Topics Covered:

1. Ready for Financial Literacy Month?

2. You’re Planning For the Long-Run But is Short-Run Market Volatility Keeping You Up at Night?

3. With just about two weeks left before April 15th we have some more hot tax savings tips to share with you.

4. Questions:

a. I realize that long-run I have specific goals in mind but I feel if I pay closer attention to the short-run market jumps and falls then I can plan better for my long-term goals. Am I setting myself up for failure and willingly stressing myself out or am I on the right track?
b. I retired last year, and started receiving social security payments. Do I have to pay taxes on my social security benefits?

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Jeff states: Good afternoon! Yes sometimes we just have to take the money and run!  Welcome to Inside Advantage – Your Financial And Tax Radio Show.

This is Board Certified Tax Attorney, Jeffrey B. Kahn, the principal attorney of the Law Offices Of Jeffrey B. Kahn, P.C. and head of the KahnTaxLaw team.

Windus states:
And this is Licensed Financial Planner, Windus A. Fernandez Brinkkord, Senior Vice President Of Investments at Trilogy Financial Services.

You are listening to our weekly radio show where we talk everything about finances and taxes from the ESPN 1700 AM Studio in San Diego, California.

Jeff states:

When it comes to knowing tax laws and paying taxes, let’s face it — everyone in the U.S. is either in tax trouble, on their way to tax trouble, or trying to avoid tax trouble!

Windus states:

And whether you are on the rebound or flying high, we have the information you need to make sound financial decisions and map out your strategy for success.

Jeff states:
Our show is broadcasted each Friday at 2:00PM Pacific Time and replays are available on demand by logging into the KahnTaxLaw website at www.kahntaxlaw.com.

Jeff states:

For today’s show we have coming up:

You’re Planning For the Long-Run But is Short-Run Market Volatility Keeping You Up at Night?

Windus states:

Also coming up is:

Segment 3 material: With just about two weeks left before April 15th we have some more hot tax savings tips to share with you.

And of course towards the end of our show, we will be answering some of your questions.

Jeff starts chit chat with Windus.

Jeff states: So for today’s top story:

Ready for Financial Literacy Month? Yes folks, it’s April again and that means a whole month dedicated to Financial Literacy.

http://on.wsj.com/1LWLFQk; http://on.wsj.com/1LWLtAG

Windus begins: That’s right Jeff! For the last twelve years, the U.S. Government has recognized April as Financial Literacy month. All this month you’ll be seeing an influx of promotions by banks and online quizzes determining how much you really know.

Jeff continues: So get ready to be whipped into shape because these government pronouncements are intended to whip us into financial shape so that we all may better navigate an increasingly complex economic system.

Windus replies: However, financial literacy is difficult to encourage. According to recent surveys, investors still aren’t adept at balancing their checkbooks. In fact, global surveys show that only 57% of Americans passed a basic financial-literacy test.

Jeff continues: That’s an alarming number, Windus. But what’s more, is globally only one-third of adults are considered to be financially literate. Which is exactly why April is so important with the government’s aim to improve the financial health and habits of Americans.

Windus states: Now we understand that not everyone’s an expert, which is exactly why the creation of the Consumer Financial Protection Bureau was implemented five years ago. Policy makers sought to give consumers more leverage or what is referred to as “consumer self-defense”.

Jeff states: To give you a little more understanding about what we’re talking about, here’s a quiz question, one of five about numeracy, compounding, inflation and risk that S&P used to judge people’s “financial literacy”.

Windus continues: The question reads: Suppose you put money in the bank for two years and the bank agrees to add 15% per year to your account. Will the bank add MORE money to your account the second year, or will it add the SAME amount of money both years?

Jeff replies: The correct answer is more. Results show that roughly 61% of U.S. respondents answered correctly, showing their understanding of compound interest.

Windus states: It is questions like these that cause Vice President of Public Relations at the National Foundation for Credit Counseling, Bruce McClary, to stand behind this worthwhile effort for financial education.

Jeff states: In addition, it’s also important to dive deeper into understanding investing; how to choose mutual funds, ETF’s, life insurance, annuities, etc. How do you save and successfully invest your hard earned wages so that you’ll be set for retirement?

Windus replies: Researching and determining what’s best for you can be daunting. Even the ratings of mutual funds can be misleading. These guides like Morningstar Inc. and S&P Capital IQ assume every investor feels the same way about losing money.

