Government heralds tax relief in two phases

People visit the Thessaloniki International Fair on Monday.

Government officials on Monday defended the decision by Prime Minister Antonis Samaras to herald tax breaks at the Thessaloniki International Fair (TIF) over the weekend as the first tangible move toward offering relief after years of austerity and indicated that the pledges could be supported by the budget.

“We’re saying specific things, things that we can do at specific times, things we can do in the future,” government spokeswoman Sofia Voultepsi told Skai.

According to sources, Samaras finalized the measures just a few hours before his opening speech at TIF on Saturday in coordination with his coalition partner, PASOK leader Evangelos Venizelos, and close aides. The premier chose to announce some of the relief in detail on Saturday, notably a 30 percent reduction to a tax on heating oil. Other measures, such as a reduction to a so-called solidarity tax on income, would be elaborated on when the budget for 2015 is drafted next month, he said.

The logic behind offering the pledges in two phases is to present the prospect of relief from austerity without pre-empting the outcome of talks with troika officials who are in due in Athens later this month, source said.

Venizelos made it clear in a press conference on Sunday that he backs Samaras’s pledges for relief. But the PASOK leader has the cohesion of his fragile party to worry about in addition to the coalition’s economic policy. Socialist party sources on Monday played down a rift between Venizelos and former party leader George Papandreou. Venizelos is expected to start setting up an organizational committee ahead of the party conference this fall where PASOK’s prospects and policies are to be examined.

Meanwhile, in an interview with CNBC, leftist SYRIZA leader Alexis Tsipras sought to emphasize that he is ready to govern, noting that he expects snap elections early next year as the current government lacks the 180 seats in Parliament it needs for its proposed candidate for president. A political change in Greece would “not be a threat for Europe but a challenge to find common European solutions to common problems,” he said.

Apple: Had Enough Reasoning / Guessing Why The Stock Must Go Up – Or …

Nuff talk, nuff nalysis, time to act.

So which way is Apple Inc (NASDAQ:AAPL) stock headed now that the products and product lines have been presented? Those answers wont come from economists, marketers or a CEOs brother-in-law.

This is the biggest market cap in the game, and it takes real heft to move it, not mom and pop, the hair dresser or the taxi driver, even with the concerted company of their friends.

The Street know-it-(almost)-alls have been sounding out the big-capacity investors and they ply their market-making expertise with unruffled regularity. What brings it to our attention is that for the last few days AAPL has appeared in our top Ten list of best wealth-building equity investment alternatives. This is a daily list based on what the market-making community will spend to protect their firms capital when necessary to put it at risk to serve big-money-fund clients.

Here is what has been happening to the outlook for AAPL in that continual back-and-forth of matching up buyers and sellers in big-volume scale. The vertical lines in this picture contain the ranges of price held to be likely enough to happen that real money is being spent to protect against being hurt. The heavy dot in each vertical is what the market quote was for AAPL on the day of the forecast range. It splits the forecast up into upside and downside prospects.

(used with permission)

The balance between upside and downside prospects usually has implications for the prices near-future prospects. They are drawn from what has happened in actual market moves, subsequent to prior forecasts for the stock having similar up-to-down balances.

That history is told in the line of data under the forecast picture. Previously, 51 days of the 1,261 market days in the last 5 years have seen these same prospects. The current forecast is split into an upside twice as large as the downside. Our measure of that is the Range Index RI which tells what percentage of the whole range lies below the market quote. It now has a value of 36, leaving 64 for the upside.

That upside, to a top-of-the-range sell target of $112, is +10.3% higher. Past forecasts have produced gains of +8.7%, so the current target is a bit ambitious historically. But better than 9 out of every 10 prior forecasts from this expectations level have come up with a profit, as indicated by the win odds of 92 out of 100.

These results being quoted come from the application of our Time-Efficient Risk Management Discipline (TERMD) to hypothetical buys of every forecast. At a RI of 36, the gains resulted from exercise of the discipline, where the position was closed out at the first instance of the sell target being reached, or the holding period time limit closing off the holding, regardless of gain or loss. In these 51 instances only 36 market days (about 7 weeks) were required, on average, including those held to the 63-day three-month time limit. The average holding period allows more than 7 reinvestment compoundings of the capital, for an annual return rate of +78%.

