Surgeon's Bulletin Board

May 24, 2007
Surgical Rounds®, May 2007, Volume 0, Issue 0

• Assisting parents and relieving tax burdens

Investor’s Business Daily

Investor’s Business Daily

With people living longer than ever before, many adults find themselves caring for their parents. An article outlines several ways to ease tax burdens while assisting parents. You can claim elder parents as dependents, providing you with a $3,300 deduction, but there are a few caveats, so be careful. The deduction begins to phase out for joint-filing couples whose adjustable income exceeds $225,750, and it disappears completely for those earning over $348,450. For single filers, the deduction is phased out starting at $150,000 and disappears at $273,000. The dependent’s taxable income cannot be greater than $3,300, and the dependent must be an American or Canadian citizen. Furthermore, you must provide more than half of the dependent’s living or support expenses (ie, clothing, housing, education, health care, transportation). suggests that adult dependents switch their taxable bank account into a tax-exempt bond fund to avoid exceeding their maximum income limit. A group of siblings or direct relatives may sign a Multiple Support Declaration, IRS Form 2120, to share financial responsibility and cover that 50% minimum for living expenses. If more than 7.5% of your income goes to the elder dependent’s health care, the excess can be an itemized deduction. As always, document and research your tax options before agreeing to be financially responsible.

• How to rent off-season vacation homes

Wall Street Journal

Journal

Renting out a vacation home can be extremely profitable—for about 3 months during peak season. The rest of the year, rentals often remain empty and incur maintenance expenses for the owner. According to a recent article, a little creativity can help you rent out your vacation home during the off-season. Dropping the rental price can be a quick way to attract renters, but the article warns about dropping the price too low. Very low prices could suggest that the property is in poor shape or has limited accommodations; dropping the price 30% to 50% should be satisfactory. Packaging a vacation home as a “holiday special” can draw vacationers during special events or weekend getaways. The also suggests that you look for monthly or long-term renters during the off-season, such as college students or families that are relocating, to generate steady income. Also, be welcoming to pets or children, because animal and child-safe rentals are difficult to find. Purchasing cabinet locks, a crib, and basic pet amenities can be inexpensive but valuable investments. Charging an extra $20 a night for a pet is less than the owner would spend boarding the animal for the duration and puts a few extra bucks in your pocket.

Did you know…

Time

50%—Percentage of 12- to 17-year-olds who say drugs and alcohol are available at teen parties. (, 2006)

Time

80%—Percentage of parents who don’t think marijuana and alcohol are available at teen parties. (, 2006)

Advertising Age

6.7%—Percentage of fast food meals eaten between 9 pm and midnight. (, 2006)

Money

32%—Percentage of people who said quitting smoking was the toughest task, with saving for retirement only 1% behind. (, 2006)

24%—Percentage of income that workers age 25 to 34 use to pay debt. (Media Counsel to the AICPA)

75%—Percentage of Americans who think credit card fraud is identity theft. (Experian-Gallup Personal Credit Index Topline Report, 2006)

Money

15%—Reduction in miles per gallon automobiles derive from eth­a­nol gas, which adds 8% to the total fueling cost for an ethanol-powered car. (, 2006)

BusinessWeek

9.7%—Percentage of American women in 2005 who were engaged in early entrepreneurial activities. (, 2006)

Time

$100,145—Amount stolen by an Australian Mint employee over 10 months, smuggled out in his lunch box and boots. (, 2006)

Finding Financial Bliss

Financial Bliss

Financial Bliss

At the end of a long day spent with difficult patients, the last thing you want to do is come home to a long night of bickering with your significant other about money. Money is the number one cause of divorce in the United States and the major insti­gator of couple’s arguments. This is primarily because everyone has a different relationship with money, from how they organize and pay their bills to how they balance their checkbook, and, most im­portantly, how they spend and save their hard-earned dollars. In (AMACOM; 2007), financial analyst Bambi Holzer teaches couples how to get the most from their lives together by understanding each other’s money tendencies and developing a game plan for a successful future. The book offers readers self-assessment quizzes to understand their own money personality and provides a plan for working with one’s partner to ensure that both sides are comfortable with the financial decisions being made. Vital issues are discussed, such as whether it is best for a couple to combine finances or keep them separate and how to prepare for milestone events like children, home purchases, and education. also addresses financial concerns that married and unmarried couples face, such as insurance, credit, and property ownership options. Both realistic and reassuring, this invaluable guide helps couples create a life plan for solving money problems.

Talk about finances before the wedding bells toll

Newly engaged couples are often reluctant to talk about financial security, especially if they plan to draw up a prenuptial agreement. As a parent you need to stress to your child the importance of discussing future finances with that special someone. Setting a good example on how to discuss finances rationally can help them avoid a conversation with their partner that he or she could interpret as a sign of uncertainty. Wachovia Renaissance explains that a prenuptial agreement often seems to cause tears and anger, but the discussion doesn’t have to be stressful. Instead of a prenuptial agreement, discuss with your children the option of setting up a trust, where the money can be a source of income but remains secure in case of a divorce. A trust can even be established to skip a generation, designating grandchildren to receive the funds free of strings or complications. Instead of sending large checks to the happy new couple, “invest” in their future by giving them a car, taking care of a mortgage payment, or providing educational support. Families that own a business should consider signing a buy-sell agreement in case of a change in family status. However, when one spouse has considerable assets or is the sole owner of property, a prenuptial may be the best course of action.