Jeff replies: Many investors find that these rankings are not very helpful even though they transform complicated data into an easy-to-understand metric: a five star fund is superior to a four-star, four-star is superior to three and so on…

Windus continues: The problem behind the rating scale is that all investors are not created equal. We don’t all feel the same way with regards to risk and behavioral economists agree that there is a surprising amount of variation in how people feel about loss.

Jeff states: What this means is that, fund-grading systems have the potential to provide misleading guidance to as many as half of us, whose loss tolerance falls outside the norm, according to the Wall Street Journal.

Windus replies: With my clients, I use models based on risk which is determined after discovery and a risk assessment. Risk assessments help myself and my clients make smarter investment decisions by measuring sensitivity to financial loss.

Jeff replies: Which is great because even the riskier funds are based more on what’s kind of like a coin-flip test. This focuses on loss aversion. To expand, say you’ve been asked to accept the following bet on a coin-flip: heads, you win $100 or tails, you lose $50. Do you take the bet?

Windus states: Most reject this offer even though the math strongly suggests they take the bet. In this case, the potential loss of $50 exceeds the joy of winning twice that amount. This hypothetical was first introduced by Nobel Laureate Paul Samuelson, but is still used to dictate risky choices.

Jeff replies: This is exactly how feelings about losses could misrepresent fund ratings for investors. Say you require a gain of $500 to make up for a potential loss of $100, a highly rated fund might still feel too risky for you because you are extremely loss-adverse.

Windus states: The same issue arises in the opposite direction for those that are less sensitive to loss. For those investors, fund-ratings may overemphasize the emotional toll of losses.

Jeff replies: It’s all subjective but you can look at it this way: if you have a loss-aversion coefficient around two (meaning gain $200, lose $100), then traditional fund-rating systems will probably provide you with acceptable guidance.

Windus continues: However, if you have a loss-aversion coefficient close to one or above three, then these fund-ratings could lead you to make decisions that don’t actually fit your risk tolerance levels.

Jeff states: Once a person’s loss-aversion coefficient is known, it’s possible to personalize investment ratings, which in turn, ensures that the highest-rated funds match an investor’s actual preferences. You see this all the time in different media, such as Netflix or Amazon.com, so the technology is clearly present.

Windus replies: Morningstar and S&P Capital IQ say they’ve already risk-adjusted their ratings and have no plan at this time to offer fully customized fund rankings. Morningstar representative Jeffrey Ptak even added that “attitudes toward risk should contribute far more to asset allocation and portfolio construction that to fund choice.”

Jeff states: Even Todd Rosenbluth at S&P Capital IQ says his firm’s research tools incorporate risk considerations at both the fund and holdings level, which allows investors to more easily sort through the universe of highly ranked funds for the best fit.

Windus replies: Still, because risk is a subjective feeling, with different people experiencing the trade-off of loss and gain in different ways, any attempt to offer guidance should reflect ones individual preferences.

Jeff continues: Especially now, given the economic weakness and periods of financial stress, it’s important to raise awareness of resources available to investors. April is full of events to help coach investors across the nation on consumer responsibility.

Windus states: Just to name a few events coming up this month, we have Money Smart Week, created by the Federal Reserve Bank of Chicago; Financial Literacy Day, on Capitol Hill; and Teach Children to Save Day, sponsored by the American Bankers Association.

Jeff continues: Probably one of the most important programs would be that last one, the Teach Children to Save Day. Learning anything is a continuous process. Professor of Economics and Accountancy at George Washington University, Annamaria Lusardi, hopes that Financial Literacy Month could nudge high schools to adopt such programs into their curricula.

Windus replies: Currently 17 states in the U.S. require high school students to study personal finance, according to the Council for Economic Education. It’s important that we educate the youth so they are better informed as they develop; we’re not going to change the world in a month.

Jeff states:

Well it’s time for a break but stay tuned because we are going to talk about how You’re Planning For the Long-Run But is Short-Run Market Volatility Keeping You Up at Night?

You are listening to Board Certified Tax Attorney, Jeffrey B. Kahn, and Licensed Financial Planner, Windus A. Fernandez Brinkkord on Inside Advantage on ESPN.

BREAK

Welcome back. This is Inside Advantage – Your Financial And Tax Radio Show on ESPN and you are listening to Board Certified Tax Attorney, Jeffrey B. Kahn, and Licensed Financial Planner, Windus A. Fernandez Brinkkord.

Jeff states: So before we start this next segment, Windus please tell our listeners of your offer.

