Under the proposed standard, the approach to impairment testing would now allow for a qualitative assessment (i.e. a “more likely than not” analysis) as part of determining whether it’s necessary to perform a quantitative test.  This simplified approach spells relief for privately held companies as many could avoid the need for the extra analyses that would be necessary with a mandatory quantitative assessment.  The proposal, issued by the FASB on January 26, 2012, will be out for comment until April 24, and would amend the existing standard, FASB ASC 350-30, General Intangibles Other then Goodwill.

by Eric Saunders

Posted on: May 17, 2012

Read more from the FASB

Download the Full Article

by James D. Wilkinson, CPA/CITP

Posted on: March 14, 2012

One decision you will face as a business owner is selecting the form of legal entity in which to conduct operations. While we’ll focus primarily on tax treatment in the discussion below, you’ll want input from a variety of perspectives – legal differences, insurance matters, investors and financing, etc. – so, be sure to get your team of advisors together when making this evaluation. Also, while this is an important decision, keep in mind that there is no one perfect entity type; so, if and when conditions change, your entity choice can be amended. Your goal is to make the most appropriate choice based on what you know today and conditions you expect over the next three to five years.

Download the Full Article

by James D. Wilkinson, CPA/CITP

Posted on: February 1, 2012

Volatility was the operative word during the fourth quarter and full-year 2011.  After a very rough Q3 in which the S&P 500 declined -13.5%, the index began Q4 by touching the year’s low of 1,099 on the very first trading day.  Investors were very discouraged at that point, as the fourth quarter appeared poised to deliver more pain.  Yet on October 4^th the S&P 500 began a strong rally that took the index up 14.4% from that date through the end of the year.  This allowed the index to return to slightly positive territory for the full year.  It is interesting to note that after all the volatility of 2011, the S&P 500 index ended the year absolutely flat in price before dividends, a feat that very rarely occurs.

The Dow Jones Industrial average was up 8.4% for the year, leading the equity markets.  The Dow is characterized by high quality, dividend-paying U.S. stocks, a positive investment theme that we have reiterated throughout the year. (Our Braver Dividend Income equity portfolio returned 9.9% for the full year.)  As you can see in the chart below, higher quality, large U.S. equities outperformed their small company and international brethren.  As a result, any diversification outside of large caps and outside of the U.S. hurt equity portfolio performance relative to the S&P 500 index and the Dow Jones average.  Earlier in 2011, our investment team shifted an overweight in our Asset Allocation portfolios from mid/small cap to large cap which benefited our investors as the year progressed.  Our reduced allocation to international markets, especially emerging markets, also positively impacted portfolio results for 2011.

_{This chart is shown for illustrative purposes only and does not represent the performance of any specific security. Past performance cannot guarantee future results. It is not possible to invest directly in an index. Returns are for the periods ended December 31, 2011. The returns include dividends, except for the Nasdaq Composite, whose return is principal only.}

2011 Recap – Fixed Income Markets

Bond markets posted another surprisingly strong year in 2011, continuing the trend of the past ten years with bonds outpacing equities. Monetary policy around the globe remained very accommodative with virtually all central banks holding interest rates exceptionally low to spur economic demand.  This stable/falling interest rate environment and lower than expected default rates allowed bonds to deliver their coupon yields plus modest price appreciation for the year.

_{This chart is shown for illustrative purposes only and does not represent the performance of any specific security. Past performance cannot guarantee future results. It is not possible to invest directly in an index. Returns are for the periods ended December 31, 2011.}

Municipal bonds led U.S. fixed income market returns, posting a 10.7% return as measured by the Barclays Capital Municipal Bond index.  This surprisingly strong return was due to lower credit risk than had been anticipated by the fixed income markets.  Investors may recall that on December 19^th of 2010, a high profile analyst, Meredith Whitney, appeared on 60 Minutes and forecasted doomsday for municipal bonds as she expected large defaults in 2011.  Municipal bonds sold off in December of 2010 and ended that year with fairly low prices.  As the U.S. economy stabilized and defaults did not materialize, municipal bond prices rebounded from their December 2010 lows and finished 2011 with outsized returns.  This appreciation is unlikely to repeat itself in the coming year and we remain generally cautious on all fixed income for 2012.

