Harvest Tax Losses 2012 or 2013

 

Does it make sense to harvest losses in the last two months of 2012, or does it make sense to wait until 2013?

 

This decision seems simple on the surface. The tax benefit of a realized loss depends upon the current tax rate. The benefit is maximized by realizing the loss in 2013 (presuming capital gains rates are higher in 2013). There are a few key considerations:

1. Will losses harvested in 2012 be carried forward?

 

If your current tax position is such that you expects to have capital loss carryforwards at the end of 2012, then it makes sense to harvest the loss in 2012.  All losses realized in 2012 will be carried forward to 2013 and beyond. There is no guarantee that a loss in 2012 will still be in place in early 2013, so it makes sense to realize it in 2012 before it disappears.  The bottom line here is that if you can answer “yes” to the first question for your return, then it makes sense to harvest the loss in 2012. Please note that although 2012 capital losses may be carried forward to reduce future capital gains at the 20 percent income tax rate, these losses may not be available to offset the future 3.8 percent health care surtax. This matter should be settled when the health care surtax regulations are released.

2. Did you realize short-term gains in 2012?

 

The capital gains tax on short-term gains is so costly that, in general, if you have unsheltered short-term gains this year, it makes sense to offset them by realizing losses in 2012. This is especially true if you are able to offset short-term gains with long-term losses.  If the answer to the second question is “yes,” then it makes sense to harvest the loss in 2012.

3. Do you have 2012 capital gains year to date?

 

If you have taxable capital gains year to date, any long-term capital loss opportunities should be delayed into 2013 so you will pay the 15 percent rate on the 2012 realized gains and lock in both the 2013 capital loss against a 20 percent rate and the 2013 health care surtax of 3.8 percent.

If the answer to the first two questions is “no” or the answer to the third question is “yes,” then it could make sense to delay harvesting losses into 2013.

 

Questions call our office.

 

2012 Winter Coat Drive



Schwartz Financial Weekly Commentary 11/26/12

The Markets

 

What fiscal cliff? 

 

Stock prices rose last week to their best weekly gain in five months as investors cheered the start of the holiday shopping season, encouraging economic data from Germany and China, improved housing data, and confidence from President Obama and Congressional leaders that the fiscal cliff will be avoided.

 

Is this the beginning of a “Santa Claus rally?”

 

Jordan Kotick, global head of technical strategy at Barclays, told CNBC, “We are about to head into the best seasonal time for the equity market.” Despite this seasonal tailwind, the market’s near-term direction may still depend on how Washington handles the pending budget and tax cliff. So far, the market seems to be pricing in a compromise that will avoid the worst-case scenario.

 

Beyond the fiscal cliff and a potential Santa Claus rally, what’s in store for the U.S. economy? Well, here’s a not-so optimistic take from famed money manager Jeremy Grantham:

 

The U.S. GDP growth rate that we have become accustomed to for over a hundred years – in excess of 3% a year – is not just hiding behind temporary setbacks. It is gone forever. Yet, most business people (and the Fed) assume that economic growth will recover to its old rates.

 

In his view, our economy will grow at a snail’s pace of about 1 percent per year after inflation for the next several decades. Without getting bogged down in details, his gloomy case rests on population and productivity changes.

 

However, there are some potential bright spots on the horizon. Please read the second half of this commentary to learn about one important part of our economy that could turn Grantham’s pessimistic view upside down.

 

Data as of 11/23/12	1-Week	Y-T-D	1-Year	3-Year	5-Year	10-Year
Standard & Poor's 500 (Domestic Stocks)	3.6%	12.1%	21.3%	8.4%	-0.4%	4.2%
DJ Global ex US (Foreign Stocks)	4.0	8.6	14.1	0.1	-5.8	6.9
10-year Treasury Note (Yield Only)	1.7	N/A	1.9	3.4	4.0	4.2
Gold (per ounce)	1.2	10.2	3.2	14.0	16.3	18.5
DJ-UBS Commodity Index	2.2	2.4	1.2	2.1	-4.8	3.2
DJ Equity All REIT TR Index	2.6	15.0	29.4	19.1	4.2	11.5

Notes: S&P 500, DJ Global ex US, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.

Sources: Yahoo! Finance, djindexes.com, London Bullion Market Association.