Windus PLUG: Trilogy Financial Services will provide you with a retirement cash flow analysis which is a $600.00 value for free as long as you mention the Inside Advantage Radio Show when you call to make an appointment. Call my office to make an appointment to meet with me, Windus A. Fernandez Brinkkord. The number to call is 858.314.5169. That is 858.314.5169. Or visit www.guideyourstory.com.

Windus continues:

You’re Planning For the Long-Run But is Short-Run Market Volatility Keeping You Up at Night?

http://www.schwab.com/public/schwab/nn/articles/Are-Stocks-Getting-Back-in-Cycle-Sonders?cmp=em-RBL; http://on.wsj.com/1RGw6bo

Windus states: Well you’re not going to like what I have to say next, then. Don’t believe this rally in the markets! What we’ve been seeing is a very cautious comeback and not the typical recovery we’d need to see in order to pull out of this slump.

Jeff replies: That’s right, Windus. The one thing that has been missing amid the epic recovery in risky assets since mid-February, has been an equivalent selloff of the sanctuaries that investors hasty ran to during their earlier panic.

Windus states: The stock market has a familiar cycle dating back until at least the 1960’s: Recession Bear with a median loss of -30%, Post-Recession Bull with a median gain of 66%, Echo (no recession) “Bear” with a median loss of -19%, and Post-Echo Bull with a median gain of 72%.

Jeff replies: Now the current cycle has largely followed these phases but experienced a notable hiccup this year. So are we getting back in the right phase of the cycle?

Windus continues: If Liz Ann Sonders at Charles Schwab is right, this Echo “Bear” event will lead to another run up in the market and then a recession. But the WSJ article alternately tells a slightly different story.

Jeff states: It is our opinion that regardless, you should invest for your time line. There is that the issue with being kept up at night with worry about current market fluctuations, but you need to focus on long-run return on investment. There is a delicate balance and you should be talking to your advisor about that.

Windus continues: Although it’s not clear and no one really knows where we’re at in the market cycle, there are some interesting markers: Durable goods orders just so happen to be waning right now, manufacturing isn’t where it needs to be to avoid a recession, and dollar strength is a challenge.

Jeff replies: In addition, the Federal Reserve is still “dovish” and are not being as aggressive as needed, at all, with raising rates. At this point, you’re probably thinking to yourself, “but the rally…I thought we were doing better?”

Windus replies: Let’s take a moment to look at this rally then. Some of the highest assets reported remarkable gains during the recovery. JP Morgan Emerging Markets Currency Index rose 8%, similar to the gain in 2000 when the index was created.

Jeff states: U.S. Junk Bonds jumped 8% in price, marking the biggest leap in the Bank of America Merrill Lynch benchmark in regards to the time frame, since 2009 when the country was emerging from recession.

Windus continues: U.S. shares didn’t miss out on improving either, the S&P 500 recorded its biggest gain over an equivalent period since late 2011! It rose more than 12% by mid-last week and is still up 11%.

Jeff replies: Even commodities are getting in on the action which started rebounding a couple weeks earlier and have their biggest rise, with regards to time frame, since late 2010.

Windus states: But traders have been speaking of “risk on” times in relation to the past six weeks ranking as one of the biggest risk-on rallies since the global financial crisis. Do not confuse this with wild risk-taking, though.

Jeff replies: Even as risky assets are gaining, at least three of the traditional safe assets which investors fled to in January have not fallen back. The three we speak of are the yen, gold and the Swiss franc. All of which have remain elevated compared with the start of the year, despite fluctuations.

Windus states: Considering that safe assets usually move in contrast to risky ones, it’s usual to see that as investors switch from fear to greed the market is not reflecting. So this indicates that investors are not without fear of another recession.

Jeff replies: Worries have only changed as opposed to disappearing. As we saw in February, investors feared recession, deflation, Chinese devaluation, falling profits, excessive emerging market debt and corporate defaults due to super low oil prices.

Windus continues: This isn’t a rebound to enthuse investors, this has been a misery bounce pushed by stronger commodities. Re-pricing of commodity linked assets and inflation linked assets boosted emerging markets, junk bonds, and mining stocks. In response, all of this prompted a flood of cash out of money-market funds.

Jeff states: Unfortunately, the most boring, safe utilities have led the market up. Even smaller companies who tend to triumph in a rising market haven’t done as well as they have in the past. The U.S. Russell 2000, which indexes smaller company’s shares is down about 5% this year.