The U.S. Economic Outlook

Despite all of the media negativity and investor anxiety, the U.S. economy showed great resilience in 2011.  Underneath all of the downbeat political and financial headlines is a slowly improving domestic economy based on a number of economic factors.  We continue to be cautiously constructive on a slow and gradual U.S. economic recovery and favor U.S. investment over international as the U.S. is further along in the deleveraging and recapitalization process.  In addition, given the current financial turmoil in Europe and some cracks emerging in China’s housing market, the U.S. has regained its previous ‘safe haven’ investment status which bodes well for domestic investment.

Although U.S. GDP growth continues to be weak at just under 2% (as of the third quarter of 2011), it is likely that the fourth quarter came in above that due to renewed consumer spending and confidence.  As we head into 2012, a slow 2-3% growth rate is expected in the U.S. as the world continues to wrestle with deleveraging.

Exhibit 2 below shows that the critical U.S. banking system continues to stabilize and recover from the depths of 2008/2009.  The financial “stress index” has begun to normalize near zero.  At the same time, bank loans are on a sharp upswing which is essential for economic growth.  The Federal Reserve can print vast amounts of money, but if the banks don’t lend, the money sits idle.  As bank lending continues to improve so should the velocity of money (the speed of money flowing through the economy).  Low velocity has been a major restraint to economic recovery, and as we head into 2012, we are hopeful that we will see further improvements in bank lending.

An interesting conundrum that banks face arises from the very low interest rate environment and the relatively flat yield curve that currently exists in the bond market.  This flat yield curve is not very conducive to stimulating bank lending as the banks have a reduced incentive.  It is my opinion that a modestly steeper interest rate curve (higher long term rates) would be beneficial to the economy.  Banks can take advantage of the interest rate spread (the difference between what rate they borrow from the government and then lend to the consumer/business) and therefore will be more inclined to take on additional risk as their reward would be higher.  Currently, their net interest margin is at historic lows and this hurts both loan growth and bank profitability.


The important housing market appears to have stabilized with housing starts flattening and construction hours on the rise.  This is likely to continue to be a long and arduous process as too many houses remain in inventory waiting to be sold.  The first step was to stop the dramatic slide and that process appears well in place as we head into 2012.

Finally, interest rates remain very accommodative in the U.S. and around the globe.  Inflation is tame allowing the Federal Reserve to keep its foot on the gas to help stimulate economic demand.  As depicted in the green chart below, inflation is starting to pick up a bit and is tracking closer to 4%.  We will have to watch this closely as the virtually zero interest rate environment cannot persist indefinitely.  Eventually, the Federal Reserve Bank is likely to begin to normalize interest rates by raising the discount rate.  Inflation is a key variable here as the Fed can move more slowly as long as inflation remains low.  We will be watching this closely in 2012.

2012 Outlook

The economic and financial market environment is likely to remain volatile in 2012 as political and financial issues abound.  Amid the continued uncertainty, we continue to advocate that investors control portfolio risk through tactical wealth preservation strategies.  These conservative strategies can sometimes be frustrating when the markets advance strongly but they are absolutely critical portfolio diversification tools as was demonstrated in recent tough market environments.

Given the backdrop of a slow but improving U.S. economy, we remain positive on high quality, U.S. equity investments.  Low interest rates, a supportive Federal Reserve, an improving economy and strong earnings have historically been a positive backdrop for equity investors.  We favor high quality dividend paying equities over fixed income as we head into 2012.  The international economies must continue to deleverage, beginning with Europe, and for this reason we expect to remain underweight international developed markets relative to the U.S.  In the emerging market arena, China is walking a fine line between attempting to cool an over-heated housing market and inflationary worries, while still being the driver of global growth.  China’s situation continues to weigh on emerging market investments but the category’s underperformance in 2011 brought lower valuations so further weakness could lead to a good opportunity to build positions.  For now, we remain overweight large U.S. equities similar to 2011 and underweight the riskier small/mid cap and international markets.

