Sunday, January 18, 2015

Things to Pay Attention to This Tax Season

Tax season for this year officially begins on Tuesday January 20, 2015. While it is 20 days later than most people would have wished, there is still plenty of time for everyone to get their tax returns filed before the deadline on April 15, 2015. That notwithstanding, it is best to file early to avoid the head-aches and stress that generally come with the subject of taxes, not the least of which is one topic that is gaining a whole lot of notoriety these days: tax filing and refund scams. And for those people who don’t have to write a check to Uncle Sam, another reason to prepare and file your returns early is simple: the earlier you file, the faster you can expect to get your refund.
Regardless of your reason for filing your returns early (or at least wanting to), there are a few things that you might want to keep in mind as you prepare to deal with this annual ritual:
  1. Should You Go DITY (Do It Yourself) or Use A Paid Preparer – This is perhaps the most important decision you will make this tax season: whether to do your own taxes (and that includes having Cousin Jane or Uncle Bob – none of whom is a tax professional – do it for you) or pay someone else to do it for you. You may take this for what you will, but unless you really know what you’re doing (and by that I don’t mean just being able to input numbers in TurboTax!), you want think twice about going the DITY route. Sure, you may save on the front-end by trying to do it yourself ($50.00 or less for TurboTax versus $150–$200 average for a paid preparer), but when you factor in the real costs involved – your time spent (it could take you several hours, possibly even days, to get it right when a professional might have finished it in a matter of one or two hours); missed deductions and credits, misunderstood and/or misinterpreted tax rules/regulations, omitted and/or incorrectly input information (inadvertently or otherwise) and a host of other possible mis-steps that could all result in the IRS rejecting your returns, accepting them but making changes to increase your tax bill or reduce your refund, or (and here is the big one) opening up your return for audit a year or two after you file it, the big question then comes: was it worth the $50.00–$100.00 that you saved to do it yourself?
  2. Choosing the Right Preparer – For those who opt to have someone else prepare their returns for them (generally a wise decision), the next most important decision you will make has to do with whom you select to do the return preparation. Let’s get one thing clear here: there is a difference (and a very important one at that!) between a tax return preparer and a tax professional. It is critical that you understand this difference, and also know that while anyone can pretend to be a tax preparer, not all those out there – with signs in windows, or nailed to tree trunks or telephone poles, or plastered on their vehicles – professing to be “tax preparers” and promising just about everything under the sun if you came to them to do your taxes, not all of them really, truly know what they’re doing on the tax return, much less be classified as tax professionals. As one well-respected and very knowledgeable tax practitioner puts it, with “a poster in one window (touting) that the preparer would ‘Pay You $100 To File Your Taxes’” and “other signs (promising) free food and beautiful girls”, there are so many odd promotions out there “that should make you think: Am I going to a club or getting my taxes done?”. Bottom-line, make sure you check the credentials of the person you're trusting with the preparation of your tax returns, and at the very minimum, ensure that they have a PTIN (Preparer Tax Identification Number), which is a 9-digit alpha-numeric code – starting with a P – that the IRS issues to all tax professionals that have officially registered with them to prepare tax returns.  
  3. Gathering Your Tax Documents – It is important to put together all the necessary records and information that will be needed for the preparation of your returns. This matters whether you’re doing it yourself or using a paid preparer. Obviously Forms W-2 and 1099 are big players here when talking about income, but it is also important to have documents showing proof of any other income you report (including how that income was calculated if it is not that obvious). Equally important – even more so – is having all the necessary back-up records to support any deductions and credits that you claim on the return. One cannot down-play the importance of ensuring that the information you put on your return with regards to income, deductions and tax credits is accurate: long after your returns are filed the IRS may decide to audit them, in which case you will be asked to provide proof of the deductions and credits that you claimed on the return. (In some instances you may even be asked to show proof of your income if it was not the type reported on standard forms. i.e., Forms W-2 and 1099.) Thus, not only do you need to have these documents and records ready for getting your taxes done; you also need to keep them safely for a while – at least 3 years, generally – after the returns are filed. Also, remember to keep a copy of your return before you file it: use the print function in your tax software to print a copy before submitting the return for e-filing if you do it yourself, and if you use a paid preparer and they are e-filing, insist on getting a copy of the return from them.  
  4. Credits and Deductions – If you decide to do your own returns, be sure to claim only the deductions and credits that you are correctly eligible for (what legitimately you qualify for) on the return, and if you use a paid preparer (or have Uncle Bob help you with it) it wouldn’t hurt to ask them to give you a quick run-down of what deductions and credits they reported on your return for you (and also how those were determined).
  5. The Affordable Care Act – Another thing that will impact the returns of most people this season and is therefore important to know about is the Affordable Care Act (ACA). While the law will not necessarily present any difficulties for most taxpayers, many people will still be caught in its web either because they received a government subsidy to purchase health insurance for 2014 under the Act, or because they did not have health insurance coverage during the year as mandated by the law and therefore would have to pay the required penalty. The pertinent information will have to be provided – including any major changes such as marriage, divorce, birth of a baby or change in address or name that may have occurred in your life during the year – so that any determinations involving tax credits (for health insurance subsidies) or penalty applicable under the health-care law may be correctly made on the return.
  6. Fraud Alert – Throughout the tax season and beyond, beware of fraudsters and scammers who would try to steal your identity and use it to do any number of things, including filing false tax returns and receiving tax refunds in your name. Each year the Internal Revenue Service (IRS) releases a list of common tax scams that it names the “Dirty Dozen”, and over the past few years identity theft, telephone scams and phishing have ranked high on that list, with scams pulled by con-artists posing as tax preparers ranking right underneath those. Don’t fall prey to any of these tax fraud traps, and one of the easiest ways for that to happen is for you, the taxpayer, to be greedy and/or overly aggressive in your attitude towards the fulfillment of your tax obligations: either trying to get a bigger tax refund than you rightly deserve or a much smaller tax bill than you should correctly pay. Once the tax scammer sees that, you’re already half-way to being fully in their web, and who knows where that would end you? Be wise and protect yourself.
Well, hopefully we have given you enough tips to guide you and help make going through this tax season a less taxing (pun intended) experience for you. We wish you many happy returns 

