Invest in All Six Asset Classes (2010-07-26)

Invest in All Six Asset Classes

(2010-07-26) by David John Marotta

Investors are challenged these days to know where to put their money. Everyone wants to know which asset class will perform the best and help them meet their retirement goals.

We use six different asset classes: three for stability and three for appreciation. In the stable asset classes, you loan a company money to be paid back at a fixed rate of interest. Examples include money market, certificates of deposit (CDs) and bonds. These asset classes are like the iron rods that support a sailing ship. They don't make the ship go faster, but they do keep it from capsizing in a storm.

Investors approaching retirement should have at least five to seven years of their safe spending rate allocated to stability. For them, replenishing their allocation to stability when stocks are appreciating helps secure future years of spending.

In the appreciation asset classes, you own a piece of a company and share in its earnings. Examples include shares of individual companies or the mutual funds or exchange-traded funds that invest in equities.

Portfolio construction begins with the most basic allocation between investments that offer a greater chance of appreciation (stocks) and those that provide portfolio stability (bonds). These decisions are the most critical in determining the overall behavior of your portfolio returns.

We divide the asset classes for stability into short money, U.S. bonds and foreign bonds.

Short money includes any fixed-income investment with a maturity date of two years or less, which includes money market accounts and many CDs. Short money investments are not paying a great rate of interest right now. But when interest rates rise, they will adjust quickly and be among the first investments to gain from the higher rates.

Many risk-averse investors put their money in a bank account or invest in CDs. But like any other investment, cash has its own set of risks. It is dangerous because the dollar can be devalued so the same number of dollars won't buy as much as they used to. There are good reasons to hold cash, but holding too much for too long makes it harder to grow your assets and can jeopardize your financial goals.

The second asset class, U.S. bonds, generally pays a higher interest rate the longer their duration and the worse their credit quality. But longer term bonds drop more in value when interest rates rise. And bonds whose credit rating drops lose value too because of the chance of default.

Putting money in stable instruments because you want to reduce risk only to invest in high-yield junk bonds is counterproductive. So is increasing the term of a bond when interest rates are very low. We recommend higher quality short- and intermediate-term bonds. Invest a portion of your assets in stable investments, and if you want a higher return, put the money into appreciating assets.

Foreign bonds are the third stable asset class. They can balance domestic currency values and interest rates with what's happening in the rest of the world. And they sometimes pay a higher interest rate. Foreign bonds also appreciate when the U.S. dollar is declining in value. Foreign bonds are subdivided into bonds in developed countries and bonds in the emerging markets. Like U.S. bonds, foreign bonds are categorized by quality and duration.

Appreciating assets are essential to your portfolio. They are the engine of your retirement savings. Even in retirement, you will need enough appreciation to keep up with inflation, pay the taxes and still have some real return left over.

We divide appreciation into U.S. stocks, foreign stocks and hard asset stocks. Most investors have primarily U.S. large-cap stocks, mimicking the S&P 500. They buy mostly large-cap growth stocks in the industry that did well last year with a high price-per-earnings (P/E) ratio. We don't recommend such portfolios.

On average, small cap outperforms large, and value outperforms growth. Although we recommend overweighting smaller companies with low P/E ratios, your portfolio should include a broad spectrum of stocks, including a generous helping of growth-oriented stocks. There may be times to overweight or underweight specific industries such as technology or health care.

The second appreciation asset class is foreign stocks. Diversification abroad can both boost returns and decrease volatility. Some people try to diversify internationally by investing in U.S. companies that gain a significant portion of their revenue from overseas. But these multinational companies still track fairly closely with other domestic companies, and they don't offer the same benefits as investing in foreign stocks.

Overweighting specific countries can be advantageous too. We use the Heritage Foundation's ratings to select countries that combine the greatest economic freedom with large investable markets. One yardstick of economic freedom favors countries with a low public debt and deficit and therefore a more stable monetary policy.

We recommend investing in the fastest growing countries. These emerging economies provide even greater diversification and returns. However, emerging markets are inherently volatile, so it is important to find the right balance and make adjustments as needed.

Finally, hard asset investments include companies that own and produce an underlying natural resource. These include oil, natural gas, precious and base metals, and resources like real estate, diamonds, coal, lumber and even water. We suggest diversifying hard asset stocks by resource type, geographic location of a company's reserves and company size.

