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Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: Who can I get to help me roll my 401(k) into an IRA when I live overseas? ### Answer: This is more of a general answer about your situation than a specific answer to your question. You might consider getting a SIP telephone number based in the US, or an even easier to use IP based phone number. That way you can use it through your Internet connection and make eaiser calls to US companies that you still have a business relationship with. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: What determines price fluctuation of groceries ### Answer: Yes and no. First off, commodity prices reflect the cost of a good about 3 steps back in the retail supply chain; the agreed-upon price for the raw foodstuff between farmers/ranchers and manufacturers. Your grocer may carry bags of whole grain wheat, but that's certainly not all he carries that contains it. Same for corn, rice and other staple grains, as well as for fruits and vegetables, herbs (yes, you can buy basil by the ton on the CME), meats, various sugars, etc. So, a long-term sustained change in prices of a commodity foodstuff will eventually affect the real cost to you to buy things they're made from. However, in the short term, the retail supply chain will generally act as a buffer between these prices and the ones you see on the store shelf. Consumers don't like price increases, especially of necessities like food. When food costs go up, consumers can and will very quickly change their spending habits, buying cheaper options to get their needed calories. That makes manufacturers nervous; consumers not buying their product is a worse scenario than consumers buying their product at a reduced gain or even at a loss. So, manufacturers, and suppliers and retailers, will all absorb as much as they can of the cost of a commodities increase before beginning to pass it on to consumers. On the flip side, while consumers like price drops, they don't notice them as much as price increases. So, the supply chain will also absorb a fall in commodity prices by resisting price reductions in the consumer goods, as long as they can get away with it (which is usually longer than the price reduction actually lasts). The net effect is that processed food prices typically follow the gentle upward climb of long-term inflation, and only rarely do you see drastic price increases or decreases. Where this model breaks down a little bit is in highly perishable foodstuffs, especially seasonal or "wild-managed" foods; fruits and vegetables, seafood, etc. The limited time in which the stuff can be sold makes the process of getting a fish out of the ocean and a fruit off the tree and into your grocery store much more market-driven; the producers, suppliers and grocers are all in constant contact over what's available and how much they can get for what price. The prices therefore are typically a lower markup (unlike highly processed grain-based foods, there's not much added value to be marked up between the apple farmer picking the fruit and the grocer putting it on display), but also much more volatile; if there's a bumper crop of fruit, the farmer has to unload it all or it goes to waste, while similarly if an early freeze decimated the apple crop, the suppliers can't just get some of last year's bumper crop out of storage; they fight with everyone else for what little made it to market. Farmers will sometimes intentionally let excess crop spoil in order to maintain a minimum price for what they sell (the rest can at least be composted and used for fertilizer, saving them some money on maintenance), but there's no silver bullet for a shortage. This is why a lot of these foods, especially seafood, are considered luxury items; they're not stable enough for everyone to get as much as they want whenever they want, unlike staple grains. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: What determines price fluctuation of groceries ### Answer: No. Some grocery stores may discount specific products based on inventory to drive sales using "loss leaders" where the product is intentionally priced as a loss for the business. While commodity futures may impact some prices, I'm not sure one can easily extract the changes solely due to futures shifts. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: What determines price fluctuation of groceries ### Answer: That is true. Since commodities are basically a futures contract, their actual price is not reflected in grocery stores. It is more of a supply and demand issue with your grocer. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: Can I withdraw from my Roth IRA retirement account to fund a startup? ### Answer: Yes, it is possible to withdraw money from your Roth IRA before retirement (but I wouldn't necessarily advise you to do so.) Here's the good news, and the bad news: The good news: Unlike a traditional IRA, money contributed to a Roth IRA is done so on an after-tax basis, meaning you don't benefit from a tax deduction on contributions. So, the money you withdraw from your Roth IRA will not be taxed entirely as ordinary income. In fact, you are allowed to withdraw the amount of your original contributions (also known as basis) without any taxes or penalties. Let's imagine you originally deposited $9000 of that current $10K total value – then in such a case, $9000 could be withdrawn tax and penalty free. The bad news: When it comes to the investment earnings – the other $1000 in my example – it's a different story: Since you wouldn't be age 59 1/2 at the time of withdrawal, any money taken out beyond your original contributions would be considered a non-qualified withdrawal and subject to both ordinary income taxes plus a 10% early withdrawal penalty. Ouch! Perhaps you might want to restrict your withdrawal to your original contributions. I would imagine if you've had the account for such a short period of time that much or all of your account value is original contributions anyway. A good article about the rules for early IRA withdrawals is About.com's Tax Penalty for Early Distribution of Retirement Funds. Note: If your Roth IRA funds were the result of a rollover from another account type, other rules may apply. See Roth IRA (Wikipedia) for more detail; search for "rollover". Regarding the withdrawal process itself and the timing, you should check with your account custodian on how to proceed. