One Way to Beat the Tax Man

One Way to Beat the Tax Man

Shining a Light on Munis

If you live in the right state, munis can triple your tax exemption.

Municipal bonds have long worn a veil of obscurity. But they are becoming friendlier to small investors, thanks in part to rule changes by the Securities and Exchange Commission.

These rules require muni bond underwriters to keep small investors well informed about financial factors that might affect the issuers’ credit rating by providing them with annual financial reports and disclosing all important information regarding muni bonds.

At the same time, the Public Securities Association, a trade group in New York, with the Standard & Poor’s Corp made it easier for small investors to get the best muni’s bond prices available with two services on the market.

The first is the PSA/Bloomberg National Municipal Bond Yields, a yield scale that publishes in many media across the country. The second is the Standard & Poor’s/PSA Municipal Bond Service, a toll-free hotline that provides the transaction prices (or an evaluation of the prices from Standard & Poor’s Corp) and the yields of muni bonds.

For investors grappling with high tax rates, municipal bonds may be a way to make tax time less painful. Munitipal bonds, or munis, are debt obligations issued by city, state, and local governments. The appeal of munis is that interest income is exempt from federal taxes, making them one of the few tax shelters around. Better yet, taxpayers in some localities can get even more tax breaks from buying munis issued by their home states.

Tax rules vary from state to state, so it’s wise to find out about local laws. Residents of high-tax states, may do well to allocate a good portion of their municipal investments to munis sold by their home state. The benefits of doing so include a double and sometimes triple tax exemption. For resisdents of some other states, it’s a wash, since most of in-state bonds are taxed the same as out-of-state bonds. In a few states, municipal-bond interest is tax-free, regardless of where the bonds were issued.

Who can beat a tax man? Photo by Elena

And residents of low or no-tax states would be better off putting their money into a more diversified portfolio of quality bonds.

Municipal bonds are sold by brokers and require a $5,000 minimum investment. One way to get around this is to invest in a municipal bond mutual fund. There are nearly 1,000 muni funds, including 700 or so single-state funds, according to research firms that track mutual funds. Muni bond funds carry another important plus: They are less risky because they offer geographic diversity.

A few caveats: Munis often have higher transaction costs than Treasuries, driving down their effective yields. When shopping for muni bonds, check the credit quality, that is, the strength of the cash flow used to meet principal and interest payments. Your fund’s bonds should have an average credit quality of A or better from one of the major rating agencies. High-quality bonds hold up better during bad times.

Two ways to find more about mysterious municipal funds

Municipal funds have long worn a veil of obscurity. But they are becoming friendlier to small investors, thanks in part to rule changes by the Securities and Exchange Commission.

These rules require muni bond underwriters to keep small investors well informed about financial factors that might affect the issuers’ credit rating by providing them with annual financial reports and disclosing all important information regarding muni bonds.

At the same time, the Public Securities Association, a trade group in New York, is working with the Standard & Poor ‘s Corp. to make it easier for small investors to get the best muni’s bond prices available with these services: the PSA/Bloomberg National Municipal Bond Yields, a yield scale that is published regularly. The second is the Standard & Poor’s/PSA Municipal Bond Service, a tall-free hotline that provides the transaction prices (or an evaluation of the prices from Standard & Poor’s Corp.) and the yields of muni bonds.

Republican Revolution

The Republican Revolution

(Historical review)

The Republicans currently hold 54 seats in the U.S. Senate; the Democrats, 46. In ’96, 33 seats are up for grabs. Of those, 15 are currently held by Democrats. Four of the Democratic seats are considered toss-ups, with an additional nine seats in varying degrees of jeopardy. Of the 18 Republican seats up for grabs, on the other hand, 11 seem sure to remain in Republican hands. Elizabeth Wilner, managing editor of The Cook Political Report, a respected politician newsletter, for a state-by-state assessment of the ’96 races.

Alabama: Democrat Howell Heflin, who won 61 percent of the vote in 1990, is retiring. With the South becoming ever more conservative, Democrats will have a hard time holding on.

Alaska: Four-term incumbent Ted Stevens won two-thirds of the vote in 1990 and is expected to win again in 1996.

Arkansas: Democrat David Pryor, who ran unopposed in his last election, is stepping down. But the set is likely to stay Democratic.

Colorado: The only open Republican seat in 1996 with the retirement of Hank Brown. The state’s junior senator, Ben Nighthorse Campbell, recently jumped parties to the GOP. The Democrats’ chance of picking up this seat depends on whether they can field a candidate with statewide name recognition.

