penalty for any portion of an underpayment of tax on  non-disclosed gross income and assets increases from 20% to 40% of the understated amount.  

To top it off, the statute of limitations for IRS audits on certain unreported income from foreign financial accounts has been increased from 3 years to 6 years, allowing the government to reach back further to tap into potential revenue from non-disclosed accounts and holdings of US citizens and residents.

But all the IRS strong-arming isn’t just limited to US taxpayers.  

Starting in 2013, Foreign Financial Institutions (FFI) which include any non-US banks, securities firms and other investment funds will essentially be forced to choose – either agree to disclose sensitive personal and transaction information about accounts held by certain US persons and/or entities OR accept a penalty of 30% withholding tax on ALL payments received from any US institution or other source.

US institutions will essentially bear the responsibility of ‘collecting’ the 30% withholding tax on behalf of the IRS.  Since it will be difficult to determine exactly which transactions are and aren’t subject to withholding – and since the same law provides that US institutions will be held harmless for improper withholding even when tax is not due! – it stands to reason that banks will withhold 30% tax on ALL foreign payments to countries or institutions that do NOT have what is considered the required information-sharing agreement in place with the US.

As predicted by many with a vested interest when the law was first introduced, there has already been a huge uproar in the global financial community.  Big banks everywhere began lobbying against the legislation as soon as it was passed in 2010 and several key European institutions (Deutsche Bank, HSBC and Credit Suisse) have already balked at the onerous and costly reporting requirements, systematically refusing business with American clients since 2011.  In fact, some countries and institutions may be precluded from compliance with US law due to client privilege and privacy laws of their own.

What was initially purported to be a crackdown on tax evasion by wealthy US taxpayers with non-disclosed off-shore holdings and accounts has such overreaching consequences that some economists are inclined to believe the law is part of a concerted effort by the US at currency control, certainly discouraging Americans from diversifying their portfolios by sending or holding assets abroad, but also essentially creating an ultimatum for the rest of the world – play by our rules or don’t play with us at all.

In this case, the burden of accountability seems misplaced.  Instead of encouraging responsible reporting by US citizens or targeting and penalizing specific non-compliant taxpayers, foreign institutions are being coerced by the parent-like IRS into ‘tattling’ on its US taxpayer clients like the older siblings of naughty children, under pain of the 30% withholding penalty.  

Such strict limitation and regulation, though, often produces unintended resulting consequences.

Instead of encouraging a healthy flow of information in an effort to close the ‘tax gap’ and ensure proper reporting by US taxpayers, the law could serve to deter other countries from choosing to do business with the US or any of its citizens worldwide.

It could also discourage other nations from using US currency for international trade transactions, potentially resulting in a shift away from the US dollar as the de facto world currency.  Many analysts have already expressed concern that the cost and hassle of compliance will far outweigh the benefits of working with US capital and investors.

So what does all this have to do with us regular folks who just want to be able to create a secure, affordable retirement with a decent standard of living?

If it hasn’t already, US taxpayers living, working and/or investing abroad will undoubtedly face significant obstacles to opening foreign bank accounts and conducting foreign financial transactions of any kind.  In fact, some banks may close or reject US citizen-held accounts entirely, making it virtually impossible for Americans to function, let alone compete, globally.

For those with accounts at participating foreign financial institutions, the IRS will soon have a very real and extensive system in place to track US taxpayer holdings and transactions, along with the power to go back 6 years to collect and impose harsh penalties.  Americans currently living overseas with the bulk of their assets in foreign institutions will definitely need to review the law, institutional policies and the overall potential impact on their individual situations.

Americans may be rejected from participating in joint-venture international projects, making real property purchases or any number of other investments involving fund transfers internationally.  Anyone (including pending and non-resident immigrants) considering foreign real estate purchases, extended travel, full or part-time retirement abroad may be forced to reconsider those plans simply on a practical level.

The American Citizens Abroad (ACA) has called for a Repeal of the FATCA legislation citing many of these problematic issues and more.