On the fixed income front, it is difficult to project positive results.   Interest rates remain historically low and although these low rates may persist through 2012, this picture can change rather suddenly for investors.   I perceive that we are on borrowed time and we are cautious on traditional fixed income holdings.  It is still prudent to own fixed income for stability and income but investors must recognize that the interest rate risk over the coming years is very high.  If interest rates were to begin to normalize at higher levels, existing bond holdings will be negatively impacted.  Due to this risk of rising rates, we will remain short in maturity (duration) in our bond positions and will overweight asset classes like floating rate securities whose yields will rise with rising interest rates.  In addition, we favor High Yield bonds as credit quality is on the rise with balance sheet and cash flow improvements across corporate America.   These fundamental improvements across U.S. businesses should bode well for High Yield bond performance.

A Few Wild Cards in 2012 to Keep Us on Our Toes

1. Europe’s sovereign debt problem is a major factor this year.  The chart below, created with data from the European Central Bank and the Washington Post, depicts the scale of its debt issues.  The green bars show countries’ debt-to GDP ratios in 2000; the blue lines are 2010.  At this point, the lowest debt-to-GDP ratio of just over 60% belongs to Spain.

European banks hold a great deal of the sovereign debt of these troubled countries.  As an example, the map above shows the large exposure of France and Germany’s banks to risky Greek debt.

2. China’s real estate market is showing signs of a bubble (based on residential housing investment as a share of GDP) and their leaders are trying to engineer a soft landing.  They are aiming for continued solid GDP growth while tempering inflation and slowly taking the air out of the possible real estate bubble.  This is a critical component to watch in 2012 as China has been one of the world’s major growth engines over the past few years.  We are cautious on emerging markets and will be watching China closely in 2012.

_{Source:  Derek Thompson, the Atlantic.}

3. A Presidential Election – This is certainly a wild card as we approach next summer when the electoral debates will become heated.  The headlines and the potential ramifications of the November elections are likely to create volatility.

Summary

It has been nearly four years since the financial crisis began in 2008. Many issues still exist but slow improvement continues to be the modus operandi.  A real recovery with strong growth is unlikely to materialize until some definitive resolution comes out of Europe.   Its debt issues will continue to crimp global growth and restrain domestic demand.   If a resolution appears evident, investors can increase risk and growth expectations.  In the meantime, we continue to encourage high quality domestic investment with tactical wealth preservation strategies utilized for downside risk management.

Braver Wealth Management News

2011 was another strong year for Braver Wealth Management as we experienced growth of approximately 20% in our assets under management.  To support this growth, we built our team by adding Mary Konetzny (now Mary Hoey – Congratulations Mary!), Bob Lepson and Ted Welsh.  In addition, we formed a separate division, Braver Capital Management, which focuses on institutional and sub-advisory investment management opportunities as other advisors have expressed interest in using our investment capabilities for their clients.

As we head into 2012, we hope to continue our healthy growth while remaining focused on providing every client with consistently high service levels.  We thank you for your business, your referrals and all of your support over the past few years and we look forward to working with you in 2012 and beyond.

We wish you all a happy, healthy and prosperous 2012!

David J. D’Amico, CFA
President & Chief Market Strategist
_______________________________________________

With these two trends in place, none of us should be surprised that taxation of online sales is getting more and more attention in state legislatures around the country. What began in New York in 2008 has now escalated to half a dozen more states enacting laws to treat certain online sellers as taxable vendors. And at least another nine states have or will consider such legislation in 2011. This article will review the business arrangement that states are attacking, outline the provisions of the statues that most states are adopting, highlight new developments around this topic, and offer suggestions for how to advise clients that sell products online.

Download the Full Article

by Peter Harris, CPA

Posted on: January 12, 2012

The problems began right here in our own backyard and were fueled by political stalemate.  Our debt ceiling debacle at the start of August kicked off the global equity market malaise.  Ultimately, and as expected, the U.S. debt ceiling was raised but unfortunately no real progress was made towards solving the underlying problem – reining in budget deficits and our country’s out of control debt service.   Perhaps we can take comfort as the  ‘Super Committee’ was formed to take a closer look at austerity measures.   Hopefully the politicians on both sides of the aisle can finally put country ahead of party and agree on substantial long term measures to put our great nation back on the path towards fiscal prudence.  