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: Can I withdraw from my Roth IRA retirement account to fund a startup? ### Answer: There are two methods of doing this Pulling out the money and paying the penalty if any, and going on your way. Having the Roth IRA own the business, and being an employee. If you go with the second choice, you should read more about it on this question. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: Can I withdraw from my Roth IRA retirement account to fund a startup? ### Answer: Chris's answer is a great start. Keep in mind that when you withdraw from a Roth IRA, you "shrink" the size of the IRA (i.e. if the start up flourishes, you can't put the $10k you withdrew back, as you're limited to ~$5k in contributions per year). You may want to consider funding your startup with a credit card (ideally a balance transfer of $10k at 0% interest). If you need to, you can always pay your card off with your Roth balance, but if the startup takes off, your IRA is unharmed. (On a side note, I wouldn't feel comfortable quitting my job to do a startup with only $10k in savings, but to each his own!) ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: When a stock price rises, does the company get more money? ### Answer: Not directly. But companies benefit in various ways from a higher stock price. One way a high stock price can hurt a company is that many companies do share buybacks when the price is too high. Economically speaking, a company should only buy back shares when those shares are undervalued. But, management may have incentives to do buybacks at irrationally high prices. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: When a stock price rises, does the company get more money? ### Answer: No. Not directly. A company issues stock in order to raise capital for building its business. Once the initial shares are sold to the public, the company doesn't receive additional funds from future transactions of those shares of stock between the public. However, the company could issue more shares at the new higher price to raise more capital. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: When a stock price rises, does the company get more money? ### Answer: Seems like no one in this thread has heard of "treasury stocks", which indeed allow a company to own and sell its own stock. Think about it. When there is a stock buy-back funded by excess profits, where does that stock go? ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: When a stock price rises, does the company get more money? ### Answer: When a stock price rises, the company's assets are worth more. This doesn't mean it gets more cash directly, but it can liquidate (= sell) some of its stocks for a higher return than before. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: How do you declare revenues from YouTube earnings in the USA if you are a minor? ### Answer: If you receive a 1099-MISC from YouTube, that tells you what they stated to the IRS and leads into most tax preparation software guided interviews or wizards as a topic for you to enter. Whether or not you have a 1099-MISC, this discussion from the IRS is pertinent to your question. You could probably elect to report the income as a royalty on your copyrighted work of art on Schedule E, but see this note: "In most cases you report royalties in Part I of Schedule E (Form 1040). However, if you ... are in business as a self-employed writer, inventor, artist, etc., report your income and expenses on Schedule C or Schedule C-EZ (Form 1040)." Whether reporting on Schedule E or C is more correct or better for your specific circumstances is beyond the advice you should take from strangers on the internet based on a general question - however, know that there are potentially several paths for you. Note that this is revenue from a business, so if you paid for equipment or services that are 100% dedicated to your YouTubing (PC, webcam, upgraded broadband, video editing software, vehicle miles to a shoot, props, etc.) then these are a combination of depreciable capital investments and expenses you can report against the income, reducing the taxes you may owe. If the equipment/services are used for business and personal use, there are further guidelines from the IRS as to estimating the split. These apply whether you report on Sch. E, Sch. C, or Sch C-EZ. Quote: "Self-Employment Income It is a common misconception that if a taxpayer does not receive a Form 1099-MISC or if the income is under $600 per payer, the income is not taxable. There is no minimum amount that a taxpayer may exclude from gross income. All income earned through the taxpayer’s business, as an independent contractor or from informal side jobs is self-employment income, which is fully taxable and must be reported on Form 1040. Use Form 1040, Schedule C, Profit or Loss from Business, or Form 1040, Schedule C-EZ, Net Profit from Business (Sole Proprietorship) to report income and expenses. Taxpayers will also need to prepare Form 1040 Schedule SE for self-employment taxes if the net profit exceeds $400 for a year. Do not report this income on Form 1040 Line 21 as Other Income. Independent contractors must report all income as taxable, even if it is less than $600. Even if the client does not issue a Form 1099-MISC, the income, whatever the amount, is still reportable by the taxpayer. Fees received for babysitting, housecleaning and lawn cutting are all examples of taxable income, even if each client paid less than $600 for the year. Someone who repairs computers in his or her spare time needs to report all monies earned as self-employment income even if no one person paid more than $600 for repairs." ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: How do you declare revenues from YouTube earnings in the USA if you are a minor? ### Answer: In the USA, you probably owe Self Employment Tax. The cutoff for tax on this is 400$. You will need to file a tax return and cover the medicaid expenses as if you were both the employer and employee. In addition, if he earns income from self-employment, he may owe Self-Employment Tax, which means paying both the employee’s and employer's share of Social Security and Medicaid taxes. The trigger for Self Employment Tax has been $400 since 1990, but the IRS may change that in the future. Also see the IRS website. So yes, you need to file your taxes. How much you will pay is determined by exactly how much your income is. If you don't file, you probably won't be audited, however you are breaking the law and should be aware of the consequences. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: Is this formula accurate for weighing the difference between an S-Corp and LLC? ### Answer: FICA/SE taxes are not 30%. They are at most ~15%, including the employer portion. Employer also pays FUTA tax, and has additional payroll expenses (like fees and worker compensation insurance). The employee's FICA portion is limited up to a certain level of earnings (110100 this year, IIRC). Above it you only pay medicare taxes, not social security. S-Corp earnings are not taxed at 15%, these are not dividends. They're taxed at your ordinary income rate. You don't pay SE taxes on it, that's the only difference. I hope you're talking about tax treatment decision, because there are entirely different factors to keep in mind when you're organizing a business and making a decision between being it a LLC or a corporation. I believe you should pay some money to get a real advice that would apply to you, from a EA/CPA who would be doing the number-crunching (hopefully correctly). I'm a tax practitioner, and this answer was not intended or written to be used, and it cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: Is this formula accurate for weighing the difference between an S-Corp and LLC? ### Answer: It might be best to step back and look at the core information first. You're evaluating an LLC vs a Corporation (both corporate entities). Both have one or more members, and both are seen similarly (emphasis on SIMILAR here, they're not all the same) to the IRS. Specifically, LLC's can opt for a pass-through tax system, basically seen by the IRS the same way an S-Corp is. Put another way, you can be taxed as a corporate entity, or it's P/L statements can "flow through" to your personal taxes. When you opt for a flow-through, the business files and you get a separate schedule to tie into your taxes. You should also look at filing a business expense schedule (Schedule C) on your taxes to claim legitimate business expenses (good reference point here). While there are several differences (see this, and this, and this) between these entities, the best determination on which structure is best for you is usually if you have full time employ while you're running the business. S corps limit shares, shareholders and some deductions, but taxes are only paid by the shareholders. C corps have employees, no restrictions on types or number of stock, and no restrictions on the number of shareholders. However, this means you would become an employee of your business (you have to draw monies from somewhere) and would be subject to paying taxes on your income, both as an individual, and as a business (employment taxes such as Social Security, Medicare, etc). From the broad view of the IRS, in most cases an LLC and a Corp are the same type of entity (tax wise). In fact, most of the differences between LLCs and Corps occur in how Profits/losses are distributed between members (LLCs are arbitrary to a point, and Corps base this on shares). Back to your question IMHO, you should opt for an LLC. This allows you to work out a partnership with your co-worker, and allows you to disburse funds in a more flexible manner. From Wikipedia : A limited liability company with multiple members that elects to be taxed as partnership may specially allocate the members' distributive share of income, gain, loss, deduction, or credit via the company operating agreement on a basis other than the ownership percentage of each member so long as the rules contained in Treasury Regulation (26 CFR) 1.704-1 are met. S corporations may not specially allocate profits, losses and other tax items under US tax law. Hope this helps, please do let me know if you have further questions. As always, this is not legal or tax advice, just what I've learned in setting several LLCs and Corporate structures up over the years. EDIT: As far as your formulas go, the tax rate will be based upon your personal income, for any pass through entity. This means that the same monies earned from and LLC or an S-corp, with the same expenses and the same pass-through options will be taxed the same. More reading: LLC and the law (Google Group) ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: How do I find a legitimate, premium credit repair service? ### Answer: Just a word of warning: Most of the companies that promise to repair your credit are scams or close to them. You could just as easily do yourself what they are going to charge you for. Essentially they write a letter to the credit agencies disputing most or all of the bad stuff on your credit report. When you do that, the credit agency sends an inquiry to the company that reported the negative information requiring them to justify it. If that company doesn't respond within x days, they remove the item from your credit report. These companies depend on the fact that some companies aren't going to hit that deadline or even respond. Perhaps they are just too busy to hassle with providing backup documentation for a $20 late payment. They are banking on getting a few of these cheap "outs" to your benefit and charging you for what amounts to sending out a bunch of form letters. If you don't mind writing a bunch of letters, then you can save a lot of money and get the exact same results. These companies want to pretend they have some insider knowledge or fancy lawyers that know special credit-magic, but they generally don't. The only option I'd consider legitimate and not a waste of your time is a referral from the non-profit National Federation for Credit Counseling. They aren't going to "fix your credit", but will give you advice on budgeting and repairing your credit on your own. