Synergy Financial Group

Your Personal CFO

January 2007

Synergy Financial Group

George Van Dyke
401 Washington Ave #703 Look at What's New for 2007
Towson, MD 21204
410-825-3200 Every new year offers some surprises, and nonprofits, and businesses when they file their
gvandyke@[Link] 2007 is no exception. Here's a look at some of 2006 income tax returns.
[Link] the changes--big and small--that may affect
your finances this year. Although this refund won't make you wealthy--
you'll be able to claim a refund only for excise
Medicare Part B premiums tied to income tax paid on long-distance service billed after
February 28, 2003, and before August 1,
Beginning in 2007, Medicare Part B premiums 2006--it will put a few extra dollars in
will be higher for beneficiaries with your pocket. If you don't want to pour
higher incomes. You'll pay an in- over old phone records to determine
come-related premium if your modi- the exact amount of tax you've paid,
fied adjusted gross income exceeds you can claim a standard refund
$80,000 if you're single, or $160,000 amount ranging from $30 to $60,
if you're married and file your taxes depending on how many exemptions
jointly. If you're already receiving you claim on your 2006 federal in-
Medicare and are among those af- come tax return. Nonprofits and busi-
fected, you should have already been nesses can either claim refunds of
notified by the Social Security Ad- the actual amount of excise tax paid
ministration. If you enroll in Medicare Part B or estimate their refunds using a formula.
this year, you can expect to be notified shortly
after enrolling in the program. Charitable contributions from IRAs allowed
Tax refunds can be split up If you're over 70½ and need to take required
minimum distributions from your IRA, you may
If you expect a federal income tax refund this benefit from a new rule that allows you to con-
year, here's a bit of good news. Taxpayers will tribute as much as $100,000 to a qualified
now be able to split a direct deposit tax refund charity directly from your IRA. These IRA dis-
into as many as three different accounts with tributions are tax free and satisfy minimum
three different financial institutions, making it distribution requirements. But if you want to
easier to put a tax refund to work toward sev- make a charitable contribution from IRA funds,
eral financial goals. Regular passbook sav- don't wait--this option is available only until the
In this issue: ings accounts, individual retirement arrange- end of 2007.
ments (IRAs), health savings accounts
Look at What's New for 2007
(HSAs), and Coverdell education savings ac- Charitable deductions need more
The Most (and Least) counts are among the potential savings op- documentation
Tax-Friendly States for tions. Of course, you'll need to check with
Individuals
your financial institution first to make sure it If you give cash to your favorite charity in
accepts direct deposit refunds--not all will. 2007, ask for a receipt. The IRS now requires
Successful Investors'
Strategies and How You Can And to make sure your refund is properly split, that you have a receipt or other written confir-
Apply Them you'll need to follow carefully the instructions mation for all cash contributions for which you
from the IRS and your financial institution. are claiming a deduction, not just for those
Ask the Experts exceeding $250. Bank records, such as can-
Refunds due for telephone excise tax paid celled checks, bank statements, or credit card
statements showing the transaction, can also
More than a century after it was introduced as be used as support. Supporting documents
a luxury tax on wealthier individuals, the fed- must show the name of the charity as well as
eral excise tax on long-distance telephone the date and amount of your contribution.
service has been discontinued. The IRS will
refund a portion of tax paid by individuals,
Page 2