Have a question about taxes, issues with the IRS, life insurance, how to accumulate wealth and enjoy it income tax-free, or financial planning in general? We're only a phone call or email away; simply ask us.
Patrick C. OsBourne 

AAKOBB Financial Services
Phone 1: (614) 707-1775
Phone 2: (513) 889-2134

Tuesday, December 30, 2014

Don't Make Them Pay for Your Life Insurance!

Earlier this afternoon I read something on LinkedIn that resonated so much with me that I could not help but think of sharing it with you, readers of this blog. It is the comments of another person1 (a fellow member of a LinkedIn group that I subscribe to) regarding a post from the website that another group member had shared previously. (Actually, the group member who shared the original post is no other than Marv Feldman, President and CEO of Life Happens2, and as a matter of fact, I too was struck by the story in the Life Happens post and so shared it on our Facebook page back on December 24, 2014. You may visit the page – ours, that is – at to read the story, and while you're there please don't forget to like us; thank you.)

Anyway, to go back to what I started saying, I found the comments (concerning that story) made by my LinkedIn group member to be so insightful, so spot-on on the subject of life insurance and the lack of appreciation by a majority of people of its importance in providing financial security for any family. In my humble opinion, it is this lack of appreciation for what life insurance can do – what it stands for – that often results in people procrastinating on getting a life policy when faced with the choice to do so (by coming up with a million different excuses why they can’t get it now) or sometimes even refusing completely to get it. As such, I couldn’t agree more with what that LinkedIn contributor said, and I asked his permission to share his comments here on this blog. Fortunately for us all, he graciously agreed1.

Honestly, I wish I could simply put his words out here exactly as I read them, because I don't believe any changes I could make to his comments would suffice in expressing his sentiments on the subject as poignantly as they need to be (the way he undoubtedly intended them to be). That being said, I do have a few words of my own that I would like to inject into the conversation, and so I am unable to just reproduce everything I read verbatim and leave things at that. Rather, I’m going to try and paraphrase the gentleman as closely as I possibly can (with direct quotes thrown in where possible) without losing much of the meaning to – and emotion in – his words while adding my own two cents’ worth.

So, here we go.

There is nothing funny about life insurance. Seriously, there isn’t. Why would there be, when the whole concept revolves around some very serious – even grim – aspects of the human existence? security...illness...death…these are all serious matters that should not – and cannot – be taken lightly, let alone be spoken about with any element of mirth.

And yet, in at least one respect that is ironic, one can consider the subject of life insurance with a twinge of humor: it has to be paid for one way or another, whether it is bought or not.

If you buy the life insurance your family needs, then you pay for it out of current income. You may not have a whole lot of disposable income to pay for it, so you’re forced to spend a little less here and a little less there. In essence, you learn to practice a little frugality in order to have your life insurance, and (it may even help) "you do a better job of budgeting, of watching out for unnecessary expenditure"1.

On the other hand, “if you don't pay for the life insurance out of the money in your pocket today, then your family may have to pay for it someday.

You may ask, “But how is that? If I’m not spending any money on life insurance, then how will my family pay for it?”

