The tax man blues

The August 15, 2005 issue of Forbes Magazine reports that performer Wayne Newton and his wife owe the IRS another $1.7 million in taxes and penalties for the tax years 1997 through 2000.

The feds say he omitted income, took improper deductions for mortgage interest, maintenance and security at his residence, and shouldn't have written off a $51,950 loss on the sale of two antique cars. In a just-filed U.S. Tax Court lawsuit with wife Kathleen, Newton, 63, said many of the disputed items were justified by a business need to maintain "an image of larger-than-life glamour, sophistication and elegance."

The "business need to maintain an image..." is what's really intriguing. Certainly Newton could argue that the persona he has created helps fill the venue for his Las Vegas shows. And while this image of flamboyance and opulence is nice, he'd really rather not live such a lavish lifestyle, but gee, he simply must. It's part of the marketing strategy.

If the U.S. Tax court buys Newton's argument, it will open the door to any professional who spends money to maintain an image. Doctors, lawyers and corporate CEOs could start deducting the costs of expensive homes and European sedans as business expenses. After all, how comfortable would you be with a neurosurgeon who drives a ten year-old Toyota Corolla or a financial advisor who lives in a run-down house in lousy part of town?

Newton, who filed for bankruptcy in 1992, puts his average annual income for the four year period at $790,000. The IRS thinks it's at least twice that amount. I wonder if he's including royalties from "Ferris Beuller's Day Off"?

Pen and paper

More than twenty years ago, early in my first career in outside sales, a client handed me a thin brochure from Daytimer and said, "You should get one of these." It was my first exposure to a "time management system" and that pocket Daytimer was a constant companion for years.

In the 90s, when my career evolved into an office environment, I was introduced to the world of Franklin Planners. My big leather Franklin looked great on my desk and it was ten times the size of the old Daytimer. All of those different columns and boxes to write stuff in...very exciting.

The late 90s brought Palm Pilots, technology meets the to-do list. When my first one was new it was so exciting to show it off and demonstrate how quickly I could write in it. Such power in a tiny package.

But I missed writing things by hand in different colors and highlighting the important stuff. I missed drawing circles and arrows and flipping the pages. I missed seeing a whole month in writing with just a glance. So last week I ordered a new pocket Daytimer, I've come full-circle. I've tried the latest and greatest time management systems and the newest technologies and now I'm back to a pen and ink calendar that fits in my pocket. What could be more simple?

Lowlife

Everyday, on my walk from the parking garage to my office building, I pass a long line of parked cars and I've always been surprised by the number of them that have handicapped placards hanging from the rear-view mirrors. There aren't any hospitals or medical buildings in the area and I don't ever recall seeing folks with visible disabilities getting into or out of these cars. But you see, you don't have to feed two bucks an hour into the meter if you're handicapped, or at least have the placard.

This morning I noticed a woman hopping out of a new Chevy Trailblazer and trotting up the steps to an office building without ponying up any dough for the meter. Then I noticed the placard. Hmmm.

I decided to count. I walked past fifteen parked cars, seven had handicapped placards.

So what's the deal? Are doctors selling these things? Are people so cheap and/or inconsiderate that they resort to such a tacky and offensive behavior? Is there anything more tasteless than feigning a disability for free parking?

Carnival of Personal Finance

Today marks the beginning of Week Six of The Carnival of Personal Finance, a collection of entries from various bloggers about, well, personal finance.

My own entry follows, but two of my favorites this week are Teach Your Kids to be Smart with Money and Identity Theft...What to do about it. Check 'em all out.

The ABCs of Mutual Funds

Nothing is quite so perplexing to mutual fund investors as the issues around sales charges and share classes. No-load funds and advisor-distributed funds, the alphabet of share classes and 12b-1 fees, what does it all mean?

To fully understand, let's first take a quick look at the history of mutual funds. In 1924, MFS Investment Management introduced the first mutual fund in America. Suddenly, the U.S. stock market, previously the exclusive domain of the wealthy, was within reach of the average investor. But access came with a price. Early mutual funds carried steep up-front sales charges and these "loads" remained prevalent until the mid-80s when no-load funds began to grow in popularity.

With the introduction of SEC rule 12b-1 and competition from no-load families, advisor-distributed fund families began to restructure the way they charged investors to purchase their funds.

The up-front sales charge on what became Class A shares dropped from 8.5% to 4-5.75% and Classes B and C were added by many advisor-distributed fund families.