It did not take long for our debt uncertainties to jump across the Atlantic.  If you thought our problems were big, multiply them by 27 – the number of member nations constituting the European Union.   One has to wonder how the EU, with such vast political and economic viewpoints, moves in unison to rescue Greece, Italy, Spain, etc. and ultimately the Euro.  The viability of the Euro is certainly in question as this debate rages on.  Strong, decisive actions are required to stem the contagion while removing the current overwhelming uncertainty.

Gross Domestic Product (GDP) Growth Expectations Ratcheted Down

The debt issues have been well publicized but the underlying problem for the capital markets was the dramatic reduction in economic growth expectations caused in large part by the uncertainty, both financial and political, around the debt debates.  As Washington wrangled, consumers and businesses stalled purchase or investment decisions and our economic growth slowed materially.  What was once widely expected to be a robust second half with domestic GDP growth estimated to come in around 3.5%, is now anticipated to be near zero with many strategists warning of a ‘double-dip’ recession.  The chart below shows the reduced consensus and Goldman Sachs GDP growth expectations.  These lowered expectations were priced into the equity markets in a swift manner as witnessed by the negative performance numbers from the third quarter. 

Note the dramatic slowdown in GDP growth forecasts for the second half of 2011 from Goldman Sachs.  Future growth forecasts are for slow but positive growth… We agree and this is likely priced into the equity markets given the pullback in Q3.  But you can see on the following page that it is nowhere near the slowdown of 2008/2009!

Has the Pessimism Pendulum Swung Too Far?

It is difficult for market strategists to look out around the world today and see many positive factors, let alone have the courage to speak out if they find a rare nugget of hope.  The mountains of debt around the globe are daunting and a cohesive plan from either Washington or the EU remains elusive.  Despite these uncertainties, our view has been that another U.S. recession would be avoided and that a prolonged period of slow growth is likely as the world economies suffer through the consumer and public debt deleveraging process. (Corporations remain in very strong financial health as we have written about in the past – a strong ray of sunshine in an otherwise very cloudy forecast!)   Although Europe may be experiencing its version of the U.S. 2008 crisis, our economy is in far better condition than it was back in 2008.   Housing is stable and markets are slowly working through the large inventory overhang.  Unemployment continues to stubbornly hover around the 9% level but it too has shown a stable to positive trend.  Inflation remains tame, allowing the Fed to continue its low interest rate policies to support the economy.  Despite the persistent negative headlines, bank balance sheets are dramatically improved from 2008 levels.  Although bad loans and the housing market will continue to stay in the headlines, the majority of debt reserves have been taken and bank profitability is on the rise while poor lending and business practices have ceased.  Consumers are actually living within their means while local and federal governments appear to finally be making difficult choices.  We certainly have our work cut out for us, but we are in far better shape than we were in 2008!

During the current recapitalization process, we favor domestic investment over international given the U.S.’s head start in restructuring.  In a slow growth environment, we favor large companies over small and we continue to place an emphasis on dividends.  In fact, dividend income large U.S. equities present an interesting opportunity for investors, especially income oriented investors, as valuations remain very low and dividend yields relative to the yield on the 10-Year Treasury bond are the most attractive they have been since the 1950’s!  (See charts below).  Traditional fixed income has been underweighted in our portfolios given the paltry yields on bonds and the likelihood of inflation in our future.

On a historical basis, relative to Treasuries, equities are offering very attractive yields…

…while S&P stock valuations forward P/E ratio is near the lows of 2008 presenting potential opportunities.