Well, the answer is simple, really. Your family pays in many ways for your failure – or refusal – to pay for life insurance (and thereby make provision for their financial security when you are no longer around to provide for them), and there is no escaping that! They have to. Yes, your family pays for the life insurance you don’t pay for out of the things they are forced to do without when you (and the income you earn) are no longer around to continue to make those things possible. They pay for it with the loss of the life-style they were accustomed to but are now no longer able to enjoy. They pay for it with the home from which they are forced to move (because there isn’t enough money to make the house payment – it makes no difference whether that payment is for rent or a mortgage).

Yes, your children will pay for the life insurance you don’t pay for today with the school they are unable to attend because the fees may no longer be affordable; the education that you want for them that they will be unable to get (because they either drop out of school entirely to get a job and help take care of the family, or they simply cannot focus on studying to get good enough grades while also having to hold a job). They will pay for it with the opportunities they are no longer able to take advantage of; they will pay for it with "a mother's attention that is not theirs" (fully now) because she must work to support the family…”work to live so that they may also live”1.

Yes, just because you fail – no, actually refuse – to commit a little bit of your income to pay for life insurance today, your entire family pays a hefty price tomorrow with the sense of security (and it is not just financial security that we’re talking about here) they no longer possess when you get taken away from them prematurely!

And there you have it, my dear reader; that is what may be considered “funny” about life insurance: you pay for it if you buy it, or you make your family pay for it if you don’t buy it! Now ask yourself, which way would you rather have it?

So, the next time you’re confronted with the choice (or opportunity) to buy a life insurance policy – if you don’t already have one – or pay your life insurance premium (for those who already have a policy) and you start dithering or making excuses (perhaps because you’re thinking you could use the money to buy the latest hi-tech gizmo on the market – or that new fancy dress you would probably wear only once and then leave hanging in your closet to collect dust), ask yourself another question: “Who pays the biggest price for life insurance, me or my children?” Then, act in accordance with your answer. My hope and prayer is that you will do the right thing for your family.

PS: If you do not have life insurance yet, (or even if you do but are not sure whether you have enough to meet your family’s financial needs – and especially if you’re not sure that you have the right kind… the new kind of life insurance), simply click here to get a free, no-obligations quote.

  1. The person I talked about at the beginning of this article (the one whose comments on LinkedIn inspired this blogpost) is called Joaquin Wilwayco. He is a fellow financial services professional with SynergiaDGW in Austin, TX, and he explained to me that the words he used in his comments were not original to him. (He actually credited an “Unknown Author” at the bottom of his comments.) Along with the title of this post, most of the lines with parentheses (" ") and/or the superscript1 are either direct quotes from or paraphrases of that LinkedIn commentary.
  2. Life Happens, formerly known as the LIFE Foundation, is a non-profit organization dedicated to helping Americans take personal financial responsibility and make smart insurance decisions to protect their families financially through the ownership of life insurance and related products. Learn more about the organization and what they do at

Have a question about taxes, issues with the IRS, life insurance, how to accumulate wealth and enjoy it income tax-free, or financial planning in general? We're only a phone call or email away; simply ask us.
Patrick C. OsBourne
AAKOBB Financial Services
Phone 1: (614) 707-1775
Phone 2: (513) 889-2134

Monday, December 1, 2014

Financial Independence Is Rarely An Accident

Albert Einstein was once asked what the most powerful force in the Universe was...

His answer?

Compound Interest.

Protecting your money against loss is the most fundamental principle in investing, and if there is one thing all good investors know (or should know), it is this: never touch the principal!

The Difference Between A Good Investment And A “Real” Investment

A little over a year ago I had a conversation with a client who had approached me about what to do with his modest savings in a 401(k) account that he had left at his previous employer. He could see the market threats mounting against his little nest egg and was concerned about how to protect it.

My advice was that he should move at least half of the value of his portfolio into fixed indexed annuities (the recommendations for the remainder of the account are not relevant to this discussion), and I had a couple of reasons for making that recommendation:

First, I believe it’s never a good idea to leave your 401(k) portfolio with your previous employer. It is similar to leaving your valuable possessions in the house of your ex-spouse after a divorce.

Second, with everything that had happened with the market over the past few years, I thought he needed a vehicle that would preserve and grow his nest-egg for the long-term. (Note: The fact that the stock market has been on a tear lately and reached record highs this year in no way invalidates this particular concern, as the rest of this article will try to show.)

My client said he would think about it and get back to me. About a week later he told me that he had discussed the situation – and my recommendation – with a relative who also happened to be a banker, and the relative had advised him to "stay put" because "stocks always bounce back". Now that response is typical of most folks when it comes to a discussion of market-based investments, especially stocks and mutual funds.

