In the gem world, garnets are known for their luminosity — especially relative to their size. According to legend, the stone is associated with prosperity, consistency and perseverance. In this and every issue, we will bring you information and news about that which touches your financial life.
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The Garnet Group Team
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New Tax Laws
Kiddie Tax Expanded
In May, the President signed the U.S. Troop Readiness, Veterans’ Care, Katrina Recovery, and Iraq Accountability Appropriations Act of 2007. Included in the act are changes to the rules governing the taxation of dependent children and tip income, expense deductions for small businesses, tax credits for hiring veterans, joint ventures between spouses, and SubChapter S provisions along with a handful of other minor provisions.
Of greatest significance to Garnet clients is the change in the “Kiddie Tax” — rules governing the taxation of unearned income for dependent children. Currently, children over 18 are taxed at their own marginal rate for unearned income — including capital gains. This has given us the opportunity to help clients fund college tuition by transferring appreciated securities to their students, who can then sell the securities and usually pay only 5% capital gains tax rather than the 15% their parents would owe on the same gain.
Beginning in 2008, children who are full-time students over age 18 but under age 24 will be subject to the Kiddie Tax, meaning their unearned income is taxed at their parents' marginal tax rate. Children with earned income (salary and wages) in excess of 50% of their unearned income are exempt from the “Kiddie Tax.”
Since the change takes effect next year, clients with college age children can still gift appreciated securities this year and take advantage of the 10% capital gains break their children may receive. Going forward we'll encourage some parents and grandparents to continue or consider using low cost section 529 college savings accounts which allow tax free growth of funds targeted to qualified college expenses. For others, saving for college in their own names rather than using custodial accounts may be the way to go.
Contact your Garnet advisor if you’d like to discuss college savings strategies as a part of your coordinated financial planning.
Learn more about Garnet’s Services.
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Market Analysis
Strong First Half for Equities
After a weak first quarter, stocks around the world surged in the second quarter. Domestically, larger companies outperformed smaller, and growth is now ahead of value for the year to date. International stocks had another strong quarter and out-returned the U.S. market again. The overall U.S. stock market was up a bit over 7% for the first half, while international stocks gained almost 12%. The broad bond market has been weak in 2007, gaining less than 1%. The markets have been volatile. So far, in 2007 investors have vacillated between fears of economic weakness (driven by the housing market) and hopes of strength (driven by the buyout boom and a strong global economy).
While we don't believe in market timing or in significant changes in our sector allocations, we pay attention to relative value analysis of asset classes conducted by market experts. The market experts we follow believe that large US companies are likely to continue to provide market leadership. In addition, their analysis shows no sector that appears to be significantly undervalued. This suggests that, most asset classes are likely to deliver historically average returns over the next several years. As always, we advocate choosing and sticking with an asset allocation that fits your financial plan as well as your risk preferences.
Learn more about Garnet Group’s Investment Approach.
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Garnet in the News
Garnet has been listed in two recent surveys of top financial advisory firms:
Financial Advisor Magazine — July 2007
In a survey of Registered Investment Advisors conducted earlier this year, Garnet was one of the three fastest growing firms in its size category and Annette was featured in the accompanying story.
Wealth Manager Magazine — July 2007
Garnet jumped into the top 100 of this journal’s annual ranking of Top Advisory Firms.
Visit GARNET IN THE NEWS and link to the complete articles.
Garnet Group is a Registered Investment Advisor with the Securities and Exchange Commission.
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