The Most (and Least) Tax-Friendly States for Individuals

Your state of residence means little when it Best (and worst) sales tax states
comes to federal income tax, but makes all
the difference when it comes to the state and Currently, all states except Alaska, Delaware,
local taxes you pay. If your state is reaching Montana, New Hampshire, and Oregon collect
According to the too deeply into your pockets, you can always sales tax. Colorado has the lowest sales tax
U.S. Census move to greener pastures. Before you pack rate (2.9%), while California has the highest
Bureau, a net 1.4 your bags and call a mover, however, here (7.25%). Note, though, that some states also
million Americans are a few factors to consider. have local sales taxes.
moved from states Best (and worst) real property tax states
with income tax to Comparing states can be taxing
states with no There are as many state tax systems as there According to the Tax Foundation, the state
income tax between are … well, states. The 50 states and the Dis- with the lowest property tax per capita (for
April 1, 2000, and trict of Columbia raise revenue through a vari- 2005) is Alabama, followed by Arkansas. The
June 30, 2004. ety of taxes, including income tax, sales tax, state with the highest is New Jersey, followed
personal property taxes on real estate and by Connecticut. But be careful; property taxes
intangibles (e.g., stocks, bonds, notes, and are generally collected by local governments,
loans), inheritance and estate taxes, and ex- and can vary substantially within an individual
cise taxes on gas and cigarettes, among oth- state.
ers. A state may impose all or some of these The best states to retire in
taxes. Often, a state that doesn't impose one
type of tax will make up revenue by imposing If you're a retiree on a fixed income, you may
higher rates in other types. For an accurate be interested in states that provide special tax
comparison among the states, then, you need benefits to seniors. For example:
to know their total tax burdens. • Social Security income is completely ex-
Fortunately, you don't have to gather and ana- empted from income tax in 28 states
lyze this information yourself; the U.S. Census
• Pension income is fully or partially ex-
Bureau and the Tax Foundation, a nonparti-
empt in 33 states
san tax research group, have done it for you.
• Many states offer added exemptions,
The U.S. Census Bureau ranks states by total
standard deductions, and credits based
tax collections per capita (collections divided
on age
by population), listing (in order for 2005) Ver-
mont, Hawaii, and Wyoming with the highest • Some states offer property tax reductions
tax burdens, and South Dakota, New Hamp-
shire, and Texas with the lowest. The worst states to transfer wealth in
To find out how your If you're concerned about transfer taxes, here
state's tax burden The Tax Foundation ranks states by collec-
tions as a percentage of total income. The are the states to note:
ranks, go to
[Link] or highest are Maine (13.5%), New York • Connecticut, Louisiana, North Carolina,
[Link]. (12.9%), and Ohio (12%); the lowest are and Tennessee impose gift tax
org. Alaska (6.6%), New Hampshire (7.3%), and
Delaware (8.4%). • The District of Columbia, Illinois, Indiana,
Iowa, Kansas, Kentucky, Maine, Mary-
Best (and worst) income tax states land, Massachusetts, Minnesota, Ne-
That being said, state income tax still ac- braska, New Jersey, New York, North
counts for a large percentage of taxes paid. Carolina, Ohio, Oklahoma, Oregon,
So, you may consider yourself lucky if you live Pennsylvania, Rhode Island, South Caro-
in one of the seven no-income-tax states-- lina, Tennessee, Vermont, Virginia,
Alaska, Florida, Nevada, South Dakota, Washington, and Wisconsin collect inheri-
Texas, Washington, and Wyoming (New tance and/or estate tax
Hampshire and Tennessee impose income
• Kansas, Massachusetts, Nebraska, New
tax only on interest and dividends).
York, Vermont, Washington, and Wiscon-
The "worst" income tax states are Vermont, sin impose generation-skipping transfer
with a maximum rate of 9.5%, and California, tax
with a maximum rate of 9.3% (plus 1% for
For more state-specific information, see your
taxable income over $1 million).
tax professional.
Synergy Financial Group Page 3

Successful Investors' Strategies and How You Can Apply Them

For golfers looking to improve their game, it Use what you know; know what you buy
can be useful to watch Tiger Woods. In the
same way, investors can learn from acknowl- During his 13-year tenure at Fidelity Invest-
edged money masters. Though you may not ments' Magellan Fund, Peter Lynch was one
have their experience or resources, under- of the most successful mutual fund portfolio
standing the philosophies they use can help managers in history. He subsequently wrote
you develop your own investing approach. two best-selling books for individual investors.
If you want to follow Lynch's approach, stay
Think like an owner, not like a trader
on the alert for investing ideas drawn from
This philosophy is as commonsense as the your own experiences. His books contend that
investor who is famous for following it: Warren because of your job, your acquaintances, your
Buffett. Any list of successful investors in- shopping habits, your hobbies, or your geo-
cludes the chairman of Berkshire Hathaway, graphic location, you may be able to spot up-
and he's typically at the top of the list. The and-coming companies before they attract
Oracle of Omaha is well-known for his down- attention from Wall Street. However, simply
to-earth approach to sizing up investments. identifying a company you feel has great po-
tential is only the first step. Lynch did thor-
Buffett invests in businesses, not stocks, and ough research into a company's fundamentals
prefers those with consistent earning power and markets to decide whether it was just a
and little or no debt. He also looks at whether good idea or a good investment.
a company has an outstanding management
team. Buffett attaches little importance to the Lynch is a believer in finding unknown compa-
market's day-to-day fluctuations; he has been nies with the potential to become what he
quoted as saying that he wouldn't care if the called "ten-baggers" (companies that grow to Key investing
market shut down completely for several 10 times their original price), preferably busi- lessons
years. However, he does pay attention to nesses that are fairly easy to understand.
what he pays for a stock; as a value investor, • Minimize risk by
he may watch a company for years before Make sure the reward is worth the risk understanding
deciding to buy. And when he buys, he plans Perhaps the best-known bond fund what you're buying
to hang on to his investment for a long time. manager in the country, PIMCO's Bill Gross • Know why you're
makes sure that if he takes greater risk--for making a
Don't forget that markets can be irrational
example, by buying longer-term or emerging- particular
Like Buffett, George Soros feels markets can market bonds--the return he expects is high investment and
be irrational. However, rather than dismissing enough to justify that additional risk. If it isn't, what you want to
their ups and downs, the founder of the legen- he says, stick with lower returns from a more accomplish with it
dary Quantum Fund reliable investment. Because bonds have his- • Minimize your
made his reputation by torically returned less than stocks and there- losses, but
exploiting macroeco- fore suffer more from high inflation, he also recognize that no
nomic movements. He focuses on maximizing real return (an invest- investor is right
once made more than ment's return after inflation is taken into 100% of the time;
$1 billion overnight account). just make sure
when his hedge fund that you're
speculated on the de- Choose a sound strategy and stick to it
comfortable with
valuation of the British pound (he no longer Even though all these investors seem to have the risk you're
actively manages the fund). different approaches, in practice they're more taking and that the
Soros believes in capitalizing on investing similar than they might appear. Each of their potential reward is
bubbles that occur when investors feed off investing decisions has specific, well-thought- worth it
one another's emotions. He is known for mak- out reasons behind it. They rely on their own
ing big bets on global investments, attempting strategic thinking rather than blindly following
to profit from both upward and downward mar- market trends. And they understand their cho-
ket movements. Such a strategy can be tricky sen investing disciplines well enough to apply
for an individual investor to follow. However, them through good times and bad.
even a buy-and-hold investor should remem- Work with your financial professional to deter-
ber that market events may have as much to mine a strategy that matches your financial
do with investor psychology as with funda- goals, time horizon, and investing style.
mentals. Whether or not you apply Soros's
philosophy in the same way he does, that can
be a valuable lesson to remember.
 Ask the Experts

