Longboat Retirement Solutions LLC

Solo 401(k) 2012 Deadlines and Tax-Savings Update: How You Can Cut Your Tax Bill by $10,000 December 28, 2012

Forbes 12/19/2012

BY: Stuart Robertson

Many self-employed and sole proprietors are unaware they can take advantage of an Individual 401(k) plan (aka. a Solo 401(k)) and the substantial tax-deferred benefits these plans offer.  The Solo 401(k) is pretty easy and inexpensive to start and delivers saving advantages that help improve an individual’s bottom line too.  Solo 401(k) plans are an option for any owner-only business.  Multiple owners and spouses can also be included in a Solo 401(k), but if the business adds employees to the 401(k), it will need to convert to a more traditional plan.

The following provides updated tax and savings information from a popular entry I posted here last year.  It also includes important plan setup and contribution deadlines for the 2012 calendar year.

When One Equals Two: Tax-Defer up to $50,000 for Your Retirement

One of the great advantages of a Solo 401(k) is the ability to play the roles of both employer and employee, enabling the owner to contribute up to $50,000 of her annual income tax-deferred in 2012 (or $55,500 if at least 50 years of age).  That’s a generous amount that might even drop the owner into a more advantageous tax bracket that can fast track the owner’s time to retirement.

The high contribution limits, tax savings and easy access to cash via penalty-free loans make the nominal price for solo 401(k)s a savvy financial move for any owner-only business that wants to save more than $5,000 a year (the traditional IRA limit).

In the past, many owner-only businesses have turned to traditional IRAs as a retirement savings strategy – an approach that, compared to a Solo 401(k), provides much lower contribution limits (not to mention penalties if the owner needed to access the money before reaching retirement age).  Solo 401(k)s also offer more flexibility than about any retirement option.  In 2012 for example, just compare a 401(k) to a traditional IRA:

401(k)

Traditional IRA

Annual Limit per Individual

$50,000

$5,000

Age 50+ Catch-up Amount

$5,500

$1,000

Roth Income Limit

None

$120K*

Penalty-free Access

Yes, loan to self

No

* Amount you can contribute starts phasing out at $110K and not allowed if making $125K or more.

FYI, the annual limit increases to $51,000 in 2013, or $56,500 if at least 50 years of age.  IRA tax-deferral limit is also increasing $1,000, so it will have a $6,000 limit in 2013.  Given the current discussions on potential tax increases for 2013 going on in DC, a Solo 401(k) may continue to become even more advantageous.

How Many Self-employed Can Save $10,000 in Taxes in 2012

The amount you can tax-defer will vary by your earnings and your tax rate.  In general, for those earning $165,000 or more, protecting $10K or more in taxes is often doable.  For those earning less, the tax savings can still be quite substantial.  Here’s how an owner under 50 years of age can max out his or her retirement savings and lower taxes for 2012:

Sole Proprietor Under 50 Years of Age

401(k)

Earnings

$165,000

    Employee  contribution

$17,000

    20% of net self-employment contribution

$33,000

Total Tax-Deferred Savings

$50,000

Taxable Income

$115,000

While the owner earned $165,000 in 2012, only $115,000 is taxable by Uncle Sam.  Assuming an adjusted gross income (AGI) tax rate of 20 percent, that’s $10,000, she can now keep for herself (versus paying the taxman) in 2012.  In actuality, the tax savings is likely to be even greater as she may also drop a tax bracket.  For example, the married filed jointly 2012 tax rate increases from 25 percent to 28 percent for income over $142,700.

Must Start a Solo 401(k) by December 31, 2012 to Qualify – Have until April 15th to Contribute

While business owners will have until their tax deadline to contribute to their 401(k) accounts, IRS rules require that their plans must be setup by December 31st to qualify.  Many providers have deadlines well before this date, so setting up sooner rather than later is a smart way to go.

Most businesses will likely have until April 15, 2012 to make contributions for 2012.  But if the company is established as a corporation, the deadline will be March 15.  The good news is that, by setting up a plan by the end of the year, businesses will have plenty of time to determine the optimal amount they can save to best manage their tax and retirement savings.

One last thing to know:  If loan and Roth options are important to you, be sure to setup a full-featured, fully administered Solo 401(k) plan.  Some providers offer a record-keeping-only individual 401(k) that will likely offer more investment options, but will lack Roth and loan options.