All too often – as in that particular case – this kind of response comes from the often-repeated, but mostly inaccurate assumption that "the returns on annuities are low”! And usually it also comes with this thinking: “I've lost some money in the market and I want to get it back when the market rebounds. As soon as stocks come back up and I break even, I will make the move to a fixed indexed annuity”.

Unfortunately, my experience (and that of most advisors I know) has been that this classic response – and its accompanying “the market will always rebound” philosophy – keeps people at the break-even level with their investments, never being able to really pull out ahead. But even worse, it also comes with lots of regret, and inevitably those who subscribe to it come back to say, "I wish I had listened to you; I wish I had made that switch to annuities or at least moved a part of my money into annuities…”

This is because the expected market rebound and recovery of losses typically doesn't happen as anticipated; instead, those folks end up with disappointing investment results and even more losses, often at a time when such losses can least be tolerated. Of course, hind-sight is always 20-20 so they can now see things more clearly, but then the damage has already been done!

The other side of the coin – what some folks don’t seem to appreciate – is that those of us in the industry are privy to the asset management and investing strategies of successful investors and therefore get to see what moves are made to help ensure investment success and enduring financial stability as the years go by.

I Would Like You To Consider This...

If you start the year with $100,000 in the stock market and lose 40% by year end, it would take 2 subsequent years of 30% returns to break even. The question is, how often does that happen? What are the chances of the market having two consecutive years of 30% growth?

Against this background, placing at least a portion of your retirement (and other financial) assets into an alternate investment vehicle that could help protect your principal against market losses should be considered a good (even great) investment strategy. And annuities – the right kind of annuity – could be just the vehicle you need for that.

Sure, the occasional “giddy highs” of the market (as we have seen this year) can be intoxicating and fun, but we all know too well that “what the market gives, the market takes away”, and as much as we all want to wish that it wouldn't happen, there is no doubt in my mind that it would not be long before this “raging bull” that we've seen for most of this year tires itself out and a sanguine bear (if not a rampaging one) takes over and allows the market to correct itself. When that happens, having a decent chunk of your assets in a vehicle (or basket, if you will) that assures a rock-solid 6 – 10% average annual returns over the long-term will be a pretty good position to be in – and clearly a worthy proposition to be considered by any serious investor.

So you ask, what is a Fixed Indexed Annuity? How does it work, and what can it do for me and my investment or retirement portfolio?

Well, how would you like an investment with the following features:

Ø  100% Principal Protection – Your money (what you put in) will never be lost due to a down-turn in the stock market.
Ø  6% – 10% average returns annually, with a guaranteed minimum of 2% typically
Ø  Gains locked in each year, and once locked-in, they can never be lost by a market down-turn.
Ø  A guaranteed income for life during retirement, even if you out-live your investments.
Ø  A good night’s rest – because you neither have to worry about losing your money in the market, nor about out-living your income in retirement.

If any of what has been said above sounds good to you and you would like to know more, take a few minutes and get back to us at AAKOBB Financial Services with your questions and concerns. We will work with you to explore some options that would get your money working for you (instead of it working for Wall Street money "managers" and/or Uncle Sam!)

We Are Here to Help You  Help Yourself!

To recap, if you want something that...

Ø  Has zero market risk – no losses from market down-turns – with gains locked-in!
Ø  Is relatively liquid
Ø  Comes with tax-deferred growth
Ø  Allows you portioned tax-free, penalty-free distributions
Ø  Provides you with guaranteed lifetime income you cannot outlive,
Ø  Assures that your retirement will pay out (i.e., that you have funds to adequately support you in retirement) even if you outlive your other savings
Ø  Could be set up as a ROTH (after-tax contributions) if you qualify...

Then…speak with us. We wish you all a happy holiday season.

Patrick C. OsBourne
Phone 1: (614) 707-1775
Phone 2: (513) 889-2134

Friday, December 20, 2013

December 20, 2013

Tax Season is Coming!


Twas the night before taxes,

And all through the house,

Not a creature was stirring,

And I felt such a louse.


W-2s and 1040s I had spread on the table,

Having pushed off the task for as long as I was able.

My little deductions they had earlier gone to bed,

After seeing their dad with steam rising from his head.


Then out of my throat there arose such a hue,

For when I summed up, there were big taxes due.

So I redid some entries, doubled deductions, claimed credits.

Only to see by the tax code how bogus were my edits.


With pencil and calculator I had dodged and had wrangled,

Yet the more I computed, the more it got tangled.

So I reached for my checkbook in a fit of duress,

And wrote out the Big One to the bleeping IRS.

Don't let scrooge (The IRS) ruin your holiday. Tax advisers are better than Santa Claus. Santa cannot reduce your taxes but we can. 

Merry Christmas.

(Posted with permission from Dr. Wayne Essex, Essex & Associates, Dayton OH)

Friday, May 17, 2013

Too Busy....For What?