The Third Quarter was Even a Challenge for our Tactical, Wealth Preservation, Computer Models

Our investment team continues to remain disciplined.  The models are performing admirably given the market challenges but no strategy is immune to the extreme volatility witnessed in the third quarter.    Our models tend to perform exceptionally well when there are definable market trends (either up or down.)  Our models can be challenged when trends appear and then quickly reverse.  We witnessed this type of action in the third quarter.   Our Diversified Asset and Tactical Allocation models performed well in preserving wealth for investors yet losing -6.7% and -8.5% respectively in the quarter.  Our normally defensive High Yield Bond strategy had a difficult trade as our model gave a buy signal a few weeks prior to the debt ceiling deadline.  Trends were moving positively as expectations were for a deal to be struck.  However, as the deal was delayed investors took risk off the table and we finished the quarter down -4.9%, our largest quarterly loss ever in this program.  (For the year, High Yield is only slightly negative through September 30th).   

We are never happy with negative returns but relative to the equity markets, losses were stemmed in the third quarter.  We believe in our models’ ability to manage through difficult environments, affording investors protection from severe declines while providing an opportunity for appreciation during market advances.  Most importantly, your relationship managers have worked diligently to ensure that you are diversified across multiple Braver investment strategies.  We encourage all clients to remain disciplined to their overall investment program especially during difficult times.  Yet, if your life circumstances or risk tolerance changes, we recommend that you discuss this with your relationship manager to ensure your overall investment plan remains appropriate.

Braver Wealth Management News

As Braver Wealth Management continues to grow and add new clients, we remain very focused on personal service and attention to clients.  To ensure this continues, we hired a new senior relationship manager in September.  Robert Lepson, CFP joined our team from Fidelity Investments where he spent the last 11 years as a senior consultant.  Bob has been in the investment management and financial planning business for over 20 years and brings to Braver a wealth of financial planning and relationship management expertise.  Please join us in welcoming Bob by saying hello during your next visit. 

Our High Yield Bond and Diversified Asset strategies continue to win awards from PSN Informa and Lipper.  The strength and track record of our tactical wealth preservation strategies has presented a new growth opportunity.  We recently formed Braver Capital Management which will focus exclusively on institutions (endowments, foundations, pension plans, etc.) and sub-advising for other investment advisors, brokers and financial planners.   Our strategies offering downside market protection and risk control are in strong demand in the institutional marketplace.  In order to avoid impacting our current client service team, we are hiring a new business officer to focus exclusively on building Braver Capital Management.

As always, please contact us with any questions that you may have.

Sincerely,

David J. D’Amico, CFA
President & Chief Market Strategist

_______________________________________________

Read Article ….

http://www.fa-mag.com/online-extras/8805-deadline-nears-for-roth-ira-do-over.html

Form 1099-MISC is an informational return used to report certain payments made in the course of a trade or business.

Under the old Form 1099-MISC rules if a business paid more than $600 in non-employee compensation, prizes or rent to any non-corporate entity during the year, the business was required to send that person or business a 1099-MISC. For example, if a business paid more than $600 during a calendar year to an independent contractor for services, the business must issue the contractor a Form 1099-MISC and furnish a copy to the IRS. Form 1099-MISC were also required for smaller payments such as at least $10 in royalties and at least $10 to a broker in lieu of dividends or tax-exempt interest.

The Small Business Jobs Act and the Patient Protection and Affordable Act in 2010 expanded the 1099 reporting requirements.

The Small Business Act included a provision requiring that individuals who receive rental income issue 1099-MISC forms to service providers for payments aggregating $600 or more during the year. For example, if you owned rental real estate and paid an individual $600 or more during the year to paint a rental property then you were required to report and issue a 1099-MISC to that individual.

The Patient Protection and Affordable Act contained two changes to 1099 reporting. The first change was to include payments to corporations. The second change was to include amounts paid to a single payee for property such as merchandise, raw materials and equipment.

For example, if a business spent $700 at an office supply store, it would have had to issue a 1099 to the office supply store. Just think of all the forms you would have to prepare and file. Payments that were greater than $600 were required to be reported on a 1099-MISC.

These two changes were enacted to generate income for the government. The IRS estimates that billions of dollars in tax revenue goes unreported each year and changing the 1099 reporting requirements would be one way to establish a paper trail and to hopefully close the tax gap.