During each of those holding periods a record was noted of the worst price drawdown from cost. The average of all 51 of these was only -4.4%, only half of the overall achieved gains, and many were entirely recovered from since 9 out of every 10 were profitable.

Can it happen again?

No guarantees. But we are, and encourage you to be, an odds-player. Investing in equities produces only one sure thing. The certain loss of capital at one time or another.

So the game becomes finding the best odds for winning, with the larger profit payoffs and smaller loss encounters. The losses are best kept to prior experiences where the opportunity for loss is typically small, but is known, along with the win odds being large in your favor. Much investor risk is self-inflicted, emotionally. That happens at a moment when a price drawdown, because of its size or suddenness, takes on the appearance of being irreversible and unrecoverable.

Being prepared by knowledge of what prior worst-case exposures have been, and knowing what the win-odds have been commanding recovery from most of those worst-cases, helps to make it less likely that emotion will cause an action that locks in a loss, rather than exercising the patience that it takes to earn a recovery.


The best-informed and strongest-money players in this serious game are telling us that the stage is well-set for making good money at a good rate with strong odds in our favor and limited loss exposures likely. Now is a buy time. More may be coming, but dont miss this one.

Bridgeport mayor facing drug charge files for bankruptcy

CLARKSBURG, W.Va. Embattled Bridgeport Mayor Mario Blount filed for personal bankruptcy in federal court Friday.

Court documents indicate Blount has more than $1.5 million in liabilities and only has assets valued at $185,000. The largest part of Blounts debt is owed to former partners and business associates.

Blount, 51, is a registered pharmacist who operates Bridgeport’s Best Care pharmacy. He is expected to plead guilty in US District Court next week to charges he illegally dispensed oxycodone and oxymorphone.

Blount claimed in bankruptcy paperwork he is a roofer in Bridgeport and brings home $1,751 a month. He claimed his monthly expenses were $6,503 including a mortgage payment in excess of $2,000.

The Story of the Racial Wealth Audit™

I didn’t see her on the streets yesterday, but Federal Reserve Chair Janet Yellen and striking fast food workers are on the same page about one thing: the economy is not working for most American families.

New data from the Federal Reserve’s Survey of Consumer Finances shows that in the past three years, the only folks that saw the economic recovery show up in their paychecks were in the top 20 percent of earners. For the typical (median) household income actually declined.

That data is no surprise to the workers who marched, picketed, and even got arrested to call attention to their poverty-level wages. As I showed in a study of the industry earlier this year, fast food is the lowest paid job in the country, with wages that have stagnated as companies–and notably their top-paid managers–thrived.

The growing gap in America between the very rich and all the rest is a problem for growth, for stability, and not least, for the people who are struggling to get by in an affluent country that depends on an underclass of the working poor. We know from history that economic growth can raise living standards across the board–we know from our current context that it won’t unless we make it a priority to do so.

This summer, Americans have gotten a fresh look at our history of choices to resist some inequities while we let others fester for years. Fast food workers drew from this history to inform their tactics yesterday, expressly making the connection between their case for a raise and the unfinished business of the Civil Rights movement. In his Labor Day speech, President Obama invoked the same connection, paraphrasing Dr. Martin Luther King Jr’s linkage of racial and economic justice in the statement: “For what does it profit a man, Dr. King would ask, to sit at an integrated lunch counter if he can’t afford the meal?”

History shows up in the Federal Reserve data too. Between 2010 and 2013, white families’ incomes declined by 1.5 percent, to $55,800. In families of color the drop was much greater, and the outcome much worse: median incomes in non-white or Hispanic households fell 9.6 percent, to $33,500. Employment and wage gaps fed into even wider disparities in wealth: households of color had about $1 in net worth for every $8 owned by non-Hispanic whites.

Wealth inequality is at historic levels, and that creates other problems as well. Wealth is a critical lifeline for all families when faced with an emergency, like a recession, or an unexpected expense. It is also the way that a household invests in its future. As a result, disadvantages in wealth-building can accumulate to create extreme disparity over time and across markets. Our disinterest in the racial biases of wealth building opportunities over the past 60 years culminated in yesterday’s Federal Reserve numbers, and our continued disinterest will only worsen the trend.