Class B shares carry no front-end sales charge but a declining redemption fee if you sell your shares early (typically in the first six years). This is called (are you ready) a Contingent Deferred Sales Charge or CDSC. Class B shares usually carry an additional expense called a 12b-1 fee that is typically .25% to cover distribution costs. In other words, it goes to the advisor that sold you the fund.

Class C shares don't carry front-end loads either but they also don't have any redemption fee (usually after one year). They do have a much higher 12b-1 fee (around 1%) that really pushes up total fund expenses.

So, what does it all mean and which share class is best?

The answer depends on how long you expect to hang onto your fund. According to an October 2003 study conducted by Standard and Poors, Class C shares outperformed Class A shares in the 1, 3 and 5-year time frames. Class A shares outperformed in the 10-year time frame but bear in mind that, according to a 2003 study by Dalbar, the average holding period for mutual fund investors is only 29.5 months.

You could of course avoid all of this confusion completely by picking your own no-load funds and directing your own investments. You can lower your investment costs by taking a pass on the education and experience of a financial professional but this route is not for everyone, particularly if you've built a sizable nestegg that you don't wish to jeopardize by going it alone.

International Intrigue

Fredrik Sterner is a 19 year-old student and blogger in Sweden who linked to this post of mine on Monday. This is what Fredrik said:

Ett argument for att USA inte ska yrka for hojda minimiloner finns har. Lasvart. Om det nu ar nagot som ar sa omtalat i Europa sa ar det USAs "hemska" minimiloner..

Thanks, Fredrik for your thoughtful and articulate comment. (Actually I don't have a clue what he said. Could someone please translate for me?)

Great Uncle Roger

For as long as I can remember, Dad sarcastically referred to Mom's Uncle Roger as "the uncle with the sparkling wit and effervescent personality." My great-uncle Roger apparently was pretty dull.

I was quite young the last time I saw my late uncle and don't remember much about him. One thing I know (besides his personality) is that he was hired by William Allen White at the Emporia Gazette and worked there as a journalist for his entire career.

Now, as my parents are days away from moving out of the house I grew up in and into an assisted living center, I brought home a few treasures from my childhood home that have special meaning and should always be in our family. Yesterday I returned from Kansas with Uncle Roger's 1930s Royal Portable typewriter. It's beautiful and works like new. It's particularly special to me because I graduated from the William Allen White School of Journalism at the University of Kansas, named for Uncle Roger's employer.

I can't help thinking about the things Uncle Roger might have typed on this old Royal. This little typewriter just might have helped document a lot of history.

Two times the fun

Again this week there are two great carnivals loaded with terrific posts, sure to keep you entertained all week long.

The Club for Growth is hosting The Carnival of the Capitalists this week and I Will Teach You to be Rich (ya gotta love the name) has The Carnival of Personal Finance.

Be sure to get your tickets and ride all the rides.

Privacy--not the same to everyone

The Gramm-Leach Bliley Act, also known as the Financial Modernization Act of 1999 includes provisions to protect the personal information that is gathered by financial institutions about their customers. The Act requires that institutions give customers privacy notices that explain collection and sharing practices. In turn, customers have the right to limit the sharing of some information.

In yesterday's San Francisco Chronicle, David Lazarus takes a look into Fidelity Investment's privacy policy.

Deep in Fidelity's privacy policy, the company finally makes this disclosure: "If you interact with Fidelity directly as an individual investor, we may exchange information about you, as described above, with our affiliates to offer Fidelity products and services.

"We may also share this individual investor information, under joint marketing agreements with non-affiliated, financial services business partners to offer discounts or other special access to products and services."

What info are we talking about? The policy says it could include your name, address, Social Security number, birth date, assets, income, trading history and even "discussions with our customer service staff."

All this might not be so bad if a customer was easily able to "opt out" of participating in the information sharing, but Fidelity's policy to do this is not clear and a spokesperson that Lazarus spoke to wasn't much help either.

Lazarus continues by examining the privacy policy of one of Fidelity's chief rivals, San Francisco based Charles Schwab.

The San Francisco discount broker is including a form titled "Important Privacy Choice" in customers' latest statements. "You have the right to control whether we share some of your personal information," it prominently declares.

The firm's privacy policy, meanwhile, clearly states that customers "may instruct us not to share information about you with outside companies for joint marketing purposes," and also says how this can be done.