Delaware: Three-termer Joseph Biden won his last race by a comfortable 63 percent and is going into election season as one of only two Democratic senators considered a safe bet for reelection (The other: Jay Rockefeller of West Viriginia.)

Georgia: Sam Nunn was unopposed in 1990, but he is likely to face a wide field which could become still wider if he is fact retires, as some have speculated he will.

Idaho: Larry Craig, a solid Republican seat, incumbent Craig is expected to win easily.

Illinois : With the retirement of Democrat Paul Simon, this is one of the biggest battlefields of ’96. Illinois has been following the more rightward tilt of the rest of the country. The state’s junior senator, Carol Moseley Braun, is the only African American in the Senate.

Iowa: Tom Harkin is likely to keep his seat. Complacent Democrats might be wise to take note: Harkin, who won his last election with 54 percent of the vote, is the only Democrat left in the state’s congressional delegation.

Kansas: Nancy Kassebaum, the daughter of 1936 Republican presidential nominee Alf Landon, Kussebaum is a shoo-in, she garnered 74 percent of the votes in her 1990 race.

Kentucky: Mitch McConnell won 52 percent of the vote in 1990 and should retain his seat.

Louisiana: Democrat Bennett Johnston is retiring. The race to succeed him is a toss-up. Still, Louisiana, like the rest of the South, is becoming more Republican.

Massachusetts: John Kerry won 57 percent of the vote in 1990 and is likely to hold onto his seat.

Maine: William S. Cohen, despite the presence of several challengers, Cohen’s hold on his seat looks solid.

Michigan: Carl Levin faces an uphill battle. The seat leans Democratic, but Levin could be dragged down by Clinton’s poor ratings in Michigan.

Minnesota: Paul Wellstone. This is likely to be one of the more vicious races of 1996. First-termer Wellstone faces a Republican field dominated by former-Senator Rudy Boscjwitz, from whom Wellstone took his seat in 1990 by a minuscule margin.

A big manifestation. Photo by Elena

Mississippi: Incumbent Thad Cochran is running unopposed.

Montana: This one of the five Democratic seats rated a toss-up. Baucus won a fourth term in 1990 with 68 percent of the vote, but his vote for the 1994 crime bill has made him vulnerable to a conservative constituency opposed to the assault opposed to the assault weapons ban. Historically, however, Montana leans Democratic.

Nebraska: Democrat Jim Exon is retiring after three terms. Nebraska hasn’t had a Republican senator in over a decade, but this time they have a good shot at electing one.

New Hampshire: Bob Smith. In this conservative New England State, the GOP will likely prevail.

New Jersey: Bill Bradley, the former basketball great may hang up his political sneakers. He was elected by a bare majority in 1990; look for surprises.

New Mexico: Pete Domenici, as his approval rating reaches 75 percent, he should be easily reelected.

North Carolina: The ever-controversial Jesse Helms will probably keep his seat, but it’s of a sure thing.

Oklahoma: Jim Inhofe won his seat in a special election in 1994, following the resignation of Democrat David Boren. He should get reelected.

Oregon: Mark Hatfield was the lone GOP holdout against the balanced budget amendment. He may retire, but if he runs, he’ll win.

Rhode Island: Claiborne Pell, the 77-year-old Senate aristocrat may retire to the manor. But the seat should remain in Democratic hands.

South Carolina: Strom Thurmond. The state is among the most Republican in the country. Whether or not Thurmond, who is 92, runs again, the Republicans are likely to hold on to this seat.

South Dakota: Larry Pressler is the only incumbent Republican whose reelection chances are rated a toss-up. One factor: South Dakota Jeans Republican in presidential years.

Tennessee: Ex-actor and Watergate counsel Fred Thompson was elected in 1994 to serve the final two years of Vice President Al Gore’s Senate term. The chances are good that he’ll be reelected.

Texas: Although Phil Gramm is also running for the Republican presidential nomination, Texas law permits him to keep his reelection bi open at the same time. In any case, the seat is considered safe for the GOP.

Virginia: John Warner won his 1990 election with 81 percent of the vote, but intra-party feuding could cause him trouble – he refused to back GOP Senate nominee Oliver North in 1994. Still, the seat will likely stay in Republican hands.

West Virginia: Jay Rockefeller, the only Democrat-held seat, besides that of Joe Biden of Delaware, that is considered safe.

Wyoming: Alan Simpson is a shoe-in for reelection.

People Marching. Photo by Elena

A region by region look at the battle for the House

The Republicans captured control of the House of Representatives for the first time in over 40 years in the 1994 elections and currently hold 231 of the total 435 seats. Leading the charge was Newt Gingrich, the Georgian who is now Speaker of the House, who pledged nothing less than a Republican revolution. We asked Norman J. Ornstein, a congressional scholar and fellow at the American Enterprise Institute, whether the Gigrich forces are likely to prevail again in ’96. Here’s how he sees things shaping up region by region.