Investing in hard asset stocks is not the same as investing directly in commodities. Buying gold bullion or a gold futures contract is an investment in raw commodities or their volatility. But buying a gold mining company is a hard asset stock investment.

Over time, dollars lose their buying power, and the goods and services we buy cost more. Commodities generally maintain their buying power in dollar terms. But investing in hard asset stocks generally appreciates at a rate much higher than inflation.

Hard asset stocks have a distinct set of characteristics and are categorized separately. Their movement is generally less correlated with that of other asset classes. They have a unique (and positive) reaction to inflationary pressures. And at certain periods in the longer term economic cycle, including hard assets helps boost returns.

Many advisors don't have an asset class for natural resource stocks. They select one portion of the category instead, typically real estate, and make that the asset class. This can be a good idea. Real estate indexes have correlations as low as 0.49 against the S&P 500. We use real estate as a subclass within the natural resources category because at times it has a low correlation with energy and other commodity movements.

Natural resource stocks have an even lower correlation to U.S. bonds. Natural resources (commodities) often exhibit a negative correlation to fixed-income investments due to their inverse relationship to inflation. So their optimum allocation depends on both the amount designated to stocks and the amount designated to bonds.

Many U.S. investors crowd their assets into a combination of large-cap U.S. stocks and U.S. bonds. This allocation represents only one and a half of the six asset classes described here.

Asset allocation means always having something to complain about. Investors are continually looking for the safe investment. But inflation, sovereign debt, globalization and diminishing U.S. economic freedom make a clear choice difficult. Thus we advise a diversified portfolio that overweights certain subcategories.

If you have set such an asset allocation, what did poorly this past quarter may be poised to do better in the coming year. If your asset allocation is wrong, change it. But if it is right, don't abandon a brilliant allocation simply because of short-term returns.

Finally, rebalance regularly. Without rebalancing, those categories that do well may continue to grow as a percentage of your portfolio until they significantly underperform the markets. The ones that do the best often bubble and finally burst.

from http://www.emarotta.com/article.php?ID=406

Life Planning Part 3: Twenty-Four Hours to Go (2010-07-19)

Life Planning Part 3: Twenty-Four Hours to Go (2010-07-19)

by David John Marotta

Life planning peels back the layers of our soul, seeking the best and highest calling for our existence. Seek out a financial advisor who understands what you truly value and structures your finances accordingly to best support your life's mission.

The idea is simple yet ingenious. Begin with the end in mind.

Let's take another look at George Kinder's well-known "three questions" that seek to uncover those goals and values most central in our lives. Number one is "If you had all the time or money you needed, what would you do?"

The response to this question typically provokes a long list of everything we want that money can buy. But with reflection, it goes deeper, stirring the longings of our heart.

The second question aims at these deeper desires. "What do you want to do or be so in the end you will feel that you've lived fully?"

These values most commonly revolve around three different realms. First, we yearn for meaningful connections with others starting with our immediate families and extending into our communities and the world at large. Second, we seek authentic spirituality, an odyssey that shapes and renews our very identity. And third, we revere beauty, creativity, nature and special locations. These three realms, righteousness, truth and beauty, are the areas where most of us find meaning and significance.

Kinder's third question can be encapsulated by the phrase "Twenty-four hours to go." It probes beyond our relationships and activities into the sum of our very existence. "Imagine that your doctor shocks you with the news that you only have 24 hours to live. Notice what feelings arise as you confront your very real mortality. Ask yourself: What did you miss? Who did you not get to be? What did you not get to do?"

This is a daunting question for many of us to even contemplate. Every day we get up preoccupied only with our to-do list, assuming we always have tomorrow. One day we won't have tomorrow. We all know intellectually that day will come, but we don't want to make our plans in light of it.

It is especially difficult to face our own mortality if we have not taken the time to deal openly and honestly with the issues in the first two questions. These three questions must be taken in order. We all want to perceive our lives as successful and significant. But justifying our existence is a daunting challenge.

Every day we face the dual desire to improve the world or to enjoy it. One requires judgment; the other, contentment. We struggle between the duty to do what we should and the passion to do what we love. The first structures our lives and the second strengthens and nurtures us. The consequences of these decisions are not always easy to understand because we must live our lives going forward. Kinder's third question gives us the opportunity to stop and look back, to assess how our decisions have changed the course of our life if our life were to end tomorrow.