That’s why Demos has partnered with the Institute for Assets and Social Policy at Brandeis University for a new project to make the explicit connections between our policy choices and racial equity. That project, the Racial Wealth Audit(TM), is a tool that will clarify and measure the way policy reinforces racial disparities by setting the rules of the game for household finances and facilitating or hindering saving. From the minimum wage to federal loans, policy choices today are an opportunity to either intensify or overcome historical barriers to wealth accumulation, and the Racial Wealth Audit(TM) provides the numbers necessary to make informed, responsible decisions.

Real measures of the racial equity dimensions of our policy choices are a critical first step in understanding how we have broken the connection between economic growth and improving living standards for all but the wealthiest Americans. Fast food workers and Janet Yellen have already started the conversation. The Racial Wealth Audit(TM) will help translate it into meaningful change.

Rolling Jubilee is making student loans disappear

Since November 2012, Rolling Jubilee has purchased and eradicated about $15 million worth of debt arising from unpaid medical bills. Today, the group announced that it has erased $3.9 million in private student loans, including Courtney Browns and those of almost 3,000 other students of the for-profit Everest College.

Rolling Jubilee is a project of a group of economic activists called Strike Debt, which formed out of the Occupy Wall Street movement. The group timed todays announcement for the third anniversary of that protest. The word jubilee refers to a time decreed in the Bible, every 49th year, when all debts were ritually forgiven, and slaves and prisoners freed.

Some debts are just, and others are unjust, Thomas Gokey, one of Strike Debts organizers, says, explaining the groups stance. Providing affordable, publicly financed, world-class education is a moral debt we are failing to pay.

Rolling Jubilees tactic takes advantage of a peculiar characteristic of modern debt. When people stop paying, debts become delinquent. The original owner, say a bank, eventually writes the debts off and sells them off at bargain-basement prices to third-party collectors.

Rolling Jubilee has managed to step in instead and buy some of this secondary market debt, using donations raised online — in this case, buying student loan debt for less than 3 cents on the dollar. But instead of trying to collect this debt, the group makes it disappear.

More than 40 million Americans now have some form of student loan debt, totaling an estimated $1.2 trillion. The amount erased by Rolling Jubilee, and the number of students helped, will not make a practical dent in that sum. It doesnt solve the problem, says Gokey.

Instead, what he and the groups members are trying to do is draw attention to the plight of millions of people with unpaid student loans, especially high-interest private loans from relatively expensive for-profit colleges.

Theyre the worst of the worst, says Gokey. The next step, he says, is to organize large numbers of people to press for policy changes that would allow debtors to be released from obligations they cant meet. Currently, student loans are nondischargeable in bankruptcy under most circumstances.

Bemoaning the Student Loans

Many students pay for college by taking out student loans. Currently, the number for national student loan debt is estimated to be over $1.2 trillion, according to FinAid statistics.

Last Tuesday, the U’s Personal Money Management Center sponsored a presentation entintled “Borrow Wisely” as a way to help shed light on the growing problem with student debt.

Sumiko Martinez, a Ph.D student at the U and the speaker at the event, said students tend to get loans without sufficient understanding of the loan process.

“I didn’t have a lot of this knowledge when I was an undergrad,” Martinez said. “I walked into a lot of things blindly.”

Of the 25 people who attended the presentation, nearly all admitted to having taken loans out to pay for school. However, only two of these students said they knew the exact interest rate of the loans.

Chelsea Day, a sophomore in recreational therapy, attended the presentation. She said she had never taken out loans for school, but the presentation had provided valuable information if her situation ever changed.

“I think it can be really easy to just get a bunch of loans, buy a car, take a loan out for tuition, even if it’s federal,” Day said. “It’s important not to go overboard.”

Martinez said the pros and cons of a student loan depend on the person, situation and school. Her advice is to avoid taking out a loan if possible.

For students with loans, Martinez said the best action is to pay off interest while in school, as it will save money overall.

Tuition prices are rising, according to the National Center for Education Statistics. As a result, student loan debt is going up as well. For this reason, student loan debt is being referred to as a national crisis.