The South : The region has changed remarkably over the last 30 years from being an overwhelmingly Democratic base to one where Republicans are now more dominant. Because of redistricting and changing voting patterns among white voters, white Democrats are becoming a dying breed. If the Democrats are reduced to largely black districts, then the South will become a Republican base.

A historical comparison is instructive : in 1960, Democrats held 94 percent of the seats in the South – about a quarter of the House. Now the number of seats has increased, from 104 in 1960 to 125 seats today. Democrats currently make up 48,8 percent of the southern House delegation. Thus, the proportion of seats held by Democrats has been cut in half as the number of seats has increased.

If you look back to the era of Democratic dominance to Congress, it was built on a Southern Base. If the Democrats don’t have that base, they will have headaches.

The West: This is the most competitive region in the country. The Rocky Mountains states (which include Colorado, Montana, and Wyoming) were a Democratic stronghold in the ’50s. Now Democrats have only 25 percent of them. The other area that matters is the West in the Pacific Region (Oregon, Washington, and California). It was there and in the South that the Democrats took the biggest hit in ’94. They went from holding almost two-thirds of the seats there to less than half.

The Midwest: Republicans could do well there. The Democrats suffered significant losses in the Midwest in ’94. The area currently is divided evenly between the two major parties.

The Northeast : We’ve seen almost a complete reversal from from back in the ’30s and ’40s. In the early part of this century, New England was a major base for the Republican party, along with the Plains states. Now there are the strongest regions for the Democrats. The Northeast as a whole is likely to see the least political change in the near future.

The Best Office on the Block

The Best Office on the Block

The joys and perils of working where you live

The phrase “cottage industry” is taking on new meaning. The ranks of the self-employed are swelling and they are choosing to work out of home offices. An astonishing 38 percent of all households, or 37 million, include a member performing income-generating work at home, according to Link Resources, a New York market-research firm. Many are refugees from corporate offices, either jettisoned during cutbacks or budding entrepreneurs dropping out to create their own jobs. They include consultants, freelancers, independent producers, contractors, and small-business operators of all kinds. All are attracted by the flexible hours, lower stress, and chance to be their own boss.

A successful home business can gross up to $100, 000 in the first year. Money magazine recently surveyed a group of experts, including Paul and Sarah Edwards, authors of the Best Home Business, to find the home-based business most likely to succeed. The winner: editorial and publishing, temporary-employment agencies, repair services, and video production.

Starting up a home business need not be expensive. Depending on the business you can expect to shell out from $500 to $50,000 or even more Often, part of the trick is to create the illusion that you're part of a much larger operation. Experts usually advise, for example, that you pony up for professionally designed and printed business cards, logos and letterheads. Plain stationary and computer-generated letterhead and business cards look second-rate. Never use your home phone line for business calls. Get a separate business line. Live answering services or voice mail is preferable to answering machines, which are preferable to an unattended phone. Im most parts of the country, home office workers can get office-like phone services for an extra $10 or so a month from the local phone company.

Night View from a hotel room in Jamaica. Photo by Elena.

You probably already own a fairly good personal computer if you are going into business for yourself, but will you also need a copier, a fax machine, a printer, or a scanner? One new option is a multipurpose machine, which will print, fax, copy and sometimes scan. Sales of these vesatile machines are taking off : 140,000 are sold every year and the number is expected to triple in the next few years. Hewlett-Packard's get good reviews.

The biggest complaint among home office workers is a sense of isolation. For the self-employed, one remedy is to join a networking group or to communicate online with other home workers. For telecommuters who feel out of touch with headquarters, experts suggest visiting your company as often as possible, calling frequently, or sending e-mail messages.

Another problem home workers confront is separating their work from their personal life. Home office gurus suggest using a separate room or partition to separate your office from your living space. Set specific work hours, even though they need not to be 9 to 5. Finally, just because you work at home doesn't mean you can also take care of the kids. Make child care arrangements.

The Big Mac Attack

The Big Mac Attack

A new study finds conventional start-up businesses often fare better

Every 17 minutes, a new franchise outlet opens somewhere in the United States. They range from auto to truck dealerships to soft drink bottlers to gyms and hardware stores, and their numbers have zoomed from 521,135 in 1990 to over 1,000 000 in mid-2010., according to the International Franchise Association. Entrepreneur magazine traditionally devotes its entire January issue to the 500 top franchises in the United States.