Windus replies: Concerns are further shown in the options market where investors can use put options to protect against share prices falling. The ratio between the two indicates an unusually high amount of caution.

Jeff continues: In the end, all signs point to investors not believing in the rally.

Windus replies: In which case, the best bets in the market would be those that lagged behind during the rebound such as financial or luxury-goods stocks. Don’t expect any smooth sailing with a volatile market though.

Windus PLUG: Trilogy Financial Services will provide you with a retirement cash flow analysis which is a $600.00 value for free as long as you mention the Inside Advantage Radio Show when you call to make an appointment. Call my office to make an appointment to meet with me, Windus A. Fernandez Brinkkord. The number to call is 858.314.5169. That is 858.314.5169. Or visit www.guideyourstory.com.

Jeff states: Stay tuned because after the break we are going to tell you some more hot tax savings tips.

You are listening to Board Certified Tax Attorney, Jeffrey B. Kahn, and Licensed Financial Planner, Windus A. Fernandez Brinkkord on Inside Advantage on ESPN.

BREAK

Jeff states: Welcome back. This is Inside Advantage – Your Financial And Tax Radio Show on ESPN and you are listening to Board Certified Tax Attorney, Jeffrey B. Kahn, and Licensed Financial Planner, Windus A. Fernandez Brinkkord.

Calling into the studio from my Walnut Creek Office is my associate attorney, Amy Spivey.

Chit chat with Amy

Jeff states: So before we start this segment, I want to remind you of my offer where…

PLUG: The Law Offices Of Jeffrey B. Kahn, P.C. will provide you with a Tax Resolution Plan which is a $500.00 value for free as long as you mention the Inside Advantage Radio Show when you call to make an appointment. Call my office to make an appointment to meet with me, Jeffrey Kahn, right here in downtown San Diego or at one of my other offices close to you. The number to call is 866.494.6829. That is 866.494.6829.

Six Tax Tips For Reporting Foreign Income.

Jeff states: Did you receive income from a foreign source in 2015? Are you a U.S. citizen or resident who worked abroad last year? If you answered ‘yes’ to either of those questions, here are six tips to keep in mind about foreign income:

[Windus to state and item followed by explanation by Amy and comment by Jeff]

1. Report Worldwide Income. By law, U.S. citizens and residents must report their worldwide income. This includes income from foreign trusts and foreign bank and securities accounts.

2. File Required Tax Forms. You may need to file Schedule B, Interest and Ordinary Dividends, with your U.S. tax return. You may also need to file Form 8938, Statement of Specified Foreign Financial Assets. In some cases, you may need to file FinCEN Form 114, Report of Foreign Bank and Financial Accounts. Visit IRS.gov for more information.

3. Review the Foreign Earned Income Exclusion. If you live and work abroad, you may be able to claim the foreign earned income exclusion. If you qualify, you won’t pay tax on up to $100,800 of your wages and other foreign earned income in 2015. See Form 2555, Foreign Earned Income, or Form 2555-EZ, Foreign Earned Income Exclusion, for more details.

4. Don’t Overlook Credits and Deductions. You may be able to take a tax credit or a deduction for income taxes paid to a foreign country. These benefits can reduce your taxes if both countries tax the same income.

5. Additional Child Tax Credit. You cannot claim the additional child tax credit if you file Form 2555, Foreign Earned Income, or 2555-EZ, Foreign Earned Income Exclusion.

6. Tax Filing Extension is Available. If you live outside the U.S. and can’t file your tax return by the April 18 due date, you may qualify for an automatic two-month extension until June 15. This extension also applies to those serving in the U.S. military abroad. You will need to attach a statement to your tax return explaining why you qualify for the extension.

Tips You Should Know About Claiming Employee Business Expenses

Jeff states: If you paid for work-related expenses out of your own pocket, you may be able to deduct those costs. In most cases, you can claim allowable expenses if you itemize on IRS Schedule A, Itemized Deductions. You can deduct the amount that is more than two percent of your adjusted gross income. Here are six other facts you should know:

[Windus to state and item followed by explanation by Amy and comment by Jeff]

1. Ordinary and Necessary. You can only deduct unreimbursed expenses that are ordinary and necessary to your work as an employee. An ordinary expense is one that is common and accepted in your industry. A necessary expense is one that is appropriate and helpful to your business.

2. Expense Examples. Some costs that you may be able to deduct include:
o Required work clothes or uniforms not appropriate for everyday use.
o Supplies and tools you use on the job.
o Business use of your car.
o Business meals and entertainment.
o Business travel away from home.
o Business use of your home.
o Work-related education.
This list is not all-inclusive. Special rules apply if your employer reimbursed you for your expenses.