How do you want to be remembered by your friends and family? Author Samuel Butler wrote, "Life is like playing a violin in public and learning the instrument as one goes on." Our faults are often embarrassingly obvious and humbling. First we have to learn to play the instrument. Then we need to learn to make our own music. At every moment we can confront our own mortality and reflect on the progress we have made.

Surveys have found that people regret what they didn't do more often than what they did. And when people express remorse about having done something wrong, it was usually what I call a "life buster"--one of those decisions that can greatly compromise your life.

Serious life regrets include marrying someone you knew wasn't right for you, getting hooked on drugs or breaking the law. You can recover from these, but you will lament the spiritual death and wasted opportunities along the way. A good rule of thumb is always to ask, "What's the worst that could happen?" If it might destroy your life, hesitancy is indeed a virtue.

Regrets about things we didn't do are more subtle. Our lives can change course dramatically and be filled with serendipity all because of some small decision on our part. How many times have we heard the story of how a happily married couple met, only to be surprised that it almost didn't happen? If the worst outcome of a decision is a little embarrassment, perhaps the chance is worth taking.

We each long to participate in something significant. And that requires foresight, planning and forgoing our momentary desires in order to work toward realizing our greater passions. The choices we make each day determine the ones we will have the opportunity to make in the future. Without those hesitant, often stumbling first steps, we can't complete the journey.

The Latin phrase "Audaces fortuna iuvat" translates as "Fortune favors the bold." We commonly use a milder version of it in our family: "You do not have because you do not ask." Often our hopes and dreams are unrealized because they are left unmentioned.

Voicing what we are passionate about can be scary. Beginning to act on our ideas can feel overwhelming. But courage isn't a lack of fear, it's action in spite of fear. And our fear may an indication that we are on the quest of our lives.

For entrepreneurs, overcoming fear is a regular occurrence. Many, perhaps even most, multimillionaires have at least one if not more failed businesses in their past. That's because only those willing to risk failure--and the lessons learned from it--have the grit to achieve success.

Entrepreneurship, or its equivalent, is a form of proactive living. You don't necessarily have to start a business, but you do have to begin the journey toward your life's goal. When you take ownership of your life, you can do what you think is best, go where you think you are called and be who you believe you should be. Life can have fewer compromises and therefore fewer regrets.

I asked Kinder why he championed his three questions among financial advisors. He answered, "Money is the facilitator of what is most meaningful for us in the world. When we understand this, everything about money becomes clear and falls into place. We don't hire a financial advisor just because they're a nice person, they show us interesting spreadsheets, and they seem pretty much on the ball. We hire them so that with their professional financial expertise they can best deliver our brilliance into the world. Without being crystal clear what our most profound goals are, we can't begin that process."

A violin resonates because of the laws of physics. But virtuosos have to feel the music in their souls. Only after we know what we are striving to do with our lives can we make financial choices that enable and reflect our own special music.



from http://www.emarotta.com/article.php?ID=403

Life Planning Part 2: Just a Few Years Left (2010-07-12)

Life Planning Part 2: Just a Few Years Left

(2010-07-12) by David John Marotta

George Kinder, a member of the National Association of Personal Financial Advisors and a fee-only financial planner, founded the Kinder Institute of Life Planning. He helped popularize the concept of financial life planning, which begins with the idea that financial advisors should understand their clients' life purpose and structure their finances accordingly. In other words, they should begin with the end in mind. This is both obvious and genius.

Kinder is probably best known for his now famous "three questions" that seek to uncover those goals and values most central in our lives. Number one is "If you had all the time or money you needed, what would you do?"

The response to this question typically provokes a long list of all our desires that money can buy. But with reflection it goes deeper, stirring the longings of our heart. As C.S. Lewis wrote, "One of the dangers of having a lot of money is that you may be quite satisfied with the kinds of happiness money can give."

Our materialistic culture seduces us into believing happiness can be packaged as a commodity and taken home in a shopping bag. As a result, we spend money on goods and services that at best provide fleeting satisfaction and may jeopardize long-term goals that could have brought us real fulfillment.

We may be tempted to judge our well-being not by the quality of our lives but by how we compare with others. Today's borderline poor live as well as the upper middle class did a few decades ago. But they still feel deprived. As we become accustomed to a higher standard of living, luxury quickly loses its luster. We always want more. Kinder's first question gets all these desires out on the table, at least partially, so we can move past them.

