Investing for the Fiscal Cliff

I had a number of conversations last week with investors not sure what to do about the fiscal cliff. One client told me how she is helping her mother with her estate. Her mother is all stressed out. She doesn’t want to give too much away in taxes and wants to help keep the money in the family. But with estate tax negotiations likely to seep into the fiscal cliff solution, it can be confusing for heirs and estate planners to form a plan.

Another client from Connecticut, who we’ll call Dr. Jones, said his daughter works in New York City making decent money, but she has to work 80 hours a week. She’s the “millionaire” making $200,000, basically working two jobs with all the hours she puts in. She lives in an expensive city with high tax rates, and after she pays $3,000 a month for her studio apartment and living expenses, there’s not a lot left over. Young professionals like Dr. Jones’s daughter will be hit real hard by Obama’s tax increases. Leave it to the government to make everyone scramble.

Imagine if government got out of the way. Investors wouldn’t have to decide, for example, whether or not it’s a good idea to do a Roth conversion. Never mind how to deal with dividends, cap gains, or estate taxes.

As it stands, when it comes to dividends and cap gains, you’re paying taxes on money you already paid taxes on once before at the corporate level. Remember, when you own stock, you are an owner of the corporation. The taxes the corporation pays are your money. And as one client pointed out, with the estate tax, your heirs pay taxes on that money for you a third time.

One sure way to increase revenue from capital gains taxes this year is to say you’re going to raise rates next year. It’s like cash for clunkers but with stocks. You’re just pulling future sales forward to today, and net-net, it isn’t productive. But that’s what the government is good at.

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E.J. Smith - Your Survival Guy

Preparing your investments and family for when disaster strikes.

E.J. Smith is the Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH, where he completed course-work in Practical and Defensive Handgun, Conceal Carry Pistol, Shotguns, Precision Scope Rifle and Kidnapping Prevention. E.J. plays a Yamaha Recording Custom drum set with Zilldjian cymbals. His first drum set was a 5-piece Slingerland with Zilldjians. He grew-up worshiping Neil Peart of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West and Paris. Please get in touch with E.J. at ejsmith@youngresearch.com. Sign up here to receive all the best content from Richardcyoung.com each week.