Surgeon's Bulletin Board

May 25, 2007
Surgical Rounds®, January 2006, Volume 0, Issue 0

Deal with your debt

With a handshake and a diploma, the average medical school graduate walks away from commencement with $115,218 in educational loans, according to the American Medical As?soci?ation. Heap credit cards, auto loans, and mortgages on top of that pile, and it's easy to see how the numbers can grow to unmanageable proportions. In an attempt to help consumers dig themselves out, many financial how-to's focus on techniques for eliminating debt completely rather than controlling and managing it effectively. Award-winning journalist Liz Pulliam Weston, one of MSN Money's most-read columnists and author of the nationwide newspaper column "Money Talk," reveals that the key to managing debt wisely is differentiating between helpful and harmful debts. In Deal with Your Debt: The Right Way to Manage Your Bill$ and Pay Off What You Owe (Prentice-Hall; 2005), Weston advises that consumers need to take a "know when to hold'em, know when to fold'em" stance, asserting that dealing with debt inefficiently is not a gamble you want to take. Instead, consumers need the right strategy to pay down debt?knowing when to accelerate some payments and when to pay the minimum balance on others. Consumers need to take control and incorporate debt as a key part of a financial plan. If handled properly, debt can even help you create wealth. She also explores the myths surrounding debt and identifies toxic debts that poison your finances. A no-nonsense and easy read, Deal with Your Debt shows surgeons how to stop worrying and take control.

New tax incentives provide consumers relief

On August 8, President Bush signed into law a $14.5-billion energy bill that provides tax breaks beginning in 2006 but does not provide immediate relief from high gasoline prices. Bush states the legislation will not solve the energy problem or high gas prices overnight, but says the 1,724-page bill is a step in the right direction, aimed at promoting alternative energy sources and improving oil, natural gas, and electricity supplies. For the energy-conscious surgeon-consumer, incentives include tax breaks for updating heating, air conditioning, and appliances, with as much as a $500 credit for upgrading thermostats or purchasing energy-efficient appliances. In addition, the bill provides a credit of up to $2,000 for installing solar power at home. For those interested in saving money on gas, the new auto industry?backed tax break provides thousands of dollars in incentives for the purchase of fuel-celled?powered vehicles (ie, $8,000 and more) and consumers can receive full-dollar-tax credit for hybrid vehicles purchased in 2006. For a complete list of current and future models and estimated tax credits, visit www.hybridcars.com/taxdeductions.html. Most US consumers will feel the new law's greatest effect in 2007, when daylight savings time begins 3 weeks earlier in March and extends 1 week later in November.

Tangled Web scares online consumers

Internet fraud has crept up steadily on American consumers, and they're reacting. Major credit data sources were recently tapped, sharing individuals' account information with identity thieves. E-mail viruses and scams have plagued inboxes, particularly phishing scams, in which phony e-mails designed to look like messages from banks and other trusted companies entice consumers to share private information on fraudulent Web sites. According to an article in the Wall Street Journal, research firm Gartner Inc conducted a survey of 5,000 online US consumers. The survey's results show that half of all US Internet users think they have re?ceived a phishing e-mail, up 28% from a year ago. An estimated 2.4 million online users have lost a combined total of approximately $929 million to Internet scams from May 2004 to May 2005. This trend is hitting bank and retailers' purse strings as well. Of the consumers surveyed, 42% say they are cutting back on online shopping and 28% are easing off online banking for fear of identity theft.

Domestic taxes crack expatriate nest eggs

Living and working overseas has tradeoffs. There are different rules and infrastructures to work with?from socialized medicine to less litigation-friendly court systems. At the end of it all, returning home to the United States with a retirement fund can be tricky. While top executives are often offered ample compensation and assistance in retirement funding, chances are a surgeon working abroad may not be given the same package. A Wall Street Journal article points out that in most cases, retirement plans overseas don't come with the tax shelters of domestic 401(k) plans and IRAs and, regardless of residency, US citizens still owe US taxes. Advisors suggest paying taxes annually to avoid being hit with a large sum upon retirement and to pay taxes at a lower tax bracket. Also, note that foreign pension and retirement plans usually can't be rolled over into IRAs because they don't qualify under US tax codes. Benefits: Expatriates are allowed more deductions than domestic employees (up to $80,000 of annual salary and $12,000 of annual housing expenses).

Home buying or home upgrades?