Folks, if you're reading this blog-post and you don't have life insurance you need to STOP procrastinating – maybe even stop reading this – and go get started on having a life policy on yourself...NOW!

See, for several years now I have been talking to a couple about life insurance you don't have to die to use and how to use life insurance to build a tax-free retirement and a private funding source. Well, I should rather say I have been trying to talk to them, because I never really had the chance to sit with them and get into a full (or even half-way decent) discussion of what these concepts entail. The first time I spoke with them the husband (who was in the military then) was leaving for his 3rd deployment in the Iraq/Afghanistan conflict, and even though his wife was supposed to meet with me while he was gone and get a policy on herself, she had "so much" going on that she just never had time to sit down and get it done.

Then the husband got back 8 months later and wanted to get a policy on himself, but the excuse this time was that he was busy starting a new business in preparation for getting out of the military. And now she was working on building her fitness training business, and she also wanted to get out of debt before meeting with me. Furthermore, she wanted to quit smoking first so she could get a better risk class on the insurance.

I encouraged her to stop procrastinating and get started, but of course it was her decision to wait so I couldn’t really do much about it. Then I spoke with her not quite 3 months ago and she said she was expecting to be out of debt in another 3 months and then we would meet. Good news, right? We were finally going to get it done; after all, how long is 3 months when we’ve already waited 4 – 5 years to get started? Well, guess what? This fitness trainer who works out a lot, runs, eats a very disciplined diet and is maybe 40 years old had a heart attack in March, barely a month after that last conversation!
The good news is, she didn't die, but the bad news is that she is now uninsurable, and the sad thing about that is she has 2 kids (a 13-year old and 15-year old); God forbid she should have another heart attack and die now (that tends to happen), she would leave them with no money! Yet – and here is the other bad news – if only she had not been “too busy” to sit with me for just an hour (maybe 2 hours at most), she could have tens of thousands – if not hundreds of thousands – of tax-free dollars in her hands right now, to do whatever she wants with, including exploring the best of the best treatment choices for her full recovery. How sad!

So my question to everybody reading this blog is, are you too get life insurance? For your own sake – and for the sake of the people who depend on you, I hope not!

And if you already have life insurance, is it the kind that you yourself can benefit from while you're still alive, or is it the kind that only becomes useful after you're dead and gone – that is if it doesn't expire before then? Nothing wrong with your family getting a death benefit upon your death, but isn't the thing called life insurance (instead of death insurance)? Besides, this lady could live several years longer and yet have debilitating health conditions that would affect her income-earning potential, while she continues to rack up medical bills that in all likelihood drain the family's financial resources; then what? Financial struggles for her family? Forced liquidation of family assets? Bankruptcy? Your guess is as good as mine. And all that could have been avoided if she – and the husband – had not been too busy! Just think about that.

Tuesday, January 8, 2013

Life Insurance As An Investment

Hello readers, today I am going to address a topic that I had wanted to wait to discuss much later – perhaps when this blog has become more well-known. But I just came from reading something on this topic on LinkedIn, and I can't help but get into it. What I read was contributed by a member of a group that I subscribe to and commented on by other members of that group, so I tried to add my own comments but as is typical of me (as my friends and those who know me well would attest to), I ended up having more to say on the subject than space would allow – for a LinkedIn post-related comment. So I had this brainy idea: rather than limit my contribution to LinkedIn (where only members of that group would see it), why not bring it here so more people can read it – and hopefully add to the discussion with their comments? So, here we are...

Obviously the discussion was started by somebody (I believe it was a gentleman from Canada) who posted a write-up under the above heading, and naturally folks had a lot to say about it, but a couple of comments really caught my attention. One was by a contributor who said this, and I quote: "Life insurance is insurance and not an investment. Can you accumulate cash value, yes. However it doesn't do well as an investment -- the costs are too high." The contributor went on to say, however, that he believed permanent life insurance "makes more sense than term" because it (meaning permanent insurance) doesn't put you in a situation where at the end of the "term", "one has no money and no insurance", and he finished by saying "I sell life insurance for the insurance and not for an investment".

While I share that gentleman's sentiments about permanent insurance (typically with cash value build-up and growth) and its marked superiority over term insurance (let those who disagree with that statement howl all they want; I'll defend it with my life), I do not agree with his take on life insurance as an investment, and that is what got me motivated – if I may put it that way – to contribute to the discussion. So I set out to add my comments – mostly as a "concurring voice" to another contributor who said that "life insurance can be an investment" (his exact words) and went on to extol some of the "virtues" of life insurance – not the least of which is "the real beauty of....its unique tax treatment" (I'm quoting again). Of course, that contributor was able to say his piece – and quite effectively too – within the number of characters that are allowed on LinkedIn, unlike me. But not to belabor that point – how else would we be reading this all-important discussion here (so more people would have access to it) if I had been able to fit my contribution in there?

