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Editor's Note

by Charles Rotblut, CFA

Editor's Note Splash image

After last year’s fiasco, I’m happy to say we are able to include the 2013 tax guide in this month’s issue. Thanks to the passage of the American Taxpayer Relief Act of 2012 (ATRA), the tax rates and line item numbers for 2013 were set before we went to press. You can see the guide here.

There are lingering issues from the partisan battles affecting your tax returns, however. As we went to press, the Internal Revenue Service (IRS) had yet to formally announce when they would start accepting 2013 returns. The agency anticipates the delay being limited to no more than a maximum of two weeks. The partial government shutdown interfered with planned updates the IRS makes to accept the current tax year’s returns. By the time you read this, a date may be announced. The deadline for filing, or requesting an extension, remains April 15.

The partial government shutdown also delayed the announcement of various 2014 deductions, credits and income ceilings. We’ve used actual figures when available and projections from what we consider to be reliable sources for others. I intend to have the online version of the tax guide updated as we get more information. Some tax break extenders, including the ability to deduct state and local sales taxes and the option to make charitable donations from an IRA in lieu of taking required minimum distributions, will expire when you pop the champagne on New Year’s Eve if legislators do not act before then.

Extra taxes may be owed by those of you who own mutual funds (as well as potentially some closed-end funds and ETFs). Distributions of capital gains are expected to be larger this year than at any time since the financial crisis, according to Jason Kephart of InvestmentNews. New market highs and five years of upward-trending stock prices have left fund managers with relatively few losses to offset realized gains. The result is a higher tax liability for shareholders. Check with your fund company to see if they intend to distribute capital gains this year.

Those of you who own individual bonds should be aware that your broker is not required to report the cost basis of any bonds purchased after January 1, 2013, as previously planned. Brokers asked for and received an extension on the cost basis rules. Now the rules will be implemented in two phases. Go here for more information, and contact your broker if you have questions about your securities.

This month’s issue also includes the third article in a three-part series on claiming Social Security benefits. Authors William Reichenstein and William Meyer discuss claiming strategies for couples. Couples face the challenge of considering two life-spans when determining the optimal time to claim benefits. A misstep, particularly by the spouse with the higher lifetime wages, could have ramifications for the surviving spouse. The authors, whose firm called Social Security Solutions provides personalized recommendations as to when to claim benefits, walk you through the decision process and give you useful examples. Their article starts here.

An emergency change was made to AAII’s Model Shadow Stock Portfolio last month. FAB Universal Corp. (FU) was sold following allegations that the company misstated its financial performance and loaded its media kiosks with pirated movies. Click here for more information.

I want to end with a quick note of congratulations to our founder and chairman, James Cloonan. At last month’s Investor Conference, he received the first biannual Cloonan Award for Excellence in Investment Education. The award was given in recognition for the vast amount of work Jim has done to help individual investors become more successful managers of their portfolios. We will have more about the award in next month’s issue. On behalf of everyone at AAII, congratulations, Jim!

Wishing you prosperity,
Charles Rotblut, CFA
Editor, AAII Journal
twitter.com/CharlesRAAII

Charles Rotblut, CFA is a vice president at AAII and editor of the AAII Journal. Follow him on Twitter at twitter.com/CharlesRAAII.


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