3. Forms to Use. In most cases, you report your expenses on Form 2106 or Form 2106-EZ. After you figure your allowable expenses, you then list the total on Schedule A as a miscellaneous deduction.

4. Educator Expenses. If you are a K-12 teacher, you may be able to deduct up to $250 of certain expenses you paid in 2015. These may include books, supplies, equipment and other materials used in the classroom. You claim this deduction as an adjustment on your return, rather than an itemized deduction.

5. Keep Records. You must keep records to prove the expenses you deduct.

PLUG: The Law Offices Of Jeffrey B. Kahn, P.C. will provide you with a Tax Resolution Plan which is a $500.00 value for free as long as you mention the Inside Advantage Radio Show when you call to make an appointment. Call my office to make an appointment to meet with me, Jeffrey Kahn, right here in downtown San Diego or at one of my other offices close to you. The number to call is 866.494.6829. That is 866.494.6829.

Thanks Amy for calling into the show. Amy says Thanks for having me.

Stay tuned as we will be taking some of your questions. You are listening to Board Certified Tax Attorney, Jeffrey B. Kahn, and Licensed Financial Planner, Windus A. Fernandez Brinkkord on Inside Advantage on ESPN.

BREAK

Jeff states: Welcome back. This is Inside Advantage – Your Financial And Tax Radio Show on ESPN and you are listening to Board Certified Tax Attorney, Jeffrey B. Kahn, and Licensed Financial Planner, Windus A. Fernandez Brinkkord.

And Windus and I always pleased to make our offers to our listeners where… PLUG: The Law Offices Of Jeffrey B. Kahn, P.C. will provide you with a Tax Resolution Plan which is a $500.00 value for free as long as you mention the Inside Advantage Radio Show when you call to make an appointment. Call my office to make an appointment to meet with me, Jeffrey Kahn, right here in downtown San Diego or at one of my other offices close to you. The number to call is 866.494.6829. That is 866.494.6829.

Windus states: Windus PLUG: Trilogy Financial Services will provide you with a retirement cash flow analysis which is a $600.00 value for free as long as you mention the Inside Advantage Radio Show when you call to make an appointment. Call my office to make an appointment to meet with me, Windus A. Fernandez Brinkkord. The number to call is 858.314.5169. That is 858.314.5169. Or visit www.guideyourstory.com.

You should also know that the securities and advisory services are offered through National Planning Corporation (NPC) Member FINRA, SIPC, and a Registered Investment Advisor. Trilogy Financial Services and NPC are separate and unrelated Entities.

Jeff states: If you would like to post a question for us to answer, you can go to my website at www.kahntaxlaw.com and click on “Radio Show”. You can then enter your question and maybe it will be selected for our show.

OK Windus, what questions have you pulled for us to answer?

Question from Jackie of Newport Beach: I realize that long-run I have specific goals in mind but I feel if I pay closer attention to the short-run market jumps and falls then I can plan better for my long-term goals. Am I setting myself up for failure and willingly stressing myself out or am I on the right track?

Windus Answers.

Question from Mark of San Clemente: I retired last year, and started receiving social security payments. Do I have to pay taxes on my social security benefits?

Jeff Answers: Social security benefits include monthly retirement, survivor and disability benefits. They do not include supplemental security income (SSI) payments, which are not taxable. The amount of social security benefits that must be included on your income tax return and used to calculate your income tax liability depends on the total amount of your income and benefits for the taxable year.
To find out whether any of your benefits may be taxable, compare the base amount for your filing status with the total of:
• One-half of your benefits.
• All of your other income, including tax-exempt interest.
The base amount for your filing status is:
• $25,000 if you are single, head of household, or qualifying widow(er),
• $25,000 if you are married filing separately and lived apart from your spouse for the entire year,
• $32,000 if you are married filing jointly,
• $0 if you are married filing separately and lived with your spouse at any time during the tax year.
If you are married and file a joint return, you and your spouse must combine your incomes and social security benefits when figuring the taxable portion of your benefits. Even if your spouse did not receive any benefits, you must add your spouse’s income to yours when figuring on a joint return if any of your benefits are taxable.

Jeff states: Well we are reaching the end of our show.

Remember you can send us your questions by visiting the kahntaxlaw website at www.kahntaxlaw.com.

Windus states: Have a great day everyone!