A factor of this debt is the price difference between in-state and out-of-state tuition. Although student loans are supposed to make an expensive college possible, loans can actually prevent some students from leaving their home state, such as Charlie McDonald, a freshman in pre-business.

McDonald said student loans affected her decision in which college to attend.

“I had to give up my top choice school and stay in state,” McDonald said. “That was kind of a bummer. It sucks because your whole life growing up you are told that you need to get a good education to get a good job. And in order to get a good education, you end up having to take out loans.”


Posted in Campus, News

Estate Planning: A Ranking of Good Assets and Bad Assets

Some assets are terrific holdings in estates. Go to your grave clutching them.

Some are bad for heirs. Play hot potato with them during your senior years.

What follows is a tax ranking for retirement assets. At the top: the holdings you should hang onto as long as you can. At the bottom: the holdings that you should be most inclined to cash in when you need to pay the rent.

Key assumption: You have more than enough savings to live on, so it’s likely you will be leaving something to children and grandchildren. Your objective is to keep your family’s tax burden as light as possible.

The important element of the tax code that drives our ranking is called “step-up.” Appreciated assets left in your estate get stepped up in tax basis when you die, with the appreciation never taxed. If you buy a Google share for $100, hold on for more than a year and die when it’s worth $1,000, then neither you nor your heirs will owe income tax on the $900 capital gain. If they sell two months later for $1,015, their gain is $15.

The main focus here will be on income taxes owed by either you or your descendants. Inheritance taxes, for most families, are far less important. The federal estate tax applies only to larger estates ($10.6 million, if held by a married couple), and a lot of states don’t tax estates.

Most of the choices described below won’t affect estate taxes. In the Google example, the share goes on an estate tax return at its $1,000 market value. Roth and other IRAs are subject to the estate tax.

My ranking is based, in large part, on a white paper put out a year ago by AllianceBernstein. The experts at this firm are wealth managers, not tax attorneys, but their investment advice is very tax-wise. They won’t be doing your tax return but they might be telling you why, for tax reasons, you should hold onto that master limited partnership they put in your portfolio.

Here’s the ranking, beginning with a buy-and-hold item and ending something that you should get rid of tomorrow.

1. Depleted partnerships. Let’s say you buy Enterprise Products Partners(EPD) at $39 for the dividend. Over the next decade it pays out $15, but depreciation charges on the company’s pipelines shelter much of the distributions. And so (we will suppose for illustration) only $3 of your payout is taxable. The other $12 represents a nontaxable “return of capital.” That reduces your basis, or tax cost, from $39 to $27.

Now let’s say you sell, in 2024, at $44. You think you have a gain of only $5, but the IRS will have a harsher view. Your gain is $17. Of this, $5 will be taxed at the favorable rates for long-term capital gain. The other $12 is going to show up as a “recapture” of depreciation and get taxed at stiff ordinary-income rates.

So don’t sell your partnership shares. Hang on.

In 2024 you get run over by a cab on the Upper West Side. Your children inherit the EDP at its stepped- up value. If they sell, both the $10 of capital gain and the $25 of recapturable income are forgiven. If they keep the shares, their basis, which is a starting point for depreciation calculations, is $88. As a result, more of their dividends are sheltered than yours would have been if you had lived.

The taxation of partnerships is complex and sometimes counterintuitive. The important thing to know is that you should buy publicly traded partnerships only when you are in or near retirement, and you should cling to the shares. There is more on the tax theory here.

2. Collectibles. This category includes artwork, gold, and gold bullion funds (but not shares of gold mining companies). Long-term gains get taxed at a 28% rate, not the 15% or 20% rate that usually applies to stocks and bonds. So, other things (like the percentage gain in the asset) being equal, collectibles are things to keep and assets like stocks are things to sell.

3. Highly appreciated stock. If you are sitting on a ten-bagger, keep sitting on it if you can.

4. Roth money. Once you have paid the income tax on your IRA or 401(k), turning it into a Roth account, you and your heirs are home free for income taxes. Money compounds inside the account tax-free. Withdrawals are tax-free. You are under no obligation to withdraw from the account, and your heirs are entitled to the leisurely withdrawal schedule set out here.