Kinder's second question, which can be encapsulated by the phrase "Just a Few Years Left," probes those values that money can't buy. "Imagine that you visit your doctor, who tells you that you have only 5-10 years to live. You won’t ever feel sick, but you will have no notice of the moment of your death. What will you do in the time you have remaining? Will you change your life and how will you do it? (Note that this question does not assume unlimited funds.)"

Take the time to explore this question periodically. A personal five-year plan isn't the sign of an obsessive-compulsive personality disorder. Systematically moving toward our goals is simply living intentionally.

If you have young children, your answer may focus almost exclusively on them and include few, if any, of your own personal goals. Certainly parenthood is a consuming responsibility. But it is only for a season of our lives. And even during that time, parents can often integrate some of their own dreams.

Kinder unfolds all of these ideas in his book "The Seven Stages of Money Maturity: Understanding the Spirit and Value of Money in Your Life." Many of us hesitate to take this personal journey. I regularly get letters questioning what spirituality and values have to do with financial planning. I believe these detractors miss the whole point.

Beth Nedelisky and I teach an Osher Lifelong Learning Institute course each spring, "Financial Planning for Success and Significance in Retirement." In the first class we explore finding meaning in retirement and defining success. A few participants are disappointed that they have to wait until later for the spreadsheets and income projections. But most are glad to talk about why a complete retreat from the working world followed by 24/7 recreation and a shrinking social circle is an impoverished environment for our souls.

We shouldn't shortchange the process of wrestling with the meaning of our lives at any age. Deep down many of us probably know what would be a more satisfying life, but we are afraid to contemplate the implications. Change can be intimidating. The alternative, however, is to keep living a life that in our own eyes may seem unimportant.

Even without small children, significance stems heavily from family and other close relationships. Loving others demands risking and being willing to change and adapt in order to connect deeply. At the end of life, people often regret the risks they didn't take. For many of us, it takes something drastic, like a serious medical prognosis or a near accident, to push us out of our comfort zone.

Often it requires getting older to find the wisdom and the grace to accept people as they are. The virtues of forgiveness and forbearance are necessary to live harmoniously. Relationships can be messy, but they are generally worth the effort. And it helps to remember that what is most important is being the right person, not finding the right person. We can learn to accept people without necessarily approving of their choices.

Once our personal relationships are healthy, many of us want to connect with the outside world and give back to others. Even small efforts to help others can make a significant impact on our communities and change the course of people's lives.

A second realm where people find significance is authentic spirituality. This is more than simply being religious, which is often expressed through practicing a specific tradition. Authentic spirituality often involves the totality of our life in which we seek to have our very identity renewed and shaped.

Compartmentalizing spiritual considerations into a small subset of our lives lacks authenticity. We long for a more meaningful life. At times these issues demand our attention and contemplation. We can start by relying on our spiritual traditions, but outward practices can only take us so far. Authentic spirituality is an odyssey of discovery and personal growth such that the truths learned change the way we live each day.

The third sphere where people seek a deeper and richer life is in the arena of beauty. Many people enjoy exploring their creativity, perhaps through music, the visual arts, or personal writing.

For others this sense of beauty is found in a reverence for nature. Places in the world like the redwood forests of California have a magical quality. Or we may find a special connection with urban locales like Central Park or the back alleys of Venice.

These three realms, righteousness, truth and beauty, are the three areas where most people find meaning and significance. They categorize what is most important to many of us.

I asked George Kinder about people's life goals and he said, "Sometimes I wonder why it is that so many of us make foolish decisions around money. Even with good advisors at our side, it seems. And then I reflect that perhaps the reason is that we have never really figured out what money is and what it's about. We think it's about spreadsheets and bank balances and rates of return and stock markets and buying things and getting into debt. Or at least those are some of the categories that might come up for us.

"But money really is the great facilitator of what is most meaningful for us in the world. It's meant to help us put together a life that best expresses our own individual genius, our brilliance, our creativity, our compassion, our values, our integrity, our spirit, our mission in life, what is most important of all that we realize and become."

Some thoughtful responses to these life planning exercises can help us set goals that are both meaningful and deeply personal and help us truly value our lives. Take the time to reflect on what you would like to do or be to live life to its fullest. Next week we will move on to the third life planning exercise.

from http://www.emarotta.com/article.php?ID=402

Life Planning Part 1: Plenty of Money (2010-07-05)

Life Planning Part 1: Plenty of Money

(2010-07-05) by David John Marotta

Thoughtful wealth management is more than just maximizing net worth. It also gives us the best chance of meeting our life goals. Wealth is only valuable because it helps us make a significant impact on our world. It doesn't give us meaning.