The point is that the gentleman who said that life insurance can be an investment hit the nail dead smack on the head, and I couldn't have said it any better myself. I think that it's time for people to get off this humdrum script of "life insurance is not an investment" and "life insurance as an investment is too expensive" and take a good, hard look at what a really well-designed, well-structured, well-funded life insurance policy can do versus the so-called "real" investments over the long-term; I bet they would stop singing that old song if they did. But sadly, most people don't; instead they just continue to believe (and repeat) that same line we've all been fed (and continue to be fed) by the "investment gurus" and "experts"– the folks on Wall Street and those crowding the hallways of banking institutions' ivory (or is it gilded marble?) towers – who are the ones who really benefit from the status quo of people continuously pumping gobs – no, oodles – of money into stocks, mutual funds and CDs (yeah, CDs, and for some, even savings accounts too!).

Somebody tell me what is more expensive: putting $1,000/month into a mutual fund for 30, 40 years and paying a fund manager (money manager, whatever you call them) year in and year out to "manage" it for you (someone who gets paid whether your investment grows or not) and then getting half – or possibly even more – of your portfolio (whatever the value is at the time is not really material for the purpose of this discussion, but we can get into that later, if necessary) wiped out on the "eve" of your retirement by a market down-turn (the "money manager" still gets paid, regardless!), or putting the same amount into a life insurance policy (let's say an equity indexed UL, for example) over the same period of time, never ever having to worry about losing a penny of your cash value to the market and being able to pull a very decent amount of money out of it via tax-free "loans" upon retirement (or even way before that, with no tax penalties) on top of the income-tax-free death benefit that your beneficiaries would receive?

Without even getting into a discussion of IRRs (internal rate of return, which I mention here because I saw one of the contributors in the LinkedIn discussion mention that) and all the technical stuff, I'm willing to bet anything that the supposed "real investment" alternative (in mutual fund) is not just more costly in this instance; it would be plain devastating. And yet that is what people are asked (encouraged, told, cajoled – I dare say deceived or maybe even coerced, in so far as they're not even "allowed to know" that there are possibly better alternatives?) to do every day when they are constantly bombarded with ads, sales pitches, news, articles, op-eds radio/TV talk shows and what have you singing the praises of "good" and "real" investments while supposedly "exposing the evils" of permanent, cash value life insurance!

And the sad thing about all this is that it is the very people who could (would, actually) benefit the most from a commitment to life insurance – making a consistent, systematic contribution of funds to a financial product that will be there for you (and the people you care about) to benefit from no matter what happens on the stock market (or when you die) – who are turned away from this great tool for providing financial security for oneself and one’s family by all this senseless “noise” and negative press (most of it coming from largely uninformed people speaking out of relative ignorance).

I’m talking about middle-to-low income families, the people who more often than not are unable to save enough – if anything at all – through the so-called "traditional" investments (mutual funds, stocks and bonds) for their retirement (in spite of all the hoopla about 401(k)s and other tax-qualified plans, and we will talk about that another time) let alone leave something for their heirs, the people whom most of this bad rap about permanent (cash value) life insurance is directed at and who are constantly receiving free “superb advice” from everybody and their granny (from Suze Orman to Dave Ramsey and all the other “financial” experts and gurus in between) to only buy term insurance (if they should even dream of getting life insurance at all!) and put the rest of their money in “good, real investments” (the “buy term and invest the difference" – or BTID – theory arguably perfected by Primerica).

Yes, these are the people who, through no fault of theirs, are getting sucked into believing stuff that is far from reality and therefore getting hurt by what, to me, is nothing short of outrageous advice where their money and what is good for them is concerned. On the other hand, the folks whom most of these "financial experts" claim life insurance is "made for" (because they are "wealthy" and can afford to pay for it) are usually financially savvy people who seemingly don’t pay attention to what the supposed “conventional wisdom” out there about life insurance is anyway, or maybe they also buy into that conventional wisdom, because either way, they dump tons of money into permanent life insurance. And for good reason too! Remember the "virtues" of life insurance – not the least of which is "the real beauty of....its unique tax treatment" – that I said the contributor on LinkedIn talked about? Well, if there's one thing that motivates wealthy folks (and should motivate everybody too – no matter the size of your pocket book), it is the need to continually find ways to pay less tax and keep more of their money for themselves and their families/loved ones.