All this makes a Roth a desirable asset. How desirable? That depends on your age, your heirs’ ages, your tax bracket and your tastes in investing. But in many cases you’d be better off dipping into a Roth for spending money than selling anything in categories 1 through 3 above.

Suppose you need to get your hands on $80,000 and your choice is between (a) selling Google shares that you bought long ago at ten cents on the dollar and (b) making an $80,000 withdrawal from the Roth account. If you are in a high tax bracket, option (a) might well compel you to sell $100,000 of shares in order to have $80,000 left after state and federal income taxes.

And let’s say you die not long after. Which would be more valuable to your heirs–$80,000 left in a Roth that would be sheltered from portfolio taxes, but not forever? Or a $100,000 stock position that could be reinvested in a diversified, tax-wise portfolio? For a lot of families, especially the ones that know how to minimize portfolio taxes, the $100,000 deal is the better one. Use option (b) to raise the $80,000.

5. Somewhat appreciated stock. Suppose you own Google shares that have merely doubled since you acquired them. They would be nice to have in an estate, but not as nice as a Roth account. Sell them before messing with that Roth.

6. Taxable IRAs. These are retirement accounts funded with previously untaxed contributions. The money might have come from deductible IRA contributions you made or from rollovers of pretax 401(k)s.

We’ll assume that you have already made any withdrawals from IRAs that you are compelled to make by dint of being 70-1/2 or older. The question is whether you pull out additional sums to cover bills. Sure, if you have exhausted assets in categories #8 and #9 below.

If you cash in a taxable IRA, you pay income tax on the money. If heirs cash it in, they pay. If you’re all in the same tax bracket, that’s a pretty much a tossup.

Except for one thing. Leaving the money in allows it to enjoy more years of tax-deferred compounding.

7. Bonds. If they have gone up at all since you bought them, it was probably only a little. These should be fairly close to the top of your sell list.

8. Cash.

9. Depreciated securities. If you bought a security for $30,000 that is now worth $18,000, sell it and claim a $12,000 capital loss deduction. Do this tomorrow. Do it even if you don’t need the cash.

You can get back into the same stock if you wait 31 days. If you are afraid the market will rebound while you are on the sidelines, use the loss-harvesting strategy described here.

Die with an underwater asset and the unrealized capital loss evaporates. This is the mirror image of the step-up rule. If assets are to get a step-up at death, then it’s fair they get a step-down, too.

You can use capital loss deductions to offset capital gains plus up to $3,000 a year of ordinary income. Unabsorbed losses are carried forward to future years. Absent gains, it will take you four years to put that $12,000 mistake to good use.

Alas, unused capital loss carryforwards suffer the same fate as unrealized capital losses when you die. They evaporate.

What if you bought the stock for $30,000, it’s now worth $18,000, and you are quite sure a $12,000 loss deduction will never do you a lick of good? (Example: You already have a giant loss carryforward and you are 90 years old.) Give the underwater stock to your granddaughter. She can’t claim your $12,000 loss, but in her hands the first $12,000 of price recovery is scot-free. She’ll have a taxable gain only to the extent she pockets more than $30,000.

Ireland Expands Double Tax Relief For High Earners

Ireland Expands Double Tax Relief For High Earners
By Amanda Banks,, London
08 September 2014

The Irish tax authority, the Revenue Commissioners, has released eBrief No. 75/14
on double tax relief for individuals subject to the High Earners Restriction, following changes in the Finance (No. 2) Act 2013.

The 2006 and 2007 Finance Acts introduced, with effect from January 1, 2007,
measures to limit the use of certain tax reliefs and exemptions (known as Specified
Reliefs) by high-income individuals. Changes introduced by the 2010 Finance Act
extended the Restriction, with effect from the tax year 2010, to ensure that
individuals who are fully subject to the Restriction pay an effective rate of income tax
of approximately 30 percent.

The measure works by limiting the total amount of specified reliefs that can be
by a high-income individual to a maximum amount each year. Relief that is disallowed for a tax year is added back to the individuals taxable income for the year to give a recalculated taxable income figure. The recalculated
taxable income amount is then taxed in accordance with normal income tax rates
and the individual is entitled to normal tax credits against the tax due.

