Large and small companies across the globe rely on access to
money markets to finance their daily operations, including
inventories, and payrolls. Lenders routinely make loans to these
companies, and to each other, to make it all happen. When lenders
have confidence in these markets, and investors have confidence in
this system, we have a functional marketplace that, for the most
part, is sustained by competition. When confidence in this system is
shattered, however, like it has been recently, credit becomes
expensive and scarce to all parties, and small and large companies
alike can choke to death waiting for the short-term capital it needs
to fund its long-term success. This directly affects you and your
family. It means a slower economy. It means more lay-offs and less
new job creation, which often means lower home values. It also
fuels volatility in the financial markets that, as we've seen, can
wreak havoc on your savings, retirement, and other investment
accounts.
It is estimated that some $70 trillion in total global investment
capital is available, which would be great news if our financial
systems were functioning with confidence – and that's what the
Rescue Bill is basically about. Like it or not, the US Government
has been given unprecedented power to invest $700 billion in our
financial systems in two main ways. First, as much as $250 billion
to purchase stock in US banks, providing the banks with badly
needed money. Second, through the purchase of certain assets to
help stimulate more liquidity in the credit market. Another initiative
will provide government guarantees for the short-term loans banks
make to each other to run their daily operations. More importantly,
these actions are in concert with similar practices by other
governments and central banks.
None of these actions will solve our problems completely or save us
from recession, but here's the good news. It is a positive step in the
direction of stabilizing the markets. The other good news is that
several other measures were tacked on to the bill to help build your
confidence in the markets. Unfortunately, there just isn't enough
space in this short newsletter to cover them all. We will briefly
highlight a couple of them, but our best, most practical financial
advice is to create your own plan for the future with your financial
professionals. Don't make any rash decisions without speaking to
the experts you trust to handle your investments. If you need help
finding a financial professional you can trust, we'll gladly provide a
referral. Just give us a call. We'll review your mortgage and create a
plan that fits your individual financial goals and needs
Changes in FDIC Limits
As part of the Rescue Bill, Congress also increased FDIC deposit
insurance from $100,000 to $250,000 for all of an individual's
accounts at a single institution. For one year, joint accounts,
retirement accounts, and trust accounts are insured separately.
This means a married couple can insure up to $1 million at a single
bank, by making a few simple adjustments. Changes also affect
revocable trusts, allowing the same amount of insurance for
beneficiaries, such as your children. That means, a married couple
with three kids could create enough qualifying individual and joint
accounts to protect up to $1.5 million. It's important to note that the
FDIC has never failed to pay a single dime of insured money when
banks have failed, so you won't have to make a run on the bank or
hide your money in your mattress anymore. Small businesses will
also benefit from new increases, as well as the confidence that
comes with this kind of insurance.
New and Extended Tax Incentives
Within the 451 page Rescue Bill are nearly 100 tax code changes
that directly affect individuals and business owners, including
education deductions, sales tax, energy credits, and even new
disaster aid. Other tax breaks, which were due to expire, were
extended, including property tax deductions, the Mortgage Debt
Forgiveness Act, and the shield for the Alternative Minimum Tax
(AMT). The property tax provision, set to expire in 2008, has been
extended to 2009, and allows up to $500 ($1000 for joint filers) in
deductions in addition to the standard property tax deduction –
even if you don't itemize! The Mortgage Debt Forgiveness Act,
extended to 2012, was designed to protect those who already lost
their homes due to foreclosures from facing an additional tax
penalty for qualifying cancelled or "forgiven" debt of up to $2 million.
And, finally, the Rescue Bill also saves about 23 million Americans
from the dreaded AMT, a kind of extra tax that some people have to
pay on top of their regular income tax created by the Tax Reform
Act of 1969.
These are just a few of the potential tax benefits created or
extended by the Rescue Bill. As always, there are specific
qualifying standards, and so it is essential to speak with a qualified
tax professional about these and other tax benefits that could help
you lower your tax bill and increase your confidence in today's
tumultuous financial markets.