Surgeons with a little housing money in their pockets are often indecisive about how to spend it. Should they buy additional properties or spend the money to upgrade their primary residence? There are pros and cons to each, and the correct answer for you depends on your situation. According to a MarketWatch article, there is such a thing as over-improving your home, especially if you're planning to sell soon. Although improvements make your home look great, upgrades such as swimming pools have a meager payback history. If you don't plan on selling, you may as well upgrade as much as you want and can afford, without worrying about getting the money back.

Buying additional properties, such as a beach house, also comes with pros and cons. While convenient and fun, a beach house sits unused for several months out of the year. If you buy another property with plans to rent it out, you will have a solid source of income but will also have to endure the trials and tribulations of being a landlord, in addition to your responsibilities as a busy surgeon. Be sure to consider all the angles before sinking your money into improving or buying.

Timing is everything with IRA distributions

Be careful when dipping into your IRA account to cover the costs of higher education, or you may be subject to a 10% tax on early distributions. The Wall Street Journal reports that Linda Louise Lodder-Beckert sought to transfer funds from her public-employee retirement account to an IRA when she stopped working to attend college in 1999, but was told pending legislation would add interest to her account retroactively. Instead, she deferred the transfer and paid for education costs with student loans and credit cards.

Once legislation passed, she transferred the funds to an IRA in 2001, reaped the benefits, and took two distributions, using part of the money to pay credit card debt incurred from her education. The US Tax Court, however, ruled that Lodder-Beckert could not escape the 10% additional tax for any part of the distribution used for her education expenses during 1999 and 2000. That's because the 10% additional tax for taking early distributions from an IRA before age 59 1/2 is not applied if the distributions do not exceed education expenses for the taxable year of distribution. For more in?formation, see IRS publication 590 at www.irs.gov/pub/irs-pdf/p590.pdf

Did you know?

$92 billion?Cost of lost productivity due to early deaths caused by smoking between 1997 and 2001. (Entrepreneur, 2005)

$150 million?Cost of filming the new remake of King Kong. (Ad?vertising Age, 2005)

$1,947,853?Yearly salary for Donald Trump as chairman and CEO of Trump Hotels & Casino Resorts, Inc. (New York, 2005)

$1.6 million?Yearly salary for Donald Trump as the star of NBC's The Apprentice. (New York, 2005)

81%?Percentage of American voters who would vote for a womanfor President of the United States. (Health, 2005)

49%?Percentage of business owners who are passing increased fuel costs on to their customers. (BusinessWeek, 2005)

48%?Percentage of employees who say they travel for work less frequently than they did 5 years ago. (Entrepreneur, 2005)

25%?Percentage of Internet users who say that they always read user agreements, privacy statements, and other such disclaimers before downloading or installing files from the Internet. (Entrepreneur, 2005)

Court limits use of family partnerships

The US Court of Appeals for the Fifth Circuit has clarified the use of family limited partnerships. A widespread technique estate planners use to reduce taxes on inheritances and gifts, a family limited partnership protects assets, including real estate and securities, and keeps them in the family by removing a significant amount of assets from an estate while allowing parents to retain control. According to the New York Times, the family of Texan Albert Strangi claimed to owe taxes on $6.6 million of his estate following his death in 1994, which conflicted with the IRS' claim of $11 million, the amount of the entire partnership. The court found that Strangi's family limited partnership faltered in the following areas: Strangi's house indeed could be taxed as an inheritance even though it was part of the partnership because he lived in it and 98% of his assets were put into the partnership; that money was also used to pay off his debts. To avoid the pitfalls of the Strangi case, surgeons should utilize partnerships to limit liability rather than avoid taxes. If you would like to pass your estate to your children, do not allocate all of your assets into a family limited partnership, because payouts to parents can potentially disqualify partnerships from avoiding estate taxes.

Do your research before buying a growth stock

The key to success with growth stocks is discovering a good breakout. But what makes a winner stand out from the rest? Surgeon-investors can begin their hunt by checking out the new sections offered by Investor's Business Daily. Its "New America" section profiles mostly up-and-coming companies whose stocks lead the market, and the "Internet & Technology" section covers firms whose interests follow the latest tech trends. Every Monday, the "IBD 100" charts all the stocks that make the list and relays recent news and events related to the top 100. One company is profiled in depth, with up to four mini profiles. Additional profiles also appear in the Tuesday, Wednesday, and Thursday issues. To perform your research effectively before investing in a stock, come up with a list collected from the fea-tures above. After you investigate the basics of sales and growth, see howeach stock ranks on Monday's IBD 100 section. Then, search the archives on www.investors.com/ibdarchives to see whether it has been profiled. Just re?member that the articles provide information current to the time of writing, so be sure to check the publication date. Remember, it's always a good idea to check with a financial advisor before making any big investment decisions.