The true extent and potential repercussions of this legislation may not even be fully realized until after the fact but this law is certain to change the way business is done BY and WITH Americans in the future.

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Market Movements Make Money – Position Accordingly

Let’s face it – the Stock Market is really not for the faint of heart, especially in times like these!

Recent news and the ongoing economic uncertainty have been causing some pretty wild rides and sometimes it feels like you’re just hanging on for dear life. It can be a pretty scary place, even for the most seasoned and experienced day traders.

But without the downs, you can’t have the ups. Without the ups, you can’t have the downs. It doesn’t matter which side you’re betting on; without movement there is little potential for profit. For those players who can keep their cool during this time of fear and panic, there is money to be made.

The same essentially holds true for Real Estate. Investors want to see the real estate markets cycle because that is when real opportunities happen. Remember the old adage, ‘Buy Low – Sell High’?  It’s hard to buy low if the market is always up!

In most situations, movement means change, and change creates motivation. Sometimes perfectly good assets and real estate must be sold because of a death, divorce, partnership dissolution, retirement, downsize, loan maturity, interest rate adjustment, etc.  Sometimes the owner has simply accomplished his goal and is exercising his exit strategy to realize a profit. Sometimes the owner has just not managed the asset well. Whatever the motivation, if you aren’t expecting the change or if you aren’t properly prepared, your hand could be forced sooner than you’d like or under less-than-ideal circumstances.

Fortunately, the Real Estate markets tend to move at a much slower pace than the breakneck, minute-to-minute rollercoaster of the stock market. For those who are looking (and who actually want to see!) it’s usually a lot easier to anticipate market movement or upcoming changes and then have time to plan and prepare accordingly.  For example, information and statistics are available that show another wave of mortgages with interest rates re-setting coming up over the next few years. That could spell disaster for those owners who don’t start working on a plan to resolve the issue but it can also spell opportunity for investors who start positioning now to be ready to purchase if and when some people are forced to sell.

Ideally, owners and investors will plan and prepare to be in a position to minimize losses or to take advantage of upcoming opportunities when movements happen. Understanding your investment and the things that can affect its value are the keys to making smart investment decisions.

Smart investors are proactive, not reactive. They constantly monitor their holdings and make strategic moves to protect overall value – hedging their bets, so to speak. That way, if something changes or it the market moves in the opposite direction than what they think, the portfolio’s principal value is still largely protected. Whether it’s a stock, real estate or other asset class, every investment asset needs to be actively monitored and managed, even the passive ones. (Note: Property Management is not the same as Asset Management!)

In Real Estate, hedging or protecting your principal is often as simple as having ample cash reserves to weather through a rough spell of unexpected vacancy or repairs. The only time you really need to worry about the value of real estate is when you go to sell. Adequate liquidity can usually help you smoothly ride out a down cycle so you aren’t forced to sell at an inopportune time.

As many investors have recently discovered, a Home Equity Line of Credit (HELOC) is a poor and unreliable substitute for an actual cash reserve account. A HELOC can and will be revoked or capped by the lender at any given moment, regardless of spotless credit or payment history.

Many real estate owners make the mistake of cannibalizing their investment by draining every drop of the operating cash flow or overleveraging the asset. Then, when something unexpected comes up or something changes, they blame the market or the real estate itself for a problem that they created by not carrying sufficient reserves. You WILL have tenant changes, you WILL have some repairs – these are eventualities that can and should be planned for by all real estate owners.

Bottom line:  Know your assets, know your investments, keep your eyes open and plan ahead. These market movements are creating a lot of opportunity and it doesn’t look like it’s ending any time soon. Batten down the hatches of your solid performers to ride out the turbulence, cut loose the dead-weights and position yourself to take advantage of the opportunities created by these market movements.

Why Women Make Great Investors

Women really do make great investors.  Why?  Because investing is about more than just math and numbers.