 

Outrageous HSBC Settlement Proves the Drug War is a Joke Taibblog December 20, 2012

Filed under: Corporate Malfeasance,Economics — larsfforsberg @ 8:32 pm
Tags: , , , ,

BY: Matt Taibbi

Lanny Breuer

Assistant US Attorney General Lanny Breuer
Ramin Talaie/Getty Images

If you’ve ever been arrested on a drug charge, if you’ve ever spent even a day in jail for having a stem of marijuana in your pocket or “drug paraphernalia” in your gym bag, Assistant Attorney General and longtime Bill Clinton pal Lanny Breuer has a message for you: Bite me.

Breuer this week signed off on a settlement deal with the British banking giant HSBC that is the ultimate insult to every ordinary person who’s ever had his life altered by a narcotics charge. Despite the fact that HSBC admitted to laundering billions of dollars for Colombian and Mexican drug cartels (among others) and violating a host of important banking laws (from the Bank Secrecy Act to the Trading With the Enemy Act), Breuer and his Justice Department elected not to pursue criminal prosecutions of the bank, opting instead for a “record” financial settlement of $1.9 billion, which as one analyst noted is about five weeks of income for the bank.

The banks’ laundering transactions were so brazen that the NSA probably could have spotted them from space. Breuer admitted that drug dealers would sometimes come to HSBC’s Mexican branches and “deposit hundreds of thousands of dollars in cash, in a single day, into a single account, using boxes designed to fit the precise dimensions of the teller windows.”

This bears repeating: in order to more efficiently move as much illegal money as possible into the “legitimate” banking institution HSBC, drug dealers specifically designed boxes to fit through the bank’s teller windows. Tony Montana’s henchmen marching dufflebags of cash into the fictional “American City Bank” in Miami was actually more subtle than what the cartels were doing when they washed their cash through one of Britain’s most storied financial institutions.

 

Though this was not stated explicitly, the government’s rationale in not pursuing criminal prosecutions against the bank was apparently rooted in concerns that putting executives from a “systemically important institution” in jail for drug laundering would threaten the stability of the financial system. The New York Times put it this way:

Federal and state authorities have chosen not to indict HSBC, the London-based bank, on charges of vast and prolonged money laundering, for fear that criminal prosecution would topple the bank and, in the process, endanger the financial system.

It doesn’t take a genius to see that the reasoning here is beyond flawed. When you decide not to prosecute bankers for billion-dollar crimes connected to drug-dealing and terrorism (some of HSBC’s Saudi and Bangladeshi clients had terrorist ties, according to a Senate investigation), it doesn’t protect the banking system, it does exactly the opposite. It terrifies investors and depositors everywhere, leaving them with the clear impression that even the most “reputable” banks may in fact be captured institutions whose senior executives are in the employ of (this can’t be repeated often enough) murderers and terrorists. Even more shocking, the Justice Department’s response to learning about all of this was to do exactly the same thing that the HSBC executives did in the first place to get themselves in trouble – they took money to look the other way.

And not only did they sell out to drug dealers, they sold out cheap. You’ll hear bragging this week by the Obama administration that they wrested a record penalty from HSBC, but it’s a joke. Some of the penalties involved will literally make you laugh out loud. This is from Breuer’s announcement:

As a result of the government’s investigation, HSBC has . . . “clawed back” deferred compensation bonuses given to some of its most senior U.S. anti-money laundering and compliance officers, and agreed to partially defer bonus compensation for its most senior officials during the five-year period of the deferred prosecution agreement.

Wow. So the executives who spent a decade laundering billions of dollars will have to partially defer their bonuses during the five-year deferred prosecution agreement? Are you fucking kidding me? That’s the punishment? The government’s negotiators couldn’t hold firm on forcing HSBC officials to completely wait to receive their ill-gotten bonuses? They had to settle on making them “partially” wait? Every honest prosecutor in America has to be puking his guts out at such bargaining tactics. What was the Justice Department’s opening offer – asking executives to restrict their Caribbean vacation time to nine weeks a year?