The good new is that on April 14, 2011, President Obama signed the Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011 (HR 4; 1099 Act), which repeals both the expanded Form 1099 information reporting requirements mandated by last years health care legislation and also the 1099 reporting requirements imposed on taxpayers who receive rental income enacted as part of last year’s Small Business Jobs Act.

As a result of the repeal, payments to corporations and payments made for purchase of property (merchandise, raw materials, and equipment) generally do not have to be reported.  Landlords with activities that amount to a trade or business continue to be required to report payments of $600 or more to service providers.

So today we are back to the old rules. A 1099-MISC is required when payments are made in the course of a trade or business. Non profit organizations are considered to be engaged in a trade or business and subject to the same reporting requirements.

A payer is engaged in a trade or business if it is operating for profit. A payer must file Form 1099-MISC once it pays a recipient.
• at least $10 in royalties,
• at least $10 to a broker in lieu of dividends or tax-exempt interest,
• $600 in rents,
• $600 for services, including parts and materials, purchased from someone in a trade or business,
• $600 in prizes and awards,
• $600 in other income payments,
• $600 in medical and health care payments,
• $600 in crop insurance proceeds,
• $600 in cash payments for fish or other aquatic life purchased from someone in the trade or business of fishing,
• $600 in cash paid to an individual, partnership or estate from a notional principal contract,
 any fishing boat proceeds,
• $600 in gross proceeds to an attorney.

Form 1099-MISC is also used to report direct sales of $5,000 or more of wholesale customer products to a buyer without a permanent retail store.
When a Form 1099-MISC is required, it must report:

• Total amount paid for the calendar year
• The name and address of the payee
• The taxpayer ID number (TIN) of the payee
• Contact information for the payer
• The payer’s TIN

If a 1099-MISC is required we recommend having the payee complete IRS Form W-9 before payment is made. Form W-9 will gather the required information needed to prepare 1099-MISC.

Failure to file 1099-MISC could result in penalties from the IRS. Penalties range from $30 to $100 per form not completed timely and correctly. If you are found to have intentionally disregarded the forms, the penalty is $250 per form and there is no maximum penalty.

Based on recent case law and IRS guidance, some taxpayers may have unfortunately capitalized costs that could have been deducted as repairs.
Over the past few years there has been a significant increase in real estate (and other property) owners filing an application for a change in accounting to allow for expense reclassification. Consequently, the IRS recently released an Audit Technique Guide to assist examiners in determining whether certain expenditures are deductible as repairs/maintenance expenditures or whether they should be capitalized. This guide is an important tool because it offers detailed insight into the thought process applied by the IRS should you be selected for an examination.

An example of applying recent case law and IRS guidance is as follows: A restaurant does a renovation in 2005 to reconfigure its layout to provide better service and to make cosmetic alterations to keep the restaurant attractive to customers. The renovations cost say $250,000 and have been capitalized. Since five years have passed there is still approximately$ 218,000 of un-depreciated basis. The restaurant could continue to depreciate the cost over the remaining 34 years or it could change its accounting method and deduct the remaining $218,000 in the year of change. (Specifically, section 1.162-4 provides that ‘the cost of incidental repairs which neither materially add to the value of the property nor appreciably prolong its life, but keeps it in an ordinary efficient operating condition, may be deducted as an expense…”

Even with the guidance outlined in the guide, there are no firm positions that might be used to resolve controversy. For example, if the restaurant owners had acquired a new building that was run down and spent money to bring the building in line with other restaurants, this would be a capital improvement. If the restaurant had owned the building for many years and was restoring the restaurant to condition at the time building was first acquired, then it would be a repair.

Although the guide does not provide specific definitions, it does offer factors to be considered when concluding on some of the major technical issues and does provide guidelines and insight for what to prepare for on examination. If you have or are considering a change in accounting methods to reclassify capital expenditures please contact Braver to explore the opportunity.

Capitalization v Repairs Audit Technique Guide

Published on: September 7, 2011

Update- March 1, 2012

With the December 2011 release of temporary and proposed regulations regarding the issue of repair expenditures, some of the statements mentioned above may no longer be valid.  An update to this article with more current analysis is planned. 

Posted on: August 2, 2011