Women are becoming more and more deeply invested in their own financial success for many reasons:  Careers are being pursued and marriage is being delayed, divorce rates are higher than ever, single-moms and women who are the sole or main breadwinner in the family are increasing, cost of living is rising steadily, job security is virtually non-existent…the list goes on.  There are no guarantees in life and situations can change drastically in the blink of an eye.  Independence and self-sufficiency are more than just words; they are a gateway to freedom.  Women are no longer content or willing to be dependent on others for their quality of life.  

A lot of the Myths about Money & Women floating around out there are simply false.  Statistics show that women are blowing the stereotypes out of the water when it comes to money and investing:  Women are MORE likely to join a retirement plan, women save on average 10% MORE than men, women actually spend LESS than men, and women are MORE likely to diversify their investment portfolio.

True power and independence happen not when you HAVE money, but when you know how to MAKE money.

Just ask any lottery winner or divorcee who has blown through a divorce settlement trying to sustain a champagne lifestyle on a beer budget!  A lump-sum goes away pretty fast when there is nothing in place to replenish it.  The first step is learning about Assets & Liabilities; the next step is doing something with that knowledge.

As Rich Woman Coach Nichole explains in a video Coaching Tip about Women and Investing on Robert Kiyosaki’s Rich Dad website, there’s a lot more to successful investing than just numbers and calculations.  The Rich Woman coaches identified their top 5 characteristics that make women great investors:

  • Asking for help
  • Planning
  • Multitasking
  • Diligent research
  • Value shopping

Let’s take a closer look at these strengths, how they each contribute and add up to a Great Investor Profile:

Asking for Help.  Women typically know how to ask for help when they know they need it.  And in my experience, more often than not, they prefer to ask other women.  Have you noticed all the networks and clubs and resources that are geared towards supporting women in financial and business endeavors?  The Daily Worth, WomenOwned.com, Ladies Who Launch, National Association of Women Business Owners (NAWBO), My Wealth Spa to name a few.  Many of these were created or developed just in this past decade.

Women seek and value mentors that can support and assist them in a non-intimidating, non-judgmental forum.  Although men often view women’s lunchtime or evening gatherings as a sewing circle gossip session, women frequently use friends and colleagues as sounding boards for new ideas, thoughts and perspectives.  Brainstorming and round-table sessions are becoming more and more mainstream, even in the ‘Old Boys Club’ organizations because there is strength and power in teams and in seeking outside opinions and help.

Planning.  Most women become good planners by necessity.  Often in addition to full-time employment or business ownership, women take on, or inherit by default, the monumental task of running the household, juggling kids activities, making and keeping family appointments, planning and organizing family vacations, meals, etc.  It takes a lot of planning and organization to make sure everything runs smoothly from day to day and week to week.

Investing demands a similar kind of planning and organization to be efficient and get the most out of your capital.  The ability to make and stick to short and long-term goals is important but having a system to monitor and track it all is priceless, especially when it comes to finance and investing.

Multitasking.  Women are also known to be exceptional multitaskers.  Handling several issues or tasks at once is all in a day’s work for most women.  This translates well into the world of investing because there are always many different things going on in many different markets and across many different asset classes.

Women who are able to see various market factors and how they can affect an investment will be much more able to predict possible outcomes and proactively make adjustments as needed.  Diversification is also easily appreciated and accepted by women who are more likely to hedge their bets as opposed to going for the glory in a single ‘Hail Mary’ home-run move.

Diligent Research.  Women know how to do their homework.  They are used to budgeting, comparing prices, finding the right pediatrician, school, camp, mechanic, gardener, insurance, etc.  In finance and investing, this means that women know how to investigate and identify investments that will work best for them.

Investing involves a LOT of research.  ‘Due Diligence’ is an investment term that refers to the process of verifying data presented, investigating the investment parameters and terms so that the investor can make an educated decision to purchase or decline.  As a real estate investor, I screen and analyze literally hundreds of properties before finally deciding to offer in on one or two.  Diligently investigating the investment and the people involved is a crucial step in protecting your investment funds up front and finding a good fit for your specific purposes.