Take the time to read the privacy policies of the financial institutions that you deal with and understand what information they share and who they share it with. Clearly, not all institutions take the same approach.

False alarm

Not much can compare to the helpless feeling you get when 2,000 miles from home and your alarm company calls your cellphone in the middle of the night to let you know that the fire department has been dispatched to your house.

Early reports are that it was a "system malfunction". But the period from first learning of the alarm until hearing from a friend calling from our kitchen phone, was just a tad rattling.

Reunion bound

I'm on an airplane in tomorrow's pre-dawn hours, bound for the great Midwest and a high school class reunion. The laptop and digital camera will be along for the ride, so provided I have the time and a wireless connection, there could be some good blogging material (or not).

The high school that I attended (oh so many years ago) was quite large and my graduating class was over 700. We've had several reunions over the years and it seems that the same group of 150 or so keep showing up to each one. Not that I won't be happy to see that same group, but I'm kind of hoping for some fresh faces, folks I haven't seen in many years who decided, for whatever reason, to show for this one.

Since it may be a day or two or three before I'm able to post again...anyone have a good reunion story to share?

Spell checker

Isn't it ironic that the spell checker built into Blogger doesn't recognize the word "blog"? I'm so tickled by it that I've never bothered to have it "learn" the word.

Carnival of Personal Finance--Week 4

The fourth week of the Carnival of Personal Finance is up at Smart Money Daily. Lots of good stuff, check it all out.

Carnival of Capitalists

This week's Carnival of Capitalists is up at Multiple Mentality and I am happy to participate with this post from last week.

One of my favorite entries is from James D. Hamilton, Professor of Economics at UCSD, who asks, "Are the new employment figures really that bad?"and he even posts some really spiffy graphics on his blog, Econobrowser.

I hope to highlight other great posts from the Carnival of Capitalists, but first I must find the time to read them! So many blogs, so little time.

Performance and behavior

Never before has it been so easy and inexpensive for people to handle the financial matters themselves that were previously the protected domain of financial professionals. The internet has changed everything.

Now anyone can research investments, trade stocks, file tax returns, refinance mortgages and shop for insurance online, without ever leaving home.

So, why is it then that financial professionals are in greater demand than ever? According to the Securities Industry Association, employment in the brokerage industry alone has grown by 38% in the past ten years, despite a lousy market.

Time, aptitude and inclination. Some people would simply rather have a professional save them the time and the headaches of financial decisions. Some just don't have any desire to go it alone and others are not comfortable with financial tasks even though technology has made it so easy.

"It's not rocket science - the basic investment ideas are diversify, allocate your assets, control costs and pay attention to taxes," said Terrance Odean, a professor of behavioral finance at the University of California at Berkeley.

"But if you're not comfortable doing such things, it's not a bad idea getting advice."

Perhaps investors are also discovering that their investment performance is much better when assisted by professionals. Dalbar, a Boston financial research firm, reports in its 2005 Quantitative Analysis of Investor Behavior, that the average mutual fund investor averaged only a 4% annual gain in the past twenty years while the overall market generated average gains of over 12%. Dalbar suggests that the irrational actions of individual investors and the lack of discipline hurt performance.

While many investors can overcome these hurdles, most need the support of a financial advisor to supply the discipline.

The most important role of the financial advisor is to protect clients from the behaviors that erode their investments and savings.

Hypocrisy defined

The Bay Area is Talking (dot com), a blog run by Kron4 TV has received some really interesting comments/threats from the San Francisco Bay Area Independent Media Center, which describes itself as a non-commercial, non-corporate anti-capitalist collective, concerning the use of some photos taken by citizen journalists.

Apparently, The Bay Area is Talking, snagged a few photos from Indy Media's website of Friday night's demonstration against capitalism and the G8 conference and defended its action citing "fair use". A representative of Indy Media screamed copyright infringement and threatened to file suit.

Imagine, anarchists threatening to sue over copyrights. Imagine, anti-capitalists with picture-phones and digital video equipment. The hypocrisy just kind of boggles the mind.

(The photo is a still taken from video shot by Josh Wolf).

Favorite pastime

Among the myriad of fun and exciting pastimes to avail oneself of in the Bay Area, is protesting. This week's notable demonstration occurred last night in San Francisco's Mission District and featured destroying property and assaulting police officers.