Why the mad rush? Conventional wisdom holds that franchising is a low-risk way to start a business.  For a hefty investment, up to $600,000 or more for a McDonald's, for example, you get all the training and marketing support you need. Then, you manage your business and collect the revenues.

But that's not exactly the way it unfolds, according to a study by the Wayne State University. Bates tracked the performance of some 21,000 fledgling franchises for four latest years. The findings are startling: 35 percent of the franchises fail every year today, compared with 28 percent of conventional start-ups. Franchises whose companies survived earned just 20 thousand a year, compared wit 30 thousand for other start-ups.

How can that be? Franchises have annual sales of 600,000, compared to 150,000 for non-franchises, and they are also better capitalized ($100,000 compared to $35,000). The university draws several conclusions. For one thing, franchises may be picking already saturated markets, or at least areas with tough competition. For another, perhaps franchisees aren't getting the much-touted management advice and support they need. Finally, says the University, maybe it's all in the nature of the franchisee versus the self-starter: franchisees are inherently less likely to take risks.

The study is not cause to dismiss franchising altogether. After all, the study found that nearly two-thirds of franchises do survive. But do look before you leap into a franchise. For starters, contact the Federal Trade Commission, which offers a free packet of information that includes the pros and cons of franchising and explanations of information that franchisors are required to disclose by law. Another good source for nature franchisees: the International Franchise Association.

Kosher Hot Spot in Jamaica. Photo by Elena.

Do You Fit the Mold?

People who go into business for themselves are most likely to be:

• Offspring of self-employed parents.
• Previously fired from more than one job.
• Immigrants of children of immigrants.
• Previously employed in business of fewer than 100 employees.
• The oldest child in the family.
• College graduate.
• Realistic, but not high risk-takers.
• Well organized.

Here's Looking at You, Dear

Here's Looking at You, Dear

Sex will change, but it need not cease with aging

Crowing older doesn't mean giving up a sex life. To the contrary, some of the most satisfying sexual experiences may come in later life. Dr. Robert N. Butler, professor of geriatrics at Mount Sinai Medical Center in New York and co-author of Love and Sex after 60 (with Myrna I. Lewis, Ballantine, revised 1993) answered some questions about sexuality and aging.

What physical changes can people expect during sexual activity as they grow older?

Reaction time to auditory and visual stimuli increases as we age. It also takes longer for sexual arousal to occur and it takes longer to complete intercourse. The time needed between sexual encounters is usually longer, too. But assuming good health and the presence of a partner who interests you and with whom you have a good relationship, desire remains strong and does not decline as a consequence of aging per se.

But isn't illness likely to interfere with sexual desire?

People of any age have to make adjustments during illness, and there are more likely to be illnesses the older we get. Illness saps energy and causes worry, which in turn makes people less preoccupied with sexuality. Some specific diseases have particularly adverse effects on sexuality. Diabetes is often associated with problems, for example, as is atherosclerosis, where fatty plaques in arteries and vessels reduce the supply of blood to the genital area in both men and women. This is determined because sexual excitation is dependent upon blood engorgement in the genitalia.

Sex will change. Photo by Elena

In addition, important therapeutic medications like antihypertension prescriptions may take away sexual capability to some degree. These problem areas can be improved, however, with appropriate medical care. An older patient who is interested in sexuality should read up on the subject and bring up issues with a doctor. If the doctor doesn't seem comfortable, the patient may need to talk with a different doctor.

Are there benefits to maintening an active sex life?

Social pressure tends to be negative toward sexuality and aging, and our society tries to deny that older people have any interest in sexuality. That attitude is built into the culture and with it comes kidding and jokes, anxious humor, and nervous laughter. But the desire for closeness and intimacy is very profound and goes on right through the end of life.

Older people often comment that no one ever touches them and they never have the change to touch anyone else. That's especially true of older women because they tend to marry men three years older and they outlive men by about seven years. When somebody else thinks well of you, is attracted to you, and wants to be with you physically, it affirms your personhood.

There are physical benefits, too, but they're trickier to pinpoint because money hasn't exactly been poured into research. It seems as though the pain of arthritis, for example, may be relieved at least temporarily with sexual activity. And just as runners have highs that probably are related to endorphins in the brain, sexual activity, too, may produce a kind of high related to the central nervous system neurotransmitters.

How can older couples maintain their interest in sexual activity?

The way to keep the music playing, as the song goes, is for people to be concerned about each other and to remain interesting to their partners by continuing to learn and grow. Never downplay romance. People living together tend to take each other for granted and not date and not have fun, when they could go dancing, have an intimate dinner, or take trips together.