Value Shopping.  Warren Buffet once said, “Price is what you pay; value is what you get.”  Women seem to intrinsically know how to stretch a budget and shop for bargains.  They are aware of what’s available, what the going rates are and will go clear across town to get something at a discount.  Women know that it makes sense to get a designer gown at half price if they are willing to find and sew on a couple of missing buttons.

Investing for value or value-add opportunity follows the same principles as shopping for any kind of bargain.  You need to have a good idea of the general market value so that you have a benchmark to evaluate the investment you are looking to purchase and know when it’s priced below its true value, or when a few simple steps are all it takes to realize its potential (add value, like sewing on a button).  Once you know what to look for, it gets easier to spot the gems.

Finance and investing may seem like a spider’s web of intricacy and detail but understanding the rules and knowing how to filter out the junk makes it a lot easier.  Women have the skills and qualities to excel in the investment arena on their own terms.  Women really do make great investors!

~ Eleanor Roosevelt ~

‘Make Money’ is not a SMART Goal

‎”It is more important to know where you are going than to get there quickly.” ~ Mabel Newcomer

If you don’t have a clear, defined financial goal how are you going to know if you ever reach it?

‘Make Money’ is not a SMART goal (Specific Measurable Attainable Realistic Timely).  How much money?  In what time frame?  With what amount initially invested?  You need to clearly state exactly what it is you want to accomplish.  Then, you can measure and evaluate, and make adjustments as needed to stay on course.

When you want to go somewhere you’ve never been before do you just get in the car, start driving and hope you get there?  Of course not.  You get out a map, look at where you are and where you want to go, and then plan a route that suits you best based on your personal preferences and needs – like taking or avoiding toll roads or highways, visiting certain cities or sites along the way, taking 3 hours to get there versus 6 hours, etc.  If you run into a roadblock or detour or something unexpected comes up then you pull the map back out, make the necessary adjustments and get back on the road.  A plan to meet your financial goals can and should be crafted and maintained in much the same manner.

So what is it that you want your investments to accomplish?  Think both short and long-term.  Do you want to generate income to pay for college tuition?  A wedding?  To replace a spouse’s income so they can stay home with kids or retire early?  To help you retire to a warmer climate or closer to children and grandchildren?

It’s okay to think big; you just have to be prepared to plan and break it down into manageable chunks to make it happen.  You also need to be patient and give the plan time to work.  You can’t make a great chili without letting the spices simmer!  It’s also okay to change your mind and make changes along the way.  You never know what life’s going to throw at you.

One of my biggest pet peeves is that most so-called ‘financial advisors’ don’t seem to actually advise people at all.  They just babble on about risk and safety and then suggest putting money into a company-managed fund (for which they get compensated) and eventually you should ‘make money’, because it’s a ‘balanced’ fund where losers are off-set by winners.

Really?!  I should spend the next 30 years investing my life savings in something I don’t fully understand that might eventually make me some amount of money?  How is that a good plan?  Please don’t tell me that it’s to protect my principal.  If that were the case, it’d be easier and safer to just stick to FDIC-insured CD’s.

Every asset should have a POSITIVE effect:  Generating income, off-setting paper gains/losses, creating tax benefits, preserving or enhancing net worth or otherwise helping me reach my overall personal and financial goals in some way, shape or form.  Personally, I want my assets working as hard as possible!  Every investment should have a specific purpose for being in your portfolio and role to play in working towards your overall goals.  

If you don’t understand why you are invested in a particular product or vehicle, you need to ask questions and do some research.  At the very least you should be able to read and understand your investment account statements.  If your advisor can’t or won’t help, it might be time to find a new advisor.  Remember, no one will care as much about your money as you.

Bottom line, if I’m paying for advice, I want an opinion.  I’m not asking for a guarantee, just an opinion from a knowledgeable professional in that particular field.  I want a summary of information and data used to form that opinion.  I want to know exactly what this particular investment is designed to do for my portfolio and how and when it will help achieve my overall investment goals.

Then I can make an informed decision and make sure I stay on track to accomplish my goal.

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