So you might ask, what’s the appropriate financial penalty for a bank in HSBC’s position? Exactly how much money should one extract from a firm that has been shamelessly profiting from business with criminals for years and years? Remember, we’re talking about a company that has admitted to a smorgasbord of serious banking crimes. If you’re the prosecutor, you’ve got this bank by the balls. So how much money should you take?

How about all of it? How about every last dollar the bank has made since it started its illegal activity? How about you dive into every bank account of every single executive involved in this mess and take every last bonus dollar they’ve ever earned? Then take their houses, their cars, the paintings they bought at Sotheby’s auctions, the clothes in their closets, the loose change in the jars on their kitchen counters, every last freaking thing. Take it all and don’t think twice. And then throw them in jail.

Sound harsh? It does, doesn’t it? The only problem is, that’s exactly what the government does just about every day to ordinary people involved in ordinary drug cases.

It’d be interesting, for instance, to ask the residents of Tenaha, Texas what they think about the HSBC settlement. That’s the town where local police routinely pulled over (mostly black) motorists and, whenever they found cash, offered motorists a choice: They could either allow police to seize the money, or face drug and money laundering charges.

Or we could ask Anthony Smelley, the Indiana resident who won $50,000 in a car accident settlement and was carrying about $17K of that in cash in his car when he got pulled over. Cops searched his car and had drug dogs sniff around: The dogs alerted twice. No drugs were found, but police took the money anyway. Even after Smelley produced documentation proving where he got the money from, Putnam County officials tried to keep the money on the grounds that he could have used the cash to buy drugs in the future.

Seriously, that happened. It happens all the time, and even Lanny Breuer’s own Justice Deparment gets into the act. In 2010 alone, U.S. Attorneys’ offices deposited nearly $1.8 billion into government accounts as a result of forfeiture cases, most of them drug cases. You can see the Justice Department’s own statistics right here:

 Justice Department’s own statistics
Justice Department

If you get pulled over in America with cash and the government even thinks it’s drug money, that cash is going to be buying your local sheriff or police chief a new Ford Expedition tomorrow afternoon. 

And that’s just the icing on the cake. The real prize you get for interacting with a law enforcement officer, if you happen to be connected in any way with drugs, is a preposterous, outsized criminal penalty. Right here in New York, one out of every seven cases that ends up in court is a marijuana case.

Just the other day, while Breuer was announcing his slap on the wrist for the world’s most prolific drug-launderers, I was in arraignment court in Brooklyn watching how they deal with actual people. A public defender explained the absurdity of drug arrests in this city. New York actually has fairly liberal laws about pot – police aren’t supposed to bust you if you possess the drug in private. So how do police work around that to make 50,377 pot-related arrests in a single year, just in this city? Tthat was 2010; the 2009 number was 46,492.)

“What they do is, they stop you on the street and tell you to empty your pockets,” the public defender explained. “Then the instant a pipe or a seed is out of the pocket – boom, it’s ‘public use.’ And you get arrested.”

People spend nights in jail, or worse. In New York, even if they let you off with a misdemeanor and time served, you have to pay $200 and have your DNA extracted – a process that you have to pay for (it costs 50 bucks). But even beyond that, you won’t have search very far for stories of draconian, idiotic sentences for nonviolent drug crimes.

Just ask Cameron Douglas, the son of Michael Douglas, who got five years in jail for simple possession. His jailers kept him in solitary for 23 hours a day for 11 months and denied him visits with family and friends. Although your typical non-violent drug inmate isn’t the white child of a celebrity, he’s usually a minority user who gets far stiffer sentences than rich white kids would for committing the same crimes – we all remember the crack-versus-coke controversy in which federal and state sentencing guidelines left (predominantly minority) crack users serving sentences up to 100 times harsher than those meted out to the predominantly white users of powdered coke.

The institutional bias in the crack sentencing guidelines was a racist outrage, but this HSBC settlement blows even that away. By eschewing criminal prosecutions of major drug launderers on the grounds (the patently absurd grounds, incidentally) that their prosecution might imperil the world financial system, the government has now formalized the double standard.

They’re now saying that if you’re not an important cog in the global financial system, you can’t get away with anything, not even simple possession. You will be jailed and whatever cash they find on you they’ll seize on the spot, and convert into new cruisers or toys for your local SWAT team, which will be deployed to kick in the doors of houses where more such inessential economic cogs as you live. If you don’t have a systemically important job, in other words, the government’s position is that your assets may be used to finance your own political disenfranchisement.