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: How do I find a legitimate, premium credit repair service? ### Answer: If the bad credit items are accurate, disputing the accuracy of the items seems at best, unethical. If the bad credit items are inaccurate, the resolution process provided by each of the 3 credit bureaus, while time consuming, seems the way to go. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: Are there any benefits of FMLA beyond preserving your job? ### Answer: How will your employer treat your pay and benefits status while you're on leave? Disability income coverage and leave policies work in tandem to solve very different problems. Disability income coverage covers your income, leave policies guarantee your status as an employee. Typically, STD coverage requires an actual loss of income and will offset it's stated benefit for any income you're receiving. In general you can't begin a STD claim after the 7 day waiting period and also draw income from vacation or sick time. Also, typically STD will cover some percentage of your covered pay (sometimes including commission/bonus income) up to some weekly maximum. FLMA requires employers to allow certain amounts of time for certain types of leave. FMLA is not necessarily an income replacement tool like STD coverage. Contrary to your post it's my understanding that if sick and vacation time accrue in to a single PTO bucket your employer is prohibited from requiring employees to exhaust accrued time prior to beginning FMLA leave. In general, you're not missing anything because the point of FMLA is to guarantee your job and status as an employee from a benefits perspective. Benefits language from the Department of Labor Website A covered employer is required to maintain group health insurance coverage, including family coverage, for an employee on FMLA leave on the same terms as if the employee continued to work. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: Are there any benefits of FMLA beyond preserving your job? ### Answer: In your situation, it sounds like the only added benefit would be insurance continuance. For employees who can't access short-term disability it is a critical protection against losing their job. I just want to emphasize that given that you are in a pretty decent employment situation. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: What benefits do “title search companies” have over physically visiting a land records offices? ### Answer: Title agencies perform several things: Research the title for defects. You may not know what you're looking at, unless you're a real-estate professional, but some titles have strings attached to them (like, conditions for resale, usage, changes, etc). Research title issues (like misrepresentation of ownership, misrepresentation of the actual property titled, misrepresentation of conditions). Again, not being a professional in the domain, you might not understand the text you're looking at. Research liens. Those are usually have to be recorded (i.e.: the title company won't necessarily find a lien if it wasn't recorded with the county). Cover your a$$. And the bank's. They provide title insurance that guarantees your money back if they missed something they were supposed to find. The title insurance is usually required for a mortgaged transaction. While I understand why you would think you can do it, most people cannot. Even if they think they can - they cannot. In many areas this research cannot be done online, for example in California - you have to go to the county recorder office to look things up (for legal reasons, in CA counties are not allowed to provide access to certain information without verification of who's accessing). It may be worth your while to pay someone to do it, even if you can do it yourself, because your time is more valuable. Also, keep in mind that while you may trust your abilities - your bank won't. So you may be able to do your own due diligence - but the bank needs to do its own. Specifically to Detroit - the city is bankrupt. Every $100K counts for them. I'm surprised they only charge $6 per search, but that is probably limited by the State law. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: What benefits do “title search companies” have over physically visiting a land records offices? ### Answer: Basically what @littleadv said, but let me amplify what I think is the most important point. As he/she says, one thing you're paying them for is their expertise. If the title on record at the county office had a legal flaw in it, would you recognize it? In a way your question is like asking, Why should I go to a doctor when I could just make my own medicine out of herbs I grow in my garden and treat myself? Maybe you could. But the doctor and the pharmacist have years of training on how to do this right. You probably don't. Is it possible for you to learn everything you need to do it right? Sure. But do you want to spend the time to study all that for something that you will do -- buy a house -- maybe once every ten years? Will you remember it all next time or have to learn it all over? But really most important is, title companies offer insurance in case the title turns out to be flawed. That, to me, is the big reason why I would use a title company even if I was paying cash and there was no bank involved to insist on it. If there's some legal flaw in the title and it turns out that someone else has a claim to my house, and I lose in court, I would be out about $100,000. Your house might be costing you much more. That's a huge risk to take. Paying the couple of hundred dollars for insurance against that risk seems well worth it to me. And by the way, I don't think the "due diligence" is easy. It's NOT just a matter of making sure a title is really on file at the court house and has the proper stamp on it. It's all about, Does someone else have a legal claim to this property? Like, maybe three owners ago someone forged a signature on a deed, so the sale is fraudulent, and now the person who was defrauded or his heirs discover the issue and claim the property. Or maybe the previous owner failed to pay a contractor who did repairs on the house, and now he goes to court and gets a lien on the property. It's unlikely that you have the expertise to recognize a forged document. You almost surely have no way to recognize a forged signature of someone you never met on an otherwise valid-looking document. And you'd have to do a lot of research to find every contractor who ever worked on the house and insure none of them have a claim. Etc. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: Should I buy my house from my landlord? ### Answer: Never buy a house unless you really want to buy that house. If you want to buy a rental, look around and find the right rental to buy; saving a few hundred on moving costs isn't a good reason to buy the wrong property at the wrong price. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: Should I buy my house from my landlord? ### Answer: Can he legally break your lease if he sells the place? If not I would just keep renting. It doesn't sound like you love the house and you plan on moving or would prefer a different type of place long term. Unless you yourself plan on getting involved in being a renting it out to others in the future - just rent and move on at some point. If he can break your lease upon sale of the property then I'd be casually keeping an eye out for another place to rent if that happens. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: Should I buy my house from my landlord? ### Answer: There are probably thousands of houses that you could buy. If you want to buy a house, it is very unlikely that the one you are renting right now is the best possible buy. Usually people living in the houses they own are more interested in the quality of their property and the quality of their neigborhood than people who are renting, so I'd say that you are generally better off finding a home to buy in an area where the majority own their homes. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: Hourly rate negotiation tips for paid internship ### Answer: Interns are not hired to do work, they are hired so that people at the company can get a look at their abilities in a real situation (not an interview) before hiring them for real. This way instead of 30% of your new hires being a dud, it's more like 5%, because the bad ones were filtered out in the intern process. If you are self-motivated and good enough, then it's quite possible that you will start getting real work while you're at the company, as opposed to throwaway assignments that nobody cares about. Once you're in that position, it means they trust you to actually accomplish something, and you will be viewed as a hopeful hire. Assuming you like the company, getting into that position is half the value of the internship. So I'd take it as-is with one caveat - ask them about schedule flexibility ahead of time, explicitly for the purpose of making sure your class schedule works. If they're a decent place to work for they will probably grant you that point outright. EDIT: One more note. If you've got a favor to burn, save it. Use it if you like the place and need to ask them for an H1B sponsorship, or any other kind of immigration assistance. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: Hourly rate negotiation tips for paid internship ### Answer: I am not sure if I would get any benefit besides the hourly payment as an intern. What are the benefits I can expect while working for this company (or any other software company) Probably none. Changes from company to company but usually only full-time employees are entitled for benefits. For example, could I ask them to reimburse my bus fare or fuel costs in addition to the hourly pay? You can always ask:-) If it's not in the offer - better ask now, you'll get paid what is written in the offer you accepted. Highly unlikely though. What kind of an "employee" is an intern? (Read about exempt and non-exempt employee, but that's all very confusing) As intern you're non-exempt. As a professional (i.e.: Not part of internship) you would be exempt. Since this is the second time, since my interview, that I have requested, and been offered a higher rate, should I continue to ask them for a value near a $35/hr rate Have you asked them for $35? Or just for more? Anyway, I don't think that if they raised the offer from $17 to $21.75 that there's a chance for you to get $35 from them. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: Hourly rate negotiation tips for paid internship ### Answer: They likely have an intern (job title) pay-scale that maxes out somewhere below $30/hr in order to meet the FLSA (that exempt vs non-exempt stuff you were seeing). As a PhD student, you could probably negotiate up into the ~$25/hr range, but from a benefits standpoint, they might not be able to pay you $35/hr without making you an exempt, full-time employee. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: “Debt Settlement Order” Text Spams – How do they work? ### Answer: There are likely to be two approaches: An autodialer of any description would be more than capable of sending an SMS or initiating a direct telephone call with any set of telephone numbers. Such autodialiers can run off a personal computer via VoIP or some such third-party. As to getting the numbers, it can be either from a purchased list (if they're serious about this and are obeying any call opt-out lists) or simply a number range dialed sequentially, whether they work or not. In a more serious operation, any returns are fed directly to a call centre where real human beings then initiate direct contact. Otherwise it is simply a fishing expedition and any valid numbers can then be sold to other agencies as a screened list (and, therefore, more valuable). From an SMS perspective, anyone can purchase a vendor-level SMS Gateway subscription (of which there are loads of vendors - and note the number that allow "web-to-SMS") which permits you to receive and respond to any SMS received. This is always about the "law of large numbers". If they can get in the hundreds of thousands of valid numbers and a small number respond then they can make money. Like any spam, because a few are gullible, the rest of us are targets too. Update: A few searches for "software auto sms" and similar results in a fair number of prospects. As I don't wish this to become too much of a "how-to" I'm not going to link. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: Solo-401k interaction with employer sponsored 401k. Limits of contribution from Schedule C income ### Answer: Alright, team! I found answers to part 1) and part 2) that I've quote below, but still need help with 3). The facts in the article below seem to point to the ability for the LLC to contribute profit sharing of up to 25% of the wages it paid SE tax on. What part of the SE tax is that? I assume the spirit of the law is to only allow the 25% on the taxable portion of the income, but given that I would have crossed the SS portion of SE tax, I am not 100%. (From http://www.sensefinancial.com/services/solo401k/solo-401k-contribution/) Sole Proprietorship Employee Deferral The owner of a sole proprietorship who is under the age of 50 may make employee deferral contributions of as much as $17,500 to a Solo 401(k) plan for 2013 (Those 50 and older can tack on a $5,500 annual catch-up contribution, bringing their annual deferral contribution to as much as $23,000). Solo 401k contribution deadline rules dictate that plan participant must formally elect to make an employee deferral contribution by Dec. 31. However, the actual contribution can be made up until the tax-filing deadline. Pretax and/or after-tax (Roth) funds can be used to make employee deferral contributions. Profit Sharing Contribution A sole proprietorship may make annual profit-sharing contributions to a Solo 401(k) plan on behalf of the business owner and spouse. Internal Revenue Code Section 401(a)(3) states that employer contributions are limited to 25 percent of the business entity’s income subject to self-employment tax. Schedule C sole-proprietors must base their maximum contribution on earned income, an additional calculation that lowers their maximum contribution to 20 percent of earned income. IRS Publication 560 contains a step-by-step worksheet for this calculation. In general, compensation can be defined as your net earnings from self-employment activity. This definition takes into account the following eligible tax deductions: (1) the deduction for half of self-employment tax and (2) the deduction for contributions on your behalf to the Solo 401(k) plan. A business entity’s Solo 401(k) contributions for profit sharing component must be made by its tax-filing deadline. Single Member LLC Employee Deferral The owner of a single member LLC who is under the age of 50 may make employee deferral contributions of as much as $17,500 to a Solo 401(k) plan for 2013 (Those 50 and older can tack on a $5,500 annual catch-up contribution, bringing their annual deferral contribution to as much as $23,000). Solo 401k contribution deadline rules dictate that plan participant must formally elect to make an employee deferral contribution by Dec. 31. However, the actual contribution can be made up until the tax-filing deadline. Pretax and/or after-tax (Roth) funds can be used to make employee deferral contributions. Profit Sharing Contribution A single member LLC business may make annual profit-sharing contributions to a Solo 401(k) plan on behalf of the business owner and spouse. Internal Revenue Code Section 401(a)(3) states that employer contributions are limited to 25 percent of the business entity’s income subject to self-employment tax. Schedule C sole-proprietors must base their maximum contribution on earned income, an additional calculation that lowers their maximum contribution to 20 percent of earned income. IRS Publication 560 contains a step-by-step worksheet for this calculation. In general, compensation can be defined as your net earnings from self-employment activity. This definition takes into account the following eligible tax deductions: (i) the deduction for half of self-employment tax and (ii) the deduction for contributions on your behalf to the Solo 401(k). A single member LLC’s Solo 401(k) contributions for profit sharing component must be made by its tax-filing deadline. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: What is the point of the stock market? What is it for, and why might someone want to trade or invest? ### Answer: The stock market is just like any other market, but stocks are bought and sold here. Just like you buy and sell your electronics at the electronics market, this is a place where buyers and sellers come together to buy and sell shares or stocks or equity, no matter what you call it. What are these shares? A share is nothing but a portion of ownership of a company. Suppose a company has 100 shares issued to it, and you were sold 10 out of those, it literally means you are a 10% owner of the company. Why do companies sell shares? Companies sell shares to grow or expand. Suppose a business is manufacturing or producing and selling goods or services that are high in demand, the owners would want to take advantage of it and increase the production of his goods or services. And in order to increase production he would need money to buy land or equipment or labor, etc. Now either he could go get a loan by pledging something, or he could partner with someone who could give him money in exchange for some portion of the ownership of the company. This way, the owner gets the money to expand his business and make more profit, and the lender gets a portion of profit every time the company makes some. Now if the owner decides to sell shares rather than getting a loan, that's when the stock market comes into the picture. Why would a person want to trade stocks? First of all, please remember that stocks were never meant to be traded. You always invest in stocks. What's the difference? Trading is short term and investing is long term, in very simple language. It's the greed of humans which led to this concept of trading stocks. A person should only buy stocks if he believes in the business the company is doing and sees the potential of growth. Back to the question: a person would want to buy stocks of the company because: How does a stock market help society? Look around you for the answer to this question. Let me give you a start and I wish everyone reading this post to add at least one point to the answer. Corporations in general allow many people come together and invest in a business without fear that their investment will cause them undue liability - because shareholders are ultimately not liable for the actions of a corporation. The cornerstone North American case of how corporations add value is by allowing many investors to have put money towards the railroads that were built across America and Canada. For The stock market in particular, by making it easier to trade shares of a company once the company sells them, the number of people able to conveniently invest grows exponentially. This means that someone can buy shares in a company without needing to knock door to door in 5 years trying to find someone to sell to. Participating in the stock market creates 'liquidity', which is essentially the ease with which stocks are converted into cash. High liquidity reduces risk overall, and it means that those who want risk [because high risk often creates high reward] can buy shares, and those who want low risk [because say they are retiring and don't have a risk appetite anymore] can sell shares. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: What is the point of the stock market? What is it for, and why might someone want to trade or invest? ### Answer: I rather like The Ascent of Money, by Niall Ferguson. This comes in several formats. There's a video version, a written version (ISBN-13: 978-1594201929), and an audio version. This book covers the history of financial instruments. It covers the rise of money, the history of bonds and stocks, insurance and hedge funds, real-estate, and the spread of finance across the world. It is a great introduction to finance, though its focus is very definitely on the history. It does not cover more advanced topics, and will not leave you with any sort of financial plan, but it's a great way to get a broad overview and historical understanding of money and markets. I strongly recommend both the video and the written or audio version. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: What is the point of the stock market? What is it for, and why might someone want to trade or invest? ### Answer: In finance, form is function, and while a reason for a trade could be anything, but since the result of a trade is a change in value, it could be presumed that one seeks to receive a change in value. Stock company There may have been more esoteric examples, but currently, possession of a company (total ownership of its' assets actually) is delineated by percentage or a glorified "banknote" frequently called a "share". Percentage companies are usually sole proprietorship and partnerships, but partnerships can now trade in "units". Share companies are usually corporations. With shares, a company can be divided into almost totally indistinguishable units. This allows for more flexible ownership, so individuals can trade them without having to change the company contract. Considering the ease of trade, it could be assumed that common stock contract provisions were formulated to provide for such an ease. Motivation to trade This could be anything, but it seems those with the largest ownership of common stock have lots of wealth, so it could be assumed that people at least want to own stocks to own wealth. Shorting might be a little harder to reason, but I personally assume that the motivation to trade is still to increase wealth. Social benefit of the stock market Assuming that ownership in a company is socially valuable and that the total value of ownership is proportional to the social value provided, the social benefit of a stock market is that it provided the means to scale ownership through convenience, speed, and reliability. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: Credit card issued against my express refusal; What action can I take? ### Answer: I would go speak to the bank manager. With Wells, you have to make sure it is the bank manager and not a service manager or something you are talking to (I learned that a few months ago). Tell her/him exactly what happened in detail and that you want the credit card closed and the credit inquiry removed from your credit report. Further, say that once all of that is done, you will decide whether to continue banking with them and whether any legal action is appropriate. If they give you any kind of push back, I'd get advice from a lawyer. The truth is they did open an account against your expressed wishes and it required them to check your credit so it does constitute fraud unless they can produce a signed document saying you agreed to the card. Edit: I just saw that this happened about a year ago. It may have been easier if you had done something at the time and may be more difficult if you've used the card in the meantime. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: Credit card issued against my express refusal; What action can I take? ### Answer: As far as the banker himself goes, it's a customer service issue. WF is not going to tell you about their internal discipline (or oughtn't, anyway), other than potentially to confirm that the banker does or does not still work there; that's the closest they should get to telling you about it. I'm a (very) former retail manager, and that's absolutely the most I'd ever do in a case like this; and trust me, even with good customer service reps, you get requests to fire someone a lot, sometimes valid, sometimes not. You did the correct thing from your end: you brought the issue to their attention. Despite the quota, it's (hopefully) not permitted to sign people up without their permission (since that's illegal!), and I can say that in my retail experience, with these promotions with great incentive to cheat in this manner, one of the main things our loss prevention department did was to monitor data to see if people were illicitly signing people up for cards or otherwise cheating the system. That could be a very bad thing from a customer service point of view and from a legal point of view. What you should have done (or possibly did, but it's not clear in your post) is, after you reported the issue, asked for a re-contact on a particular date in the future - not "after you've looked into it", but "Next friday I would like to get a call from you to discuss the resolution." Again, they're not going to tell you the discipline, but they should tell you at least that they've investigated it and will make sure it doesn't happen again, or similar. It's possible they will want more information from you at this point, and this is a useful way to make sure that request doesn't fall off of their plate. They should be able to, at least, tell you if there was a perceived issue on their end - it