Past performance is no guarantee of future results.  Indices are unmanaged and cannot be invested into directly.  N/A means not applicable.

 

THE YEARS 2020, 2030, AND 2035 could turn out to be pivotal years for the United States and the geopolitics of global energy. Here’s why. The International Energy Agency (IEA) predicts the following will happen by those years:

 

·         2020 – The U.S. will overtake Saudi Arabia as the world’s largest producer of crude oil.

·         2030 – The U.S. will become a net exporter of crude oil.

·         2035 – The U.S. will become effectively self-sufficient in meeting its total energy needs through domestic sources.

Source: International Energy Agency World Energy Outlook 2012

 

Today, the U.S. imports about 20 percent of its total energy needs. Can you imagine a world in which the U.S. is energy self-sufficient and not beholden to foreign energy sources? This could deliver a huge boost to our economy.

 

Five years ago, the IEA predicted the U.S. would pump 10.1 million barrels of oil per day by 2020. In this year’s report, the IEA’s new estimate is 11.1 million barrels per day by 2020. This projected increase in production is, “driven by the faster-than-expected development of hydrocarbon resources locked in shale and other tight rock that have just started to be unlocked by a new combination of technologies called hydraulic fracturing,” according to MarketWatch.

 

So, we have Jeremy Grantham stating the bear case for the U.S. economy then we have the IEA publishing a report that puts the U.S. in the driver’s seat for the world energy market in the next couple decades.

 

Now, here’s the thing. Both Grantham and the IEA are making long-range forecasts based on data available today. Yet, we know things can change just as the IEA raised its oil production estimate from 10.1 million barrels of oil per day to 11.1 million.

 

Trends take time to develop and then, all of a sudden, they could change due to some new technology – as in the case of  “fracking.” We do keep an eye on these long-term trends, but we also understand that investment decisions to buy and sell have to be made based on what’s happening now. This “bi-focal” approach is one of the many tools we use to manage your assets.

 

Weekly Focus – Really?

 

“Whoever said money can't buy happiness simply didn't know where to go shopping.”

--Bo Derek, American actress

 

Value vs. Growth Investing (11/23/12)

Name	1-Week	YTD	4-Week	13-Week	1-Year	3-Year	5-Year
US Market	3.67	14.18	0.08	1.19	23.82	11.27	2.29
Large Cap	3.70	14.60	-0.10	0.88	24.38	10.24	1.62
Large Core	3.51	16.19	0.80	2.23	26.22	10.94	2.82
Large Growth	4.35	17.59	0.94	-0.42	24.65	11.43	2.82
Large Value	3.19	10.40	-2.10	0.97	22.78	8.33	-1.02
Mid Cap	3.47	13.50	0.86	2.37	22.21	13.85	3.68
Mid Core	3.67	14.77	2.16	3.21	24.90	15.97	5.16
Mid Growth	3.55	12.85	0.68	0.79	18.06	14.19	2.57
Mid Value	3.18	13.00	-0.15	3.28	23.80	11.33	3.13
Small Cap	3.89	11.55	-0.26	1.17	22.29	13.74	4.51
Small Core	4.22	11.73	0.86	1.38	23.07	12.58	3.79
Small Growth	3.60	9.81	-1.08	-0.65	18.92	14.68	3.35
Small Value	3.83	13.18	-0.56	2.82	24.90	13.96	6.35
US Core	3.59	15.63	1.06	2.35	25.76	12.17	3.48
US Growth	4.15	16.08	0.76	-0.20	22.91	12.32	2.87
US Value	3.23	11.11	-1.61	1.55	23.12	9.33	0.32

©2004 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar; (2) is not warranted to be accurate, complete or timely. Morningstar is not responsible for any damages or losses arising from any use of this information and has not granted its consent to be considered or deemed an “expert” under the Securities Act of 1933. Past performance is no guarantee of future results.  Indices are unmanaged and while these indices can be invested in directly, this is neither a recommendation nor an offer to purchase.  This can only be done by prospectus and should be on the recommendation of a licensed professional.