On the other hand, if you are an important person, and you work for a big international bank, you won’t be prosecuted even if you launder nine billion dollars. Even if you actively collude with the people at the very top of the international narcotics trade, your punishment will be far smaller than that of the person at the very bottom of the world drug pyramid. You will be treated with more deference and sympathy than a junkie passing out on a subway car in Manhattan (using two seats of a subway car is a common prosecutable offense in this city). An international drug trafficker is a criminal and usually a murderer; the drug addict walking the street is one of his victims. But thanks to Breuer, we’re now in the business, officially, of jailing the victims and enabling the criminals.

This is the disgrace to end all disgraces. It doesn’t even make any sense. There is no reason why the Justice Department couldn’t have snatched up everybody at HSBC involved with the trafficking, prosecuted them criminally, and worked with banking regulators to make sure that the bank survived the transition to new management. As it is, HSBC has had to replace virtually all of its senior management. The guilty parties were apparently not so important to the stability of the world economy that they all had to be left at their desks.

So there is absolutely no reason they couldn’t all face criminal penalties. That they are not being prosecuted is cowardice and pure corruption, nothing else. And by approving this settlement, Breuer removed the government’s moral authority to prosecute anyone for any other drug offense. Not that most people didn’t already know that the drug war is a joke, but this makes it official.

 

How You Can Pull a GE on Taxes December 11, 2012

BY: Brett Arends, Wall Street Journal

There’s been a firestorm this week over the news that General Electric GE +0.75%will pay no tax—at least, no federal corporate income tax—on last year’s profits.  But if you’re like a lot of people, your first reaction was probably: “Hmmm. How can I get that kind of deal?”

You’d be surprised. You might. And without being either a pauper or a major corporation.

I spoke to Gil Charney, principal tax researcher at H&R Block‘s Tax Institute, to see how a regular Joe could pull a GE. The verdict: It’s more feasible than you think—especially if you’re self-employed.

Let’s say you set up business as a consultant or a contractor, something a lot of people have been doing these days. And, to make this a challenge on the tax front, let’s say you do well and take in about $150,000 in your first year.

First off, says Mr. Charney, for 2010 you can write off up to $10,000 in start-up expenses. (In subsequent years it’s only $5,000.)  Okay, let’s say you claim $7,000. That takes your income down to $143,000.  You can also write off all legitimate business expenses.  Mr. Charney emphasizes that this only applies to legitimate expenses.

He didn’t say, but everyone seems to understand, that this can be quite a flexible term. Even if you buy a computer, a cellphone and a car primarily for business use, you can use them for personal purposes as well. If you happen to take a business trip to Florida in, say, January, no one is going to stop you from enjoying the sunshine or taking a dip in the pool.

So let’s say you manage to write off another $10,000 a year in business expenses.  That brings your income, for tax purposes, down to $133,000.  You’ll have to pay Medicare and Social Security taxes (just like GE). Because you’re self-employed, you have to pay both sides: the employee and the employer. That will come to about $19,000.  However, you can deduct half of that, or $9,500, from your taxable income. So that brings your total down to $123,500 so far.

Now comes the creative bit. The self-employed have access to terrific tax breaks on their investment and retirement accounts. The best deal for many is going to be a self-employed 401(k), sometimes known as a Solo 401(k).  This will let you save $43,100 and write it off against your taxes. That money goes straight into a sheltered investment account, as with a regular 401(k).  Why $43,100? That’s because with a Solo 401(k), you’re both the employer and the employee. As the employee you get to contribute a maximum of $16,500, as with any regular 401(k). But as the employer you also get to lavish yourself with an incredibly generous company match of up to 20% of net income.

Yes, being the boss has its privileges. (And if you’re 50 or over, your limit as an employee is raised from $16,500 each to $22,000.)

You can save another $10,000 by also contributing to individual retirement accounts—$5,000 for you, $5,000 for your spouse. If you use a traditional IRA, rather than a Roth, that reduces your taxable income as well. If you’re 50 or over, the limit rises to $6,000 apiece.

If you contribute $43,100 to your Solo 401(k), and $10,000 to two IRAs, that brings your income for tax purposes down to just over $70,000.

