The Investment Scientist

Archive for November 2012

Be prepared for a tax cut sunset

(This is an article I submitted to Physicians Practice magazine, an edited version was published.)

With President Obama re-election, there is now no doubt that the Bush tax cuts will expire come January 1st, 2013.

Why is there a sunset clause in President Bush’s tax cuts?

In 2001 and 2003, Congress passed, and President Bush signed into law, significant tax reductions for nearly all taxpayers. These cuts included marginal rate reductions, the introduction of a new 10% tax bracket, an expansion of the child tax credit, and a variety of other provisions. Both bills were passed using a Senate procedure known as “reconciliation” – a tactic that lowers the threshold for cloture to a simple majority of senators (as opposed to a 60-vote supermajority).

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Approaching the fiscal cliff

Since the re-election of President Obama, the S&P 500 index has dropped more than 5%; pundits have attributed that to the imminent “fiscal cliff.”

What is the “fiscal cliff”? It is the simultaneous expiration of tax cuts and mandated across-the-board spending cuts that will take effect on January 1st if no agreement is reached between the President and Congress. The combined amount is $669 billion, or about 4% of GDP.

All the talk has been about what happens if this much money is taken out of the economy, which is undergoing a fragile recovery. Will the economy plunge back into recession?  If we fall off the fiscal cliff, will the survival of our nation be at stake?

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Young doctors need legal advice

When a young physician joins a practice, he will have to sign an employment agreement.

After a few years as an associate physician, he will make partner, or become a shareholder.

At which time, he will sign a buy-sell agreement.

These two agreements to a great extent determine the wealth this physician will accumulate.

If they are not done right, this physician will likely not see any of the wealth he creates.

I am not being an alarmist. Let me tell you about a client of mine….

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Consider an Employee Stock Ownership Plan

[Based on conversation with and material provided by Ben Wells] For the last 20 years, Jack has owned  a custom machining business. He is 55 and would like to diversify his assets, which are all tied up in the business.

Jan runs a manufacturing business. Several of her family members own stock in the company and they would like to sell their stock. However, there is no market for their shares.

James runs a production consulting firm. He needs capital to expand the business and would like to find a way to retain and motivate the firm’s employees.

For Jack, Jan and James, an Employee Stock Ownership Plan (ESOP) could be the answer.

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house for sale

House for sale

Last week, my wife found another fabulous piece of real estate to invest in. It is a two bedroom/one bath bungalow. It is a 10-minute walk from a metro (subway) station and 15-minute walk from lots of amenities.

It is a short sale; the bank-approved asking price is only $155k.  The land is about 0.3 acres adjacent to a park and is worth more than the entire asking price.

It is a very interesting investment decision for us. Let me list the pros and cons.

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Author

Michael Zhuang is principal of MZ Capital, a fee-only independent advisory firm based in Washington, DC. He is also a regular contributor to Morningstar Advisor and Physicians Practice. To explore a long-term wealth advisory relationship, schedule a discovery meeting (phone call) with him.



You may also get his monthly newsletter, or join his Facebook page for regular wealth management insights. Michael's email is info[at]mzcap.com.

Twitter: @mzhuang

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