Another reason that makes it even more sad – the way I see it – for people to be caught in this farce of "life insurance is not an investment; it is too expensive and only for the rich" is that, in my opinion, "rich" folks are the ones who do not necessarily even need life insurance at all! Why do I say that? Because to me, such people are financially "okay" (in most people's estimation, judging by whatever the measure of being "financially okay" is supposed to be) and therefore do not need the cash value from a life insurance policy to survive on (as a supplement to whatever other retirement income they have) or the death benefit from the policy to leave an inheritance to their loved ones. And yet we're all made to believe that these are the folks who should be buying permanent life insurance, not the rest of us. Good logic it is, right? Rich folks can afford life insurance so let them buy it and leave even more money – than they already have – to their heirs (or favorite charity), and as for the rest of us, well, we can't afford life insurance (heck, we don't even need it!) so let's forget about it and condemn our heirs (and descendants of multiple generations) to an eternity of financial struggles, huh?

Think about this: who would be better able to handle financial difficulties during their working life, survive a near wipe-out of their retirement savings just before or right into retirement (or simply afford to have a sizable chunk of their “real” investment portfolio evaporate over-night with a major market loss and still come out of it okay), and still leave an inheritance to their loved ones (let’s not even worry about charities here for now)? Well-heeled folks, or the everyday working-class people (and I’m not implying here that “rich” folks don’t work, so let nobody jump on me for that) struggling to put something away for that far-in-the distant future dream of retirement (which, more often than not becomes somewhat of a mirage)? And so which of these two groups of people would have the greatest need for permanent life insurance and should therefore be encouraged the most to get it at all cost?

It seems quite obvious to me that it is the latter group – the folks who struggle to get by, who can hardly save and therefore can ill-afford to lose any part of their life-savings (what they manage to put away) at any point in their life. And that means that regardless of how fantastic a return such folks can hope to get on their investments in the stock market (and that is all it is, a hope for higher returns, whether in a given year or over a number of years), they would most likely be better served by putting their investment dollars (or whatever currency they use, since this is not just about Americans) in something – a financial product – that would not necessarily take them to the giddy highs of the financial markets but definitely give them a decent sampling of that whenever possible (through the very unique means by which insurance companies "grow" policy-holders’ cash value) while completely shielding them from the markets’ often heart-breaking and potentially disastrous lows, at the same time making sure that come hell or high water, they – or somebody they care about – will collect from what they sweated to put away.

And if that “something” is not permanent, cash value life insurance (well-designed, well-structured and more importantly well-funded – the same way they would fund their so-called “real” investments), then I don’t know what it is.

So there, that is my two cents’ worth, and I stand by it. Happy New Year, everybody!

Monday, December 24, 2012

The Tax Man Cometh!

Hello folks, first I want to welcome everybody to the inception of our blog site. It has been a long time coming, but we took out time because we wanted to make sure that when we got started, we would get it right. Now, that doesn't mean we're going to be perfect here in everything we do, especially at this very beginning; far from that. Rather, it means that we've taken our time to prepare as best as we could and can therefore hope to deliver a much better quality "product" than we could have if we had rushed to get started. So now that we're here, we invite you to come on board and join hands with us to embark on what we hope to be a great blogging experience. We'll do our very best to deliver on that.

Second, I want to take this opportunity to wish all our readers – and especially those who have supported us and kept our business going over the past couple of tough, turbulent years: OUR CLIENTS – a very happy and blessed holiday season. We know that 2012 has been a very eventful, momentous year with a lot of unique experiences for everyone that would probably never be topped in our life-times (in reality, some of us may not necessarily want those experiences to be topped – or even equaled, ever; especially those that happen to be unpleasant, if not downright bad) and the distinct memories of which we’re sure to carry with us for a long time –possibly even to our graves. Well, my wish for everybody is that the new year that we’re about to usher in would give us all the opportunity to have much better and more meaningful experiences of which we would have even fonder memories than those of 2012, always bringing warmth to our hearts and smiles to our faces.

And now to business.

The year is about to end, and as usual, the new year will announce itself with a bang – in the form of a subject that has different meanings for different people: TAXES! For those who have reason to expect a tax refund check (or rather direct deposit, for the most part) from “Uncle Sam”, the new year couldn’t come soon enough, and they simply can’t wait for the clock to chime at midnight on New Year’s Eve so they can finish the night’s partying (or praying?), go get a few hours of sleep, and hurry out of bed the next morning to begin the search – even before they receive their W-2s – for that “skillful” tax return preparer who would ensure that their “pay-day” from the IRS this year is fatter than it has ever been.

On the other hand, for those from whom an additional (and often sizable) contribution to Uncle Sam’s seemingly avaricious, infinitely deep and never-to-be-filled-up “pockets” may be required, the beginning of a new year may not necessarily be such a welcome occurrence at all! For such folks, naturally (if only so they wouldn’t have to deal with that very “unpleasant business” of writing a check to the government), they would rather a new year didn’t start at all – or that the old year didn’t end, depending on which way you look at it. Too bad there’s no such luck for them, and so like it or not, the old year must end, a new one must begin, and The Tax Man Cometh to collect what is due him.