Billed as the "West Coast Anti-Capitalist Convergence and March against the G8," the protest drew anarchists who used sticks, poles and skateboards to break windows of a Kentucky Fried Chicken restaurant and a Wells Fargo Bank. Protesters also overturned news boxes at several intersections along Valencia Street to prevent police from driving up those streets, witnesses said.

One police officer was struck in the head with an unknown object and was taken to SF General Hospital with a serious head injury.

The San Francisco Chronicle spoke to one anarchist, Josh Wolf, who spent the evening videotaping the festivities.

As for why the protesters had gathered in the first place, Wolf said, "The mission is to make an affront against capitalism and empire."

That makes perfect sense, right?

(Photo by Jason Fritz--Special to the Chronicle)

Daily Kos v. A Certain Slant of Light

Yesterday, my friend Bernard at A Certain Slant of Light wrote this post about his feelings toward Al Qaeda and what he felt should be done in the aftermath of the London bombings.

Dunciad, at the Daily Kos, took issue.

Now, I'd love to beat the crap out of Dunciad's logic, or lack thereof, but that would be too easy. What I really find fascinating is something about Daily Kos's readership.

Daily Kos has an average readership of about 500,000 per day (I cannot imagine why). So when Dunciad linked to A Certain Slant of Light in his rant against Bernard, whose daily readership is quite respectable but under one hundred, you would expect Bernard's daily hit count to absolutely skyrocket. It did not, not even a blip.

Hardly any of Daily Kos's half million readers bothered to click on the link and read Bernard's post in its entirety. No, don't bother going to the source, don't dare read something that you might find disagreeable. Heavens no! Whatever you do, don't think outside your comfort zone. What does that say about Kos's readers?

It's sad and I hope it's not representative of the entire left.

Dunciad wraps up by referring to readers as "kids" and asks "hands up who knows...". A teacher/student kind of thing. He/she obviously has a low opinion of his/her readers and they have a low opinion of themselves.

Buckingham Palace

Smaller Smokes

First cigarette smoking was banned in office buildings and airplanes, then restaurants started segregating smokers before banishing them altogether. The no smoking cheer infiltrated even outdoor sports venues and now, the city of San Francisco has prohibited smoking in city parks. Smokers have been left with very few and very short opportunities to blaze up. Philip Morris has the answer.

Philip Morris, the giant tobacco division of Altria, has launched new shorter cigarettes. That's right, the new "Seventy-twos" are just right for that short walk from the car to the front door. Or, when it's just too hot or too cold to stand outside your office to smoke an old-fashioned 100, the new Seventy-twos fit the bill. When friends are waiting but you must have a smoke, they won't need to wait long if you're smoking the new Seventy-twos.

Now, don't misunderstand, no one is advocating smoking. Cigarettes have no redeeming value whatever. But you must admire the creativity and the innovation of American marketers. These new smokes are an example of marketing genius and capitalism at work.

BART walkout averted

From the SF Chronicle:

The deal came after union leaders extended their strike deadline from 12:01 a.m. Wednesday, first until 12:30 a.m. and then for another hour, as management mulled over a final offer from workers. Negotiators for BART and the unions met for about 26 hours over the weekend and were at the table almost continuously starting at 10 a.m. Monday.

Details of the agreement won't be announced until the unions have voted and approved the deal which could take 7-10 days.

BART update

As of 3:10 p.m. PDT, there was no agreement between BART and its labor unions which are set to strike at 12:01 a.m. tomorrow if a deal is not made.

From BART's website:

The latest offer BART received from its unions included pay raises and incentives that would add $58 million to BART's deficit over the next three years. BART riders and Bay Area taxpayers can't afford to pay for these increases. To keep BART's budget balanced, we need a contract that reduces the budget deficit; the latest offer would only add to it.

I, for one, will plan an early start to work tomorrow to avoid what could be one of the worst rush hours in Bay Area history.

Carnival of Personal Finance--Week 3

The Carnival of Personal Finance is up at All Things Financial and JLP's got the links to a bunch of great and helpful personal finance entries. I'm very happy to be included--my entry follows.

Alphabet soup

You thought that the world of financial planning and investment management was complex enough on its own, but now you've noticed the alphabet soup following the names of financial professionals and you're more confused than ever. What do all the letters mean and why should you care?

There are dozens of professional designations for financial professionals, but here are some of the most common ones and an explanation of what they should mean to you.