Inflating ATM surcharges ensnare consumers

The cost for automated teller machine (ATM) use is steadily rising, according to a Wall Street Journal article and Bankrate.com study. The study found that the average fee a bank charges a customer for using another bank's ATM hit a record high of $1.35, up from $1.29 last fall, and the average fee (surcharge) ATM owners charge noncustomers who use their machines increased from $1.37 to $1.40, meaning that you'll likely pay $2.75 in fees if you withdraw $20 from an ATM?a massive 13.5% hit for your transaction. It may seem insignificant, but it adds up to an estimated $4 billion that Americans will pay this year for using the wrong ATM, up from $2.49 billion in 1998. Is there anything a money-conscious surgeon can do to avoid these surcharges? Limit your ATM stops while out of town and shop around for banks. Some banks, to compete for new business, are offering no-fee ATMs in certain areas, such as Wachovia Corp in Texas and New York. Others never charge customers for using other banks' ATMs, such as Commerce Bancorp, which also refunds out-of-network ATM surcharges for customers who maintain a checking account balance of $2,500.

Handling finances when your spouse passes

Surgeons know more about the realities of death than most professions. Despite this knowledge, many struggle with the financial steps that need to be taken after the death of a spouse. Because of your intense grief, taking care of finances will most likely be the last thing on your mind. If you have a financial advisor, they can be extremely helpful during this time. According to Morningstar.com, you'll need to collect important documents, such as your spouse's marriage and birth certificates, Social Security card, will, insurance policies, and bank account information. Also, you will need to settle your spouse's life insurance policy with the company as well as collect any wages or benefits owed from your spouse's employer, if they were working at the time of their death. Additionally, money from your spouse's retirement plan can be rolled over into yours. Although no one likes to face such a morbid prospect, the best thing you can do is prepare beforehand. Be sure to have a will made, and have a sufficient amount of money saved up to cover expenses and funeral costs, as well as at least 6 months' worth of living expenses for yourself.

IRS to target taxpayers masked as pumpkin eaters

The playground chant "cheater, cheat?er, pumpkin eater" now applies to adults, it seems. According to a recent IRS survey, the number of Americans who cheat on their income tax returns is on the rise. In addition to underreporting taxes, cheating also includes tax dodging and failing to comply with the established rules. The disappoint-ing results of the first in-depth inspection of taxpayer trends since the late 1980s are likely to create a stir in Washington. It's possible that the IRS will pay more attention to the self-employed and tax shelters and Congress will crack down harder on cheaters, the Wall Street Journal acknowledges. The IRS is definitely determined to discourage Americans from cheating on their taxes. Surgeons beware: High-income tax?payers, US corporations, abusive shelters, and criminal investigations will take top spots on their priority list, the IRS says.

Consumers ailing from financial illiteracy

There's an epidemic sweeping the na?tion that medicine can't cure. A new survey by the Consumer Literacy Consortium shows that many Americans are financially illiterate when it comes to saving money. The more than 1,000 adults who participated in the true-false survey an?swered basic questions about such topics as auto insurance, bank investments (eg, stocks, bonds, and mutual funds), credit card fin?ances, home mortgages, and life insurance. Survey says: One thing's for certain; today's consumers know a lot about comparison shopping at their local grocery store, but little about saving money on prescriptions at the pharmacy. For example, almost 46% of respondents did not know that pharmacies sometimes charge different prices for the same prescription drug. If you don't think financial illiteracy is a serious issue, consider that billions of dollars are wasted every year by consumers who lack basic savings sense. To check out the Consortium's financial literacy brochure, visit www.66ways.org.

Buyers can't afford free air conditioner

Lo and behold, surgeons, the saying is true: You can have too much of a good thing. That's the word from several states that are having a difficult time finding buyers for their new starter homes. The problem is so bad in some places that builders are now offering homebuyers a free air conditioner with their purchase. The root of the problem is that it appears too many builders hopped onboard the same bandwagon, creating a surplus of affordable houses for first-time home buyers. States facing this problem include Indiana, Kentucky, Michigan, and Ohio, as well as the city of Charlotte, North Carolina. So what's preventing folks from seizing the opportunity to own their very own home in these areas? The local economy has a lot to do with the public's resistance to buy. Ameri?cans in states like Ohio, which has seen its share of job losses since 2000, just can't afford to take advantage of the free air conditioners.