ETFs that target specific diseases

BusinessWeek

Previously, there were only 19 health-related exchange-traded funds (ETFs), but a new set of ETFs has surfaced. These ETFs allow investors to target their dollars at a specific disease category, such as cancer, diabetes, asthma, or obesity. According to a recent article, this new family of funds—HealthShares—was developed by Ferghana Wellspring in New York. ETFs are similar to index funds but can be traded like stocks. These ETFs allow investors to participate in a portion of the market that feeds off growth and innovation, and they provide the potential for great returns. As with some investments, these ETFs may be too risky to consider without advice from a professional advisor. Because each HealthShares index contains shares from only 20 companies, any sign of a failed clinical trial in one of the companies could affect the entire index.

Put your money where your car is

With all the safety devices surgeons have in their cars—flares, car jacks, and de-icers—they should consider investing in a new product that could keep them safe and save time: the Smart Start battery booster by Black & Decker®. A dead car battery can result in a delayed surgeon or a stranded spouse. Using jumper cables can mean standing in the rain or stomping through snow, not to mention finding another idling car. The Smart Start connects directly to your auxiliary outlet, so you never have to step outside your vehicle, and it can be recharged from any outlet with a 12-volt DC vehicle converter or 120-volt AC household charger. It is small enough to fit in your glove compartment and uses rechargeable batteries. An audible beep and built-in LED display lets the driver know when his or her car battery is charged. It is a small investment that might prevent a large headache.

Navigate the economy’s ups and downs

The economy changes regularly, but unfortunately these changes rarely follow a set schedule and can be hard to predict. You may often wish you could determine how to know when economic conditions are about to change or what adjustments you should make in your portfolio when a shift appears to be on the horizon. It is tricky, and even economists disagree about the nature of economic cycles.

Some people refer to changes in overall economic conditions as economic cycles or business cycles. It may be a misnomer to label these changes as such, because they are not predictably cyclical, which is why some economists prefer to call them economic fluctuations. Regardless of the terminology, changes in economic activity generally occur in four phases:

Advance or expansion

—When times are good and the economy is growing, we typically see indications of this, such as falling unemployment rates and factories taking advantage of excess capacity. While the news during this phase is typically positive, you may see signs of potential problems. If inflationary pressures begin to creep in, the Federal Reserve (Fed) typically raises interest rates to help prevent the economy from overheating.

Peak

—By the time we reach this point, the economy tends to be operating at full employment, factories have used up their excess capacity, and inflationary pressures are building. When rising labor and material costs squeeze companies’ profit margins, the Fed usually will move more aggressively, raising rates to slow growth and ease inflationary pressure.

Decline, slowdown, or recession

—Ideally, action by the Fed to tame inflation will allow the economy to adjust gradually to a sustainable long-term growth rate without the threat of inflation. In reality, however, the combination of the Fed’s tightening and the need to correct accumulated imbalances in labor and material supplies typically slows growth to a level that is below the economy’s long-term potential. Unemployment rises, factories slow down, and inflationary pressures ease.

Trough

—At this point in the cycle, inventories are depleted. The Fed lowers interest rates to help stimulate the economy, and businesses and homeowners refinance mortgages to take advantage of the lower rates. Companies purchase new equipment and expand their operations, which helps inventories grow and marks the beginning of a new expansion.

Clearly there are telltale signs that can give you at least some idea of where the economy is at in its cycle. The stock market tends to move in advance of the economy, however, making matters more complicated for you as an investor. Stock market trends usually develop in response to investors’ anticipation of what lies down the road, and the biggest challenge is determining when the shift to the next phase will occur. Predicting the market and the economy is a bit like forecasting the weather.

As an investor, your level of concern for economic fluctuations depends on several factors. You may pay less attention to them if you have a long-time horizon and your portfolio is positioned to weather the ups and downs. Alternatively, you may be able to enhance your returns if you can figure out how to sell investments that do poorly in the next anticipated phase and purchase those that typically do well. Working with a financial consultant could prove valuable if you decide to employ such a strategy.

by Joseph F. Lagowski

Loaning money may be costing you interest

Investor’s Business Daily

If you are a surgeon who is generous with money as well as time, you should be aware that giving a relative an interest-free loan could actually cost you money. You could end up paying taxes on interest that you never collected. If you loaned your son $500,000 for a condo, the IRS could assess $25,000 interest on that loan, even if you never collected it. Just as you do with any interest received, you would have to pay income tax on the $25,000 yearly and then file a gift tax return for that amount, because if you are not charging the interest, it is considered a monetary gift. As an article in explains, if the money you loan doesn’t exceed $10,000, no interest is imputed, as long as it is not a loan for an income-producing investment. Loans up to $100,000 are immune to taxes if the borrower’s net investment income is less than $1,000 each year. The IRS may also impute interest gaps. For example, if you charge a relative 3% when the annual percentage rate is 5%, the IRS will charge you that missing 2%. A possible solution is calling the loan a demand loan—collectable on loaner’s demand without maturity date—which is a short-term loan and is less taxable by the IRS.