We haven’t stopped there either, says Mr. Charney.  Now come the usual itemized deductions. You can write off your state and local taxes. Let’s say these come to $10,000.  You can write off interest on your mortgage. Call that another $10,000. That’s enough to pay 5% interest on a $200,000 home loan.

That gets us down to about $50,000 And we’re not done.  If you’re self-employed, health insurance is probably a big headache. But the news isn’t all bad. You can write off the premiums for yourself, your spouse, and your kids.

And if you use a qualifying high-deductible health insurance plan—there are a variety of rules to make sure a plan qualifies—you get another break. You can contribute $3,050 a year into a tax-sheltered Health Savings Account, or $6,150 for a family. You can write those contributions off against your taxable income. The investments grow sheltered from tax. And if you spend the money on qualifying health costs, the withdrawals are tax-free as well.

So call this $10,000 for the premiums and $6,150 for the HSA contributions. That gets your income, for tax purposes, all the way down to about $34,000.  If you have outstanding student loans, you can write off $2,500 in interest. And you can write off $4,000 of your kid’s college tuition and fees.  Then there’s a personal exemption: $3,650 per person. If you’re married with one child, that’s $10,950.  Taxable income: just under $17,000. That’s on a gross take of $150,000. You’d owe less than $1,700 in federal income tax.

And it doesn’t stop there. Because now you can bring in some of the tax credits. Unlike deductions, these come off your tax liability, dollar for dollar.  GE got big write-offs related to green energy. There are some for you too, although on a small scale. You can claim credits for things like installing solar panels, heat pumps or energy-efficient windows or boilers in your home. Let’s say you use a home equity loan to pay for the improvements and take the maximum $1,500 write-off.  That gets your tax liability down to $200.

Can we get rid of that? Sure, says Mr. Charney.  If your spouse spends, say, $1,000 on qualifying adult-education courses or training programs, you can claim $200, or 20% of the cost, in Lifetime Learning Credits. (The maximum is $2,000.)  That wipes out the remaining liability.

Congratulations. You’ve pulled a GE. You owe no federal income taxes at all.

OK, it’s just an illustration. Few will be quite so fortunate. On the other hand, it’s not comprehensive either. There are plenty of other deductions and credits we didn’t mention. You could have written off up to $3,000 by selling loss-making investments. Your spouse may be able to use a 401(k) deduction as well. There are lots of ways to tweak the numbers.

In this case, you’ve paid no federal income tax, and meanwhile you’ve saved $19,000 toward your retirement through Social Security and Medicare, and $53,000 through your 401(k) and IRAs. You’ve paid most of your accommodation costs (that is, the interest and property taxes on your home), covered your health-care costs and quite a lot of personal expenses through your business account, paid $4,000 toward your child’s college costs and had about $2,000 a month left over for cash costs.

Who says GE has all the fun?

 

UBS near a deal over Libor rigging December 5, 2012

BY: RT

 

Swiss bank UBS AG is reportedly close to settling an investigation by US and British authorities over alleged Libor rate manipulation and could pay a more than $450 million fine.

Currently the bank is in discussions with the Commodity Futures Trading Commission, the US Justice Department and Britain’s Financial Services Authority over the issue, the New York Times reported citing officials close to the matter. If the parties agree to strike a deal, it would result in the largest fines related to the rate-rigging scandal.

Libor is a key bank lending rate which affects different financial instruments and transactions worth more than $300 trillion worldwide.
Earlier this year British bank Barclays became the first financial institution to pay a fine of about $450mn over the Libor case. The scandal over rate manipulation led to the resignation of Barclays’ CEO Bob Diamond, Chairman Marcus Agius, and COO, Jerry de Missier.

Regulators and prosecutors in the US, Britain, Canada and Japan have been probing the major banks such as Royal Bank of Scotland, HSBC, JP Morgan Chase, Deutsche Bank and Citigroup over possible manipulation of Libor between 2005 and 2009.

Currently UBS is involved in a number of investigations and faces even more fines elsewhere. German prosecutors have launched an investigation into claims the Swiss bank’s German subsidiary helped customers evade local taxes by transferring money out of the country. In 2009, the bank struck a deal with US regulators to pay $780mn over alleged involvement in tax evasion and released the names of thousands of American clients suspected of tax fraud.