The Restriction applies to an individual where all of the following three criteria

  • The Adjusted Income of an individual for the tax year is equal to or greater
    than an Income Threshold Amount which is, in general, EUR125,000 (USD161,700), but is
    less if the individual had ring-fenced income (deposit interest, for example);
  • The aggregate of specified reliefs that are used by the individual for the
    tax year is equal to or greater than a Relief Threshold Amount, which is set
    at EUR80,000; and
  • The aggregate of specified reliefs used by an individual for the tax year
    is greater than 20 percent of the individuals adjusted income.

The Finance (No. 2) Act 2013 amended how double tax relief is calculated for individuals who are subject to the Restriction. Prior to the passing of the Act, the Irish effective tax rate used for determining the amount of foreign tax which was to be relieved by credit was calculated before the application of the Restriction. In some cases, this meant that the tax relief given for foreign tax was not in line with the tax relief provided for by the double tax treaty.

The Brief states that, in granting double taxation relief in situations where the Restriction applies,
the effective rate which should be used when foreign income is being re-grossed
is calculated as tax (after application of the high earners restriction) over
adjusted income.

Before the amendment, the effective rate was calculated as tax (before application
of high earners restriction) over total income. The change will grant additional
relief in some cases, the Revenue said.

The change is retrospective and applies to claims to relief contained in tax
returns submitted on or after January 1, 2008. A taxpayer who is entitled to
a greater tax credit for double taxation under this provision than under the
pre-Finance (No. 2) Act 2013 provisions, may make a claim for repayment of tax.

For 2012 and previous years of assessment, Revenue Online Service (ROS) will not calculate the correct
double tax relief. Therefore, so that Revenue can assess if any such claim is a valid claim (under
section 865), each claim should be supported by calculations showing how the
revised claim to double taxation relief was arrived at, Revenue said.

Other changes to the regime in Finance (No. 2) Act 2013 included:

  • The specifying of capital allowances on plant and machinery claimed by a
    passive trader when leasing the plant and machinery to a manufacturing trade,
    as a relief to which the Restriction applies; and
  • Removing from the scope of the Restriction, investments in the Employment
    and Investment Incentive Scheme where the subscription for eligible shares
    was made after October 15, 2013, and before January 1, 2017.

Estate Planning 101: How Much Do You Have To Pass On?

We don’t like to think of our own death, but given its inevitability, sooner of later, we need to be ready to pass along our worldly goods to others. Having a good estate plan is key. One of the smartest advisors in this area is Elizabeth P. Anderson, CFA, the founder of Beekman Wealth Advisory, a boutique financial consultancy in New York. Here is the first of three parts of her advice on this crucial subject:

The decisions you make now about where your assets go after your death can affect people’s lives profoundly. This three-part article walks you through some of the basic issues involved with estate planning. This initial part is figuring out how much your estate is worth.

Most people avoid thinking about, let alone planning for, their death. And yet making arrangements can be a liberating experience. Relieving your families of the burden of having to do it for you is also a demonstration of consideration, kindness and love.

Estate-planning advice often revolves around the choice and creation of legal structures and documents, such as wills and trusts. Indeed, these are critical tasks and you should consult a knowledgeable trusts and estates attorney to get them done right. However, before determining which structures to use for your estate-planning goals, you first need to figure out exactly what those goals are.

The most basic estate-planning issues to address are 1) how much you can give, 2) who gets your assets and 3) when, either during your lifetime or after your death. These three issues are interactive. A change in one can affect the others and the outcome of the estate-planning process.

A few words of caution (and encouragement) before beginning: Estate planning is a complicated and highly personal endeavor, with many moving parts. It’s usually best to proceed methodically, breaking down the project into manageable steps and then completing one at a time.

First, how much can you give away? Figuring this number out requires a few steps and a little math.

1. Net worth = assets – liabilities

How much you have is your net worth — the total value of what you own, minus the total amount you owe to creditors. To determine your net worth, the first thing to do is to gather the most recent records of what you own and what you owe.