Life planning takes a holistic look at what you truly value. And for most people, their life is more important than their money. Only after exploring your life goals can you structure your finances to help you realize your dreams.

A fee-only fiduciary wealth manager sits on the clients' side of the table. With a deep understanding of clients' goals, the professional can manage their money just as the clients would if they had the same expertise.

We begin the process with a preliminary questionnaire that poses a series of easy questions to help us learn about a client's goals and values. We ask, "What charitable and/or professional organizations do you support? What interest/hobbies do you enjoy? What gets you out of bed in the morning? What would you like to be doing five years from now?"

This allows us to begin to know our clients at a deeper and more revealing level than what we learn from a tax return and net worth statement. It is difficult to write about life planning without sounding religious or moralistic, which is the point. Ultimately, our financial decisions are spiritually based. The process of financial planning pushes us to articulate which values we want to live by and motivates us to adjust our daily monetary decisions to fit those values.

Spiritually sensitive financial advisors, regardless of their specific perspective, ask astute questions that reveal these values. Christians, Zen Buddhists and many other perspectives share this common framework that spiritual concerns are critical. For example, George Kinder , author of " The Seven Stages of Money Maturity: Understanding the Spirit and Value of Money in Your Life," approaches life planning from such a perspective. He uses a series of three exercises to help people sort out when they might need to change direction. Each one is an experiment in which you ponder one potential scenario and imagine all the possible ways you might react.

The first one, called "Plenty of Money," starts with one of Kinder's famous "three questions":

"Imagine you are financially secure, that you have enough money to take care of your needs, now and in the future. How would you live your life? Would you change anything? Let yourself go. Don't hold back on your dreams. Describe a life that is completely and richly yours."

This scenario is playful and fun as well as revealing. I've seen several variations, such as "What would you do if you won the lottery?" or "What would you do if you had a million dollars that you couldn't spend on yourself?" But Kinder's format is probably the better one because it purposefully focuses not on the money but on your life's calling.

Like Eric Liddell in the film "Chariots of Fire," we are searching for meaning in our lives. He says, "I believe God made me for a purpose, but he also made me fast. And when I run I feel His pleasure." We are looking for a life so completely and richly ours that we feel God's pleasure. This is our area of genius. This is our calling.

This exercise may not result in a practical life change when you are done. But it will begin to uncover some of your inner longings that currently may be eluding you.

Another excellent way to explore this process is Barbara Sher's book " I Could Do Anything If I Only Knew What It Was: How to Discover What You Really Want and How to Get It." Subtitled "How to Discover What You Really Want and How to Get It," it offers practical ways to expand on Kinder's scenario and find your heart's desire.

You've probably heard the saying "Find a job you love and you will never work a day in your life." Studies show that deep joy comes from knowing exactly what you want and feeling like you are moving toward getting it.

Sher suggests the next time you are with a group of strangers, tell them the most offbeat idea you can think of. Say your dream is to raise Dalmatians in the Himalayas, but you have no contacts in Tibet.

People's interest perks up. They may even try to solve your problems. Some may react negatively, but most suggest ideas. But describe the same scenario to your family or friends, and they will try to save you from your folly. And that is one reason why we find it so difficult to dream long enough to determine what our dreams really are.

Another of my favorite exercises in the book comes after you create an ideal scenario. Sher then asks you to act on it for only an hour: Get the application. Find out about the job. Call some contacts. Make an appointment.

She says that planning is mostly science fiction, just a hopeful prediction. But following a plan gets us out into the world where something can happen. Anything that moves us toward what we want makes room for serendipitous events. It also forces us to confront any hidden resistance within us.

Finding our life's goals requires quiet times of thought and reflection over a long period to learn about ourselves and our place in the world. And often it takes experiences we can only have by trying a number of different endeavors.

All of this may sound too fuzzy or creative, but nothing is more important in the wealth management process. Balancing a family's financial goals and making financial choices according to those values is at the heart of comprehensive financial planning. Financial woes often come not from a lack of income, but from our failure to live according to our true values.

Take some time to imagine how you would live your life if you had plenty of money. Next week we will discuss the second life planning exercise.

from http://www.emarotta.com/article.php?ID=400

Virginia Land Preservation Tax Credits (2010-06-28)

Virginia Land Preservation Tax Credits

(2010-06-28) by David John Marotta

A dollar saved on your taxes is more valuable than a taxable dollar you earn from your salary. The Virginia land preservation tax credit can reduce your state taxable income by 16%. For example, if you owe $3,000 of Virginia state tax, it will save you $480. If you owe $30,000, it will save you $4,800. Other states have similar programs, but the details vary.