Is it too late to make an IRA contribution for 2006?

You can make an IRA con- traditional IRA unless your income is within
tribution for 2006 at any certain limits. And you can't contribute to a
time up until the due date traditional IRA at all after you reach age 70½.
for filing your federal in- You can contribute to a Roth IRA at any age,
come tax return for the but again only if your income falls within cer-
year. For most people, this will be April 16, tain limits.
2007. This deadline isn't affected by any ex-
tension you may receive to file your return. If you are eligible to make a deductible contri-
So, if you obtain an automatic six-month bution to a traditional IRA, keep in mind that
Synergy Financial Group
extension, you'll have additional time to file you can file your 2006 tax return claiming the
George Van Dyke
your tax return, but you won't have any addi- deduction before you actually make your con-
401 Washington Ave #703
tional time to make an IRA contribution. tribution. Just be sure you meet the April 16
Towson, MD 21204 contribution deadline.
410-825-3200 If you do make a contribution in 2007 for
gvandyke@[Link]
2006, make sure you tell your IRA trustee (or You can contribute up to $4,000 to an IRA
[Link] custodian) that the contribution is being made (traditional, Roth, or combination of the two)
for the prior year. Otherwise, the trustee may for 2006 ($5,000 if you were age 50 or older
Linsco/Private Ledger Member assume that the contribution is for 2007 (the by the end of 2006). You may also be able to
NASD/SIPC
year in which it's received) and report it as contribute up to $4,000 to an IRA for 2006 in
such. your spouse's name ($5,000 if your spouse is
age 50 or older), even if he or she had little or
Also, before you make a contribution, be sure no taxable compensation for the year.
you're eligible. Remember that if you're cov-
ered by an employer retirement plan, you may If you haven't yet made your IRA contribution
not be able to deduct your contributions to a for 2006, why not do it now?

How do I undo my 2006 Roth IRA conversion?

So you converted your traditional IRA to a than one financial institution is involved,
Roth IRA in 2006, and now you've determined you must notify both financial institutions--
that the conversion no longer makes good tax the one servicing your present Roth IRA
sense, or that you were ineligible to make the and the one that will accept the recharac-
conversion in the first place. What do you do? terized funds. You must provide the notice
You may be able to reverse ("recharacterize") on or before the date the assets are trans-
your conversion. When you recharacterize a ferred back to the traditional IRA.
Roth conversion, it's as though the conversion
never occurred, and the funds are treated as 3. Meet all applicable deadlines. The dead-
having never left your traditional IRA. line for recharacterizing a Roth IRA con-
version is the due date for your 2006 fed-
Generally, to undo a Roth IRA conversion, eral income tax return, including exten-
you'll need to take the following steps: sions. So, if you file for an automatic ex-
tension to October 15, 2007, you also
1. Identify the traditional IRA that will "take have until then to recharacterize your 2006
back" the recharacterized contribution conversion. (A special procedure applies if
(plus any earnings allocated to the contri- you file your tax return by April 16, and
bution) in a trustee-to-trustee transfer. This then later decide to recharacterize.)
can be the same traditional IRA you con-
verted from, or a new IRA. 4. Report the recharacterization by attaching
Form 8606 to your 2006 tax return.
2. Notify the financial institution that you in-
Copyright 2006 Forefield Inc. tend to recharacterize your contribution. Failure to comply with all the technical re-
All Rights Reserved. Your financial institution should have a quirements for a recharacterization can have
specific form for this that contains all the serious tax consequences, so be sure to ask
information required by the IRS. If more your financial professional for assistance.