On the asset side (what you own), these records include bank statements, investment statements (such as from mutual fund accounts and retirement plans), trust assets and business interests. Appraisals of personal property if appropriate and estimates of the value of other tangible property, such as real estate, should also be included. On the liability side (what you owe), the relevant documents include credit card statement, mortgage statements, tax bills, student loan statements, business loan documentation, and any other evidence of indebtedness.

Once you have the documents collected, you create an organized listing of assets and liabilities. Your net worth is the amount by which your assets exceed your liabilities.

There are many net worth calculation tools available online for free. For example, Rutgers University provides a relatively complete and well-designed worksheet. Some calculators do the math for you.

One nuance to be aware of in calculating your net worth is contingent assets and liabilities. They are assets and liabilities that don’t yet exist, but likely will, given the passage of time or a specified event occurring. For example, life insurance is the most important contingent asset for most people planning their estates. The death benefit does not yet exist, obviously, when you calculate your own net worth, but you should include it when thinking about how much to leave.

2. Portfolio spending = total spending – earned income

Once you have your net worth calculated, and you know how much of a portfolio you have, the next step is to figure out how much of a portfolio you need to support your life. The first step in this calculation is to determine how much you spend.

This is another place an online tool works well. Many spending calculators are available with a simple Internet search. You enter your monthly or annual spending by category (housing, food, clothing, insurance, entertainment), and the calculator totals it up for you. Be sure to include an estimate for foreseeable, but lumpy, amounts, such as for home maintenance needs (new furnaces, new roofs).

Now that you have your total spending, the next step is to figure out how much of that spending needs to be funded by your portfolio. First, you add up all income, including wages, salaries, pension, Social Security benefits and alimony. Then, subtract your income from spending. This is the amount that you need to pull from your portfolio, or portfolio spending.

3. Required base = portfolio spending / sustainable spending rate

Next, calculate the size of the portfolio you need to support your spending. We call this your required base. You divide the portfolio spending amount by the sustainable spending rate.

The sustainable spending rate is the percentage of a portfolio that you can withdraw each year without diminishing the portfolio value. It is total investment return minus inflation and taxes. Most practitioners use a rate of 4% as a general guide, but this can vary from person to person.

Thus, if 4% is the sustainable target spending rate, and your spending needs from your portfolio are $100,000 per year, you need a portfolio of at least $2.5 million. If you spend more than 4%, or your starting portfolio is less $2.5 million, you diminish the value of your portfolio over time.

Armed with all of these numbers, you can now approximate the amount of your portfolio that you can give away during your lifetime without impairing the quality of your own life.

4. Asset surplus = net worth – required base

If your net worth exceeds your required base, this amount is your asset surplus. If your net worth is $4 million and your required base is $2.5 million, you can gift up to $1.5 million during your life. On the other hand, if you don’t have an asset surplus, you may not want to give away your assets while you are alive.

5. Income surplus = earned income – spending

Even if you don’t have an asset surplus, you may still have an income surplus. If your annual spending needs total $100,000, and your annual after-tax income is $125,000, you can give away up to $25,000 per year without disrupting your lifestyle.

If so, note that the government sets an amount one can give as a gift each year without incurring gift taxes. The Internal Revenue Service calls it the annual exclusion amount. This now is $14,000 per recipient in 2014. Consult your tax advisor or trusts and estates attorney about annual gifts exceeding this amount.

Warren Buffett’s Best Wealth-Building Advice for You

Warren Buffett has offered a lot of solid advice through the years. Some of it is summed up in simple one-liners from the myriad of speeches and interviews he has given over the years. However, some of his best advice is found in the pages of his annual shareholder letters, which are always filled with amazing words of wisdom. His 2012 letter in particular contained what I would consider his best wealth-building advice, as he hammered home his investing preference, which was to buy productive assets.

Surveying the field
In that letter, Buffett discussed the three types of wealth-building choices we can make. In a sense, these choices represent a ladder we need to climb in order to build lasting wealth.

Most of us who have a little extra money in our pockets start on that first rung by putting that money into currency-based investments. These investments include so-called safe investments like bank deposits, bonds, money market funds, and even mortgages. These investments appear safe because of the income we receive, however, after taxes and inflation, we barely break even, according to Buffett.