Certified Financial Planner (CFP)
Obtaining this designation is no easy task but it's quickly becoming the standard for top-notch financial advisors. Candidates complete a rigorous curriculum, pass a difficult comprehensive exam, complete 30 hours of continuing education every two years and must adhere to a strict code of ethics. If your financial advisor is not a CFP, ask him/her why not.

Certified Investment Management Analyst (CIMA)
This designation, bestowed by the Investment Management Consultants Association, requires coursework and a final exam plus three years experience in investment consulting.

Certified Public Accountant (CPA)
A CPA must hold an accounting degree and pass a four-part exam--no simple task. CPAs frequently offer other financial services or sell investments but their specialty is tax issues.

Chartered Financial Consultant (ChFC)
Like CFPs, ChFCs have broad knowledge in financial planning, estate planning, taxes and investment management. They tend to come from the insurance industry.

Chartered Financial Analyst (CFA)
Probably the most difficult designation to obtain, the CFA charterholder has passed three arduous exams over a three year period and is bound by a code of ethics. This is the desired designation for portfolio managers, mutual fund managers and stock analysts.

Chartered Life Underwriter (CLU)
The CLU designee has completed a ten course curriculum on life insurance products.

Certified Fund Specialist (CFS)
This designation, which focuses on mutual fund investing, is awarded through the Institute of Business and Finance to professionals who complete their course and comprehensive exam.

Registered Investment Advisor (RIA)
The is really not any kind of certification at all, but an investment manager who manages $25 million or more in clients' assets, must be registered with the Securities Exchange Commission and is referred to as an RIA.

While these credentials are not everything, they are indicative of a professional's dedication and desire to do his/her very best for clients. When evaluating financial professionals pay attention to other factors as well such as experience, investment style, areas of expertise or specialties and, of course, how he or she gets paid.

Coke cans and Long Dong Silver

Sandra J. O'Connor's successor in the Supreme Court is expected to be named by President Bush next week and could result in a wicked Senate battle if that nominee is staunchly conservative. But the compromise reached on May 23rd by the "Gang of 14" could severely undermine any hopes Democrats have of employing the filibuster.

The pact, signed by seven Democrats and seven Republicans, says a judicial nominee will be filibustered only under "extraordinary circumstances." Key members of the group said yesterday that a nominee's philosophical views cannot amount to "extraordinary circumstances" and that therefore a filibuster can be justified only on questions of personal ethics or character.

So even if Democrats do uphold the bargain made in May, it still doesn't mean that a nominee with sharply held conservative views would be confirmed easily. The nominee could be opposed on moral or ethical grounds, genuine or contrived, as was Clarence Thomas in 1991.

Great. Another summer of Coke cans and Long Dong Silver.

Happy Fourth of July!

Up or down

In this poorly written editorial in the LA Times (try to make sense of it if you must) their editorial board makes one good point about confirming a Supreme Court nominee:

Fourth, senators are entitled to take their time on what may be the most important votes they will cast, but the president is ultimately entitled to a yes or no on his nominee. In other words, no filibusters. They are an insult to democracy and will come back to haunt the party that misuses parliamentary process in this way.

Wow, that's powerful stuff, especially from a paper like the LA Times. Filibusters are an "insult to democracy". Why didn't they publish a statement like that a month ago?

The first three points of this editorial concern themselves with the right of senators to make full assessments of nominees, to analyze judicial philosophy and, thirdly, the right of senators to inquire about specific cases, real or theoretical.

Whomever Bush nominates to fill the existing vacancy and the one to come, the senate should be thoughtful and analytical, examine judicial philosophy but not political ideology, and vote. Period. I'm not holding my breath. This could get ugly.

Two bloggers

While attending The University of Kansas, where I studied beer, business and journalism (in order of priority) I met three wonderful co-eds who shared an apartment on the sixth floor of my building. I dated one of these roommates for two years, the second one became my best friend and my lovely wife, and the third introduced me to blogging (not in order of priority).

Mrs. THC and I had the great privilege last weekend to have lunch in Kansas City with the roommate who introduced me to blogging. Julie D. publishes The Happy Catholic and was in Kansas City for a family reunion at the same time Mrs. THC and I were back visiting family as well. It's quite an experience to get together with someone we've known for so long but get to see so rarely.

While several photos were taken of the two bloggers, this one is my favorite.

I couldn't resist

I couldn't resist posting one more photo from the Chronicle's story about the antiwar protest in Union Square. I'll leave the witty commentary up to you.