5 CHANGES IN NEW TAX LAW

By Money Crashers
There were many political battles in Congress in 2010, but few were more heated than the debates revolving around the Bush tax cuts extension. The original Bush tax cuts, which were enacted in 2001 and 2003, were in serious jeopardy of sunsetting at the end of the year if Congress did not take action. This would have caused virtually every American to experience a tax hike for 2011.
The Democrats wanted to extend the tax cuts but strongly preferred not to include income earners over $250,000 from receiving any extended tax cuts. On the other hand, Republicans fought hard for higher income earners, including small business owners who make over $250,000. This legislation was debated for so long that it was taken straight to the end of the deadline before it passed, right before the holidays.
You may have been too busy sipping on egg nog and singing holiday carols to be following the legislation that was finally passed in December to extend the Bush tax cuts and modify some of the current tax code. Either way, check out these new tax law changes that you may be able to take advantage of in 2011.
1. Small Business: Small businesses can benefit greatly from a few tax changes in 2011 by investing in fixed assets and equipment before December 31st, 2011.  The Small Business Jobs Act signed this past September doubled the expense limitation from $250,000 to $500,000.
Eligible investments include office furniture and equipment, machinery, and computer software.  If you're a small business owner and you've been holding out on buying newer office equipment, furniture, or IT equipment, this year is the time to invest in it. The major advantage here is that these expenses can be fully deducted from the business' taxes if they are purchased in 2011.
2. Estate Planning: The new tax cuts and changes for 2011 will also benefit families if the right estate planning is done.  Starting in 2011, couples can add the unused estate tax exemption of their spouse (up to $5 million) to their own estate tax exemption, meaning they can transfer up to $10 million tax-free to family and heirs.  That's a huge tax break, so if you or your family have significant assets, now is the time to hire a good estate planner to plan everything out.
3. Personal Investing: Many people feared that the capital gains and dividend tax rate would be increased in the revised tax cut plan by President Obama, but the Republicans fought hard to keep it the same at 15 percent, and it will stay that way until at least the end of 2012.  For any non-tax deferred investing you plan on doing, make sure you take advantage of the low 15 percent capital gains tax rate now, because the chances of it staying this low past 2012 are slim.
4. Roth IRA Conversion: A new change in 2011 is now allowing anyone, regardless of income, to convert a traditional IRA to a Roth IRA.  In the past, there were income restrictions on who was allowed to convert a traditional to a Roth, but that has changed in 2011.  Converting to a Roth IRA can really help you save money on taxes mainly because a Roth IRA takes in taxable money, which is then not taxed when withdrawn at the retirement age.  If you believe that you'll be in a higher tax bracket at retirement, then converting now definitely makes sense.
5. The Payroll Tax Holiday: For 2011 only, the Social Security payroll tax of 6.2 percent taken from everyone's paycheck has been reduced by 2 percent to 4.2 percent.  The tax is actually 12.4 percent, but the other half is picked up by your employer, up to $106,000 in income.  That other half is not reduced for employers with this payroll tax holiday. A 2 percent increase to your paycheck is almost the standard amount of yearly raises that many employees receive. So why not set aside the 2 percent to a savings account?
You can open an ING Direct savings account and set up auto-draft to take the 2 percent from your checking account every month. This is a really easy way to set up an emergency fund that'll help you stay out of debt when an unexpected expense pops up in 2011.
Taxes are never a fun subject, but staying educated about new tax legislation and laws could help you save thousands of dollars each year. If you know a tax professional or tax attorney that you trust, give them a call this month to discuss the changes and ask about any moves you can make, including the ones listed above, to take advantage of some serious tax savings in 2011 and the years to come. Alternatively, if you're used to filing your taxes online, tax preparation software like TurboTax should be able to guide you step-by-step through the new tax law changes as well.

ART OF INVESTING

Written by Ranjan 
There is no secret formulae for investing (if you are into quantitative investing, it’s a different story). At a certain level effective investing is very subjective in nature. It involves reading and digesting a lot of information and then combining it with your existing knowledge and experiences to come up with an estimate of fair value for the company

Unfortunately there is no shortcut in becoming a decent investor. One has to love the art of investing and be willing to learn and make small amounts of progress each day. Over time, the learning accumulates and you keep getting better at it. Excerpts: A typical research report provides you with a few years of historical data and a year or two of forecast, especially of sales and netprofit. The better reports may also include some kind of valuation based on PE and discounted cash flow to arrive at an estimate of fair value.

Most of these research reports, atleast the ones for which you don’t pay much will stop at this point. To be fair to the producers of these reports, you get what you pay for – in this case next to nothing.

The point is that these free reports provide only the basic quantitative information needed for a decision. One cannot make a purchase only on the basis of numbers without understanding the context of these numbers

What is the meaning of context ?
A company usually operates as part of an industry and is impacted by the various competitive forces of the industry. For example – if you operate in the FMCG industry, advertising and distribution is a major part of the expense. In a similar fashion, fuel, raw material and power are big expenses for a cement company and advertising is nice add-on, though not a competitive differentiator.

Beyond the context
The exercise of calculating fair value of a stock is essentially trying to estimate the future of the company. It is silly to attempt mathematical precision in this task. One of the common criticisms of analysts is that their forecasts are generally wrong. I think it is stupid to expect any better from them. The world is far too complex for any person to be able to forecast anything in short term, forget the medium and long term.

I have a fairly elaborate template for analysing of a stock. An elaborate template does not make the analysis any better – it only ensures that I do not missing anything important. If you scan through the template, you will notice that I have a few sheets for DCF (discounted cash flow) analysis.

But this is all fuzzy !!
Absolutely right ! I personally feel that quantitative aspect of value investing is not more than 20% of the effort (and even that is an over estimation). The ‘numbers’ part of investing is the minimum. I will not invest in a company which has a high debt, is losing sales and has been making a loss for the last few years.

An example
Let me give an example from my past experience to illustrate my point. I analysed a company called MRO-TEK in late 2007. You can read the analysis here. One of the key negatives for the company was that it was a small company in an industry which is dominated by the likes of CISCO and LUCENT who have R&D budgets which are a 100 times the annual revenue for this company.

I identified this negative fact, but there was no way to quantify this business risk. The last few years of data looked fine and stock appeared to be undervalued at the time. Fast forward to 2010 – The result for 2008 was a high water mark. The performance of the company has been sliding since then with the topline having dropped by 50% and the operating profit has turned negative. The company is simply operating in a fast changing hypercompetitive industry, where it is very difficult to make a profit.

I had a sense of this fact, but did not appreciate it fully (I am a slow learner :) ). If I had not been lucky in getting a quick exit, I would have lost money on this. This idea was a case of sloppy analysis, where numbers would not have helped.

Is there a secret formulae?
There is no secret formulae for investing (if you are into quantitative investing, it’s a different story). At a certain level effective investing is very subjective in nature. It involves reading and digesting a lot of information and then combining it with your existing knowledge and experiences to come up with an estimate of fair value for the company

Unfortunately there is no shortcut in becoming a decent investor. One has to love the art of investing and be willing to learn and make small amounts of progress each day. Over time, the learning accumulates and you keep getting better at it.