 

Office Notes:

 

LOCAL ADVISOR MICHAEL L. SCHWARTZ, RFC, CWS, CFS ATTENDS EXCLUSIVE RETIREMENT PLANNING WORKSHOP WITH AMERICA’S IRA EXPERT ED SLOTT

 

Jenkintown, Pa  11/15/12 –Michael L. Schwartz completed expert-level IRA distribution training at Ed Slott’s recent Elite IRA Advisor Group^SM Workshop on November 2 – 4, 2012 in Phoenix, Ariz.  Schwartz spent several days with Ed Slott and Company, America’s IRA Experts, drilling deep into the complicated issues of IRA distribution planning and studying most recent IRS rulings.

 

Covering recent updates such as the Health Care Law’s tax consequences and year-end conversion planning, Schwartz joined over 200 of the nation’s top financial professionals who are dedicated to solving the country’s biggest and most complex financial problem — effectively managing the distribution of assets from Individual Retirement Arrangements (IRAs).  Attendees were educated on Roth conversion planning, estate planning and leveraging current tax law in an effort to ensure their clients’ retirement accounts are set-up and maintained correctly. 

 

“Some people think the crux of retirement saving is just building wealth and playing by the rules, but they face sudden shock when they see how much money they can lose to taxes,” says Ed Slott, a nationally recognized IRA-distribution expert who was named “The Best Source for IRA Advice” by The Wall Street Journal.

 

Slott continues, “An educated advisor can protect your money from high taxes, keep more of your money and secure your retirement.  By joining the Ed Slott Elite IRA Advisor group, Schwartz has committed his time, money and effort into an educational membership group so he can have the knowledge to truly impact his clients’ futures and families.”

 

ABOUT ED SLOTT & COMPANY, LLC:  Ed Slott & Company, LLC is the nation’s leading provider of IRA training for financial advisors.  Mr. Slott is the author of several leading books on retirement distribution planning. He is a nationally recognized IRA-distribution expert, a professional speaker, and the creator of several public television specials, including Ed Slott’s Retirement Rescue! 

 

Ed Slott has been quoted in The New York Times, Newsday, The Wall Street Journal, The Washington Post, Money Magazine, and Forbes. He has appeared on NBC, ABC, CBS, CNBC, CNN, FOX, PBS, Public Television, NPR, and Bloomberg TV and radio.

 

ABOUT MICHAEL L. SCHWARTZ, RFC, CWS, CFS:  Mr. Schwartz is a Wealth Manager who’s practice has been in Jenkintown, Pa since 1991.  Mr. Schwartz has been in practice since 1984.  Mr. Schwartz has published numerous articles on Investment Planning in publications such as the Philadelphia Jewish Exponent.   Mr. Schwartz advises affluent clients on matters dealing with Retirement Distribution Planning, IRA Rollover, Retirement Accumulation and other Investment, Insurance and Tax matters.

 

Regards,

,

Michael L. Schwartz, RFC®, CWS®, CFS

 

P.S.  Please feel free to forward this commentary to family, friends, or colleagues.  If you would like us to add them to the list, please reply to this email with their email address and we will ask for their permission to be added. 

 

Michael L. Schwartz, RFC®, CWS®, CFS, offers securities through First Allied Securities, Inc., A Registered Broker/Dealer,  Member FINRA-SIPC.  Advisory Services offered through First Allied Advisory Services, A Registered Investment Advisor.

Schwartz Financial Service is not an affiliate of First Allied Securities, Inc.

 

This information is provided for informational purposes only and is not a solicitation or recommendation that any particular investor should purchase or sell any security. The information contained herein is obtained from sources believed to be reliable but its accuracy or completeness is not guaranteed.  Any opinions expressed herein are subject to change without notice.  An Index is a composite of securities that provides a performance benchmark.  Returns are presented for illustrative purposes only and are not intended to project the performance of any specific investment.  Indexes are unmanaged, do not incur management fees, costs and expenses and cannot be invested in directly.  Past performance is not a guarantee of future results.

 

* 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 DJ Global ex US is an unmanaged group of non-U.S. securities designed to reflect the performance of the global equity securities that have readily available prices. 

 

* 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.

 

* Gold represents the London afternoon gold price fix as reported by the London Bullion Market Association.

 

* The DJ Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.

 

* The DJ Equity All REIT TR Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.

 

* Yahoo! 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.

 

* To unsubscribe from our “market commentary” please reply to this e-mail with    “Unsubscribe” in the subject line, or write us at “mike@schwartzfinancial.com”.