Every Virginia taxpayer can profit from this technique. The process begins with landowners who donate a conservation easement against their land. In this legal document, owners of private property give up some of their development rights. Usually they donate them to a conservation nonprofit. Because development rights are valuable, their donation is tax deductible.

These donations preserve and encourage permanent open and undeveloped land while keeping the ownership of that land private. For those concerned that land lost is land lost forever, conservation easements are a way to reverse that trend. Land restricted by a conservation easement is preserved in perpetuity. In Virginia, currently 6% of the land not owned by the federal government is subject to permanent conservation easements.

Advocates suggest that conservation easements do permanently what taxation based on land use assessment tries to accomplish every year. That is, they keep open spaces, improving the quality of our air, water and food. To their way of thinking, tax incentives are better spent on land conservation easements than other more temporary methods of land preservation.

To encourage such preservation, the Virginia Land Conservation Incentives Act of 1999 offered strong tax incentives. It allowed a landowner to claim 40% of the value of the easement as tax credits. So if the easement was worth $1 million, the land owner received $400,000 in state tax credits.

Tax credits are much more valuable than tax deductions that only reduce the amount you are taxed on. For example, a dollar of deduction might only be worth 35 cents. In contrast, tax credits are a dollar-for-dollar reduction in your tax bill. And a refundable tax credit could mean the government will owe you money you never paid in the first place.

Land preservation tax credits are not refundable, however, which left some philanthropic families with thousands of dollars of unusable tax credits they could only roll forward for 10 years. So in 2002 the legislation was amended to allow the credits to be transferable.

Now generous donors could sell their $400,000 worth of credits to taxpayers at some negotiated discount. Willing taxpayers could either pay their $10,000 of Virginia state tax or buy credits to pay their tax at a discount. Donors are paid something for credits they can't use. And taxpayers get a discount on paying their taxes.

This scenario may sound too good to be true or even illegal. But Virginia budgets up to $100 million for qualified land preservation tax credits.

Advocates of smaller government argue that first the state reduces the value of the land it is taxing and then gives that value back in tax credits. All of these shenanigans further the goals of conservationists by burdening commercial land owners. Conservationists don't care about the lost revenue. They argue that Virginia spends the least on land conservation among the states and continue to push for a vastly increased budget to support these efforts.

We shouldn't moralize too much when engaging in tax management. If the tax code permits a huge deduction for brushing your teeth with your left hand while standing on one foot, it is still worth doing. The burden is light and the gain is great. Vote your conviction at the polls, but take the benefit.

In this case the benefit can be significant. In 2009, land preservation tax credits were sold at about a 16% discount. Each year this discount is subject to supply and demand. Sellers got about 73% of the value. Of the remaining 11%, 5% went to state transfer fees and 6% to the brokers who put the deals together.

Consider an example. If your income is $200,000 and your deductions are about $25,000, your taxable income of $175,000 means you owe Virginia $10,000. If you purchase credits at 84 cents on the dollar, you save $1,600. That's a significant savings for filling out a little paperwork.

Brokers do suggest you have at least a $2,000 tax liability before you decide to take advantage of these credits, which would save you $320. Obviously those with a $50,000 tax liability save a whopping $8,000 just for complying with the required clerical work.

The risks are small but do exist. Good brokers weed out questionable credits. They also ensure that sellers provide legal guarantees to protect buyers. In the worst case scenario, the credits are disallowed, the seller refunds your purchase of the credits and you have to pay the full tax you owed.

You must purchase the credits before the end of the year to use them to pay your tax in April. Each taxpayer can use up to $50,000 of credits per year, so a husband and wife could each buy their own and use $100,000. Unused credits can be carried forward for up to 10 years.

Purchasing credits in December at a 16% discount to pay a tax liability in April is an excellent short-term return. But it is even better when you consider that you can avoid paying any quarterly Virginia estimated tax payments throughout the year. Per state regulations, you will owe no tax because of the tax credits you have purchased.

Proactive certified public accountants or financial planners who review your finances and suggest ways to save thousands of dollars are worth their weight in tax credits. Ask your advisor about using this technique to save you money.

from http://www.emarotta.com/article.php?ID=397