And let it be known that when the Tax Man comes, he collects not only from those who end up writing a check to him, but also from those who receive a check (or direct deposit) from him. Because as everybody knows (or should know), the fact that you’re getting a check from Uncle Sam does not mean that you’re not paying taxes; for most people, all it means is that you made “advance” (can I call it “lay-away”?)payments to the Tax Man during the year that just ended (through the pay-roll withholding system) that exceeded what he was required to collect from you. And the Tax Man being the extremely fair – mark it well: fair, not generous –person that he is, he is only giving you back what you overpaid him (via the refund that you receive; too bad that that refund doesn’t come with interest, but that will be the subject of a future discussion on this forum).

Now, since we’re on the subject of taxes, I want to take the opportunity – before we end today’s piece – to provide some perspective on the need for everybody to do everything they can to minimize – through perfectly legal means – the amount of pocket-change they fork over to the Tax Man when he makes his annual, beginning-of-the-year visit (although it is actually more like a continuous, never-ending, inescapable presence, than it is a once-in-a-year visit) to collect his “dues”. The truth is that you, my dear reader, pay taxes in a lot more varied ways than you may even realize.

Yes, everyone knows about the taxes that are talked about everyday (especially in the media), including income taxes (federal, state and local), property taxes (the most well-known one of which is the real estate taxes on people’s homes), FICA tax, and sales taxes. However, there is a whole lot more different kinds of taxes that people pay than those just listed, and even these “common” taxes can be made up of a combination of two or more tax items that are less common.

For instance, the FICA (Federal Insurance Contributions Act) tax is actually made up of 2 items, a tax to fund Social Security (the correct technical name is Old-Age, Survivors, and Disability Insurance or OASDI for short) and another tax to fund Medicare (Hospital Insurance or HI). Another thing that most people might not know is that while FICA is only typically seen on the pay-stub of wage-earning employees, the underlying tax itself is also actually paid by self-employed folks, except that in their case it is called self-employment tax (or more commonly, SE tax). The other difference between FICA and SE taxes is that employees get 50% of their FICA tax paid by their employers, whereas self-employed persons foot the whole bill themselves out of their net self-employment income, at a rate of 15.3% – meaning employees pay a 7.65% FICA tax rate while employers pay the other 7.65%. (Note: Since the beginning of 2011, the rate for the OASDI portion of FICA – only the employee part – and SE taxes have been reduced temporarily by 2%, resulting in a 4.2 percent effective tax rate for employees and a 10.4 percent effective tax rate for the self-employed worker. This was done as a part of measures taken by the Obama administration and Congress to give taxpayers some relief and help to stimulate the economy, but the tax relief package of which that rate cut is an integral part is set to expire at the end of this year, so the rate would go back up to their original levels of 6.2% for employees and 12.4% for self-employed folks unless the President and Congress can come to an agreement to extend that package. That package expiration is part of the “fiscal cliff” that everybody is talking about.)

Other taxes that people pay (and we will wait to talk about these in more detail another time to avoid making this piece much longer than it already is) include school taxes, alternative minimum tax (AMT), taxes on electricity and natural gas, taxes on cable TV, taxes on telephone usage (both land-lines and cell phones), state-levied taxes on gasoline, and taxes on alcoholic beverages and cigarettes (these last two are often referred to as “sin” taxes).

One may ask: why are we talking about all these various kinds of taxes anyway? Whether we know we’re paying them or not, we don’t have a choice but to pay them, so what is the point? Well, the answer is simple: we pay enough in these "unknown" taxes and can’t do much about most of them – short of stopping the use of the things (products or services) to which they’re attached, and that is not always a practical solution. (How do you, for instance, avoid paying the gasoline tax? Give up driving altogether? Well, good luck with that because the tax is priced into the fare that you pay for commercial transportation!)

But when it comes to at least one kind of tax, the income tax (which is the one that most people know – and worry – about, we have a host of ways that can be used to legally ensure that we pay as little of it as possible (without having to stop earning income by quitting your work, I might add). And finding out – let alone learning – about those ways typically begins with finding and talking to a tax professional. So go on, shoot us an email at or call us at 513-638-0112 and let’s begin together to explore ways that could help you to minimize the one kind of tax that you do have control over – with regards to how much of it you pay to the Tax Man when he comes calling.

Happy holidays!

Thanks to Dr. Wayne Essex (of Essex & Associates, Dayton, OH), a good friend of mine and a renowned tax professional (much better than I can ever aspire to be) for some of the information used in this write-up.