might be something meaningless to you, like "He thought you said to sign up", or something more descriptive, like "He pushed the button to send you a notice, but our computer system screwed that up and made it an application". You never know these days how easy it is to screw these things up. Now, they certainly should have fixed the issues on your end. Hopefully they did whatever you needed them to do banking-wise, or else you withdrew your money and went somewhere else. If not, follow up with that supervisor's supervisor, or go up a level or two to a regional director or equivalent. They may not be able to cancel the card for you, but the other banking-related things they certainly should fix. The card you probably just have to cancel and be done with. As far as the misuse of personal information, one thing I'd consider doing is placing a freeze on your credit report. Then this could never have happened - you would have to lift it to have your report pulled to be given the card. This is not free, though, so consider this before doing this. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: Credit card issued against my express refusal; What action can I take? ### Answer: You can always cancel the card and close this account. Consider switching to a bank that has better customer service. Closing accounts typically gets a lot of attention and it's fairly likely they will contact you to reconsider and so you'll have a chance to air your grievances. Whether they have anything to offer that would cause you to stay is for you to decide. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: Credit card issued against my express refusal; What action can I take? ### Answer: I believe it is so. It doesn't sound like they did anything outright illegal, just a pushy upsell. You can complain to the bank manager. If you want you can mention the employee by name (if you know who they are). Ultimately, you can change banks. From what you say it sounds like you are dissatisfied with this bank, so I think you should at least begin evaluating other banks and consider switching. You can also let your current bank know you are planning to take all your money away from them specifically because of their poor customer service. You could consider filing a complaint with the Consumer Financial Protection Bureau alleging that the bank engaged in some kind of deceptive marketing of their financial products. Of course you can also file a complaint with something like the Better Business Bureau, or even just write a negative Yelp review. But these actions won't really result in any penalty for the bank as a result of what they did in your specific case; they just express your dissatisfaction in a way that will be recorded and possibly made public (e.g., in a list of complaints) to protect future consumers. If you're really gung-ho and have time and money to burn, you could hire a lawyer and get legal advice about whether it is possible to sue the bank for fraud or misuse of your personal information. Needless to say, I think this would be overkill for this situation. I would just cancel the credit card, tell the bank you're dissatisfied, switch banks, and move on. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: What's my risk of buying a house for a friend and sell back to him? ### Answer: Risks: ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: What's my risk of buying a house for a friend and sell back to him? ### Answer: This is fraud, the related legal code is "11 USC 548 - Fraudulent transfers and obligations"; also see the wiki page for Fraudulent Conveyance in the United States. Highly suggest cutting off contact with this person, and speaking with a lawyer as soon as possible to make sure you have not already broken the law. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: What's my risk of buying a house for a friend and sell back to him? ### Answer: Also you would need to consider any taxation issues. As he will be paying you rent you will need to include this as income, plus any capital gains tax on the re-sale of the property may need to be paid. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: What tax software automatically determines the best filing status, etc? ### Answer: Rob - I'm sorry your first visit here has been unpleasant. What you are asking for is beyond the capability of most software. If you look at Fairmark.com, you find the standard deduction for married filing joint is $12,200 in 2012, and $12,400 in 2013. I offer this anecdote to share a 'deduction' story - The first year I did my MIL's taxes, I had to explain that she didn't have enough deductions to itemize. Every year since, she hands me a file full of paper substantiating medical deductions that don't exceed 7.5% of her income. In turn, I give her two folders back, one with the 5 or so documents I needed, and the rest labeled "trash". Fewer than 30% of filers itemize. And a good portion of those that do, have no question that's the right thing to do. e.g. my property tax is more than the $12K, so anything else I have that's a deduction adds right to the number. It's really just those people who are at the edge that are likely frustrated. I wrote an article regarding Standard Deduction vs Itemizing, in which I describe a method of pulling in one's deductible expenses into Odd years, reducing the number in Even years, to allow a bi-annual itemization. If this is your situation, you'll find the concept interesting. You also ask about filing status. Think on this for a minute. After pulling in our W2s (TurboTax imports the data right from ADP), I do the same for our stock info. The stock info, and all Schedule A deductions aren't assigned a name. So any effort to split them in search of savings by using Married Filing Separate, would first require splitting these up. TurboTax has a 'what-if' worksheet for this function, but when the 'marriage penalty' was lifted years ago, the change in status had no value. Items that phaseout over certain income levels are often lost to the separate filer anyway. When I got married, I found my real estate losses each year could not be taken, they accumulated until I either sold, or until our income dropped when the Mrs retired. So, while is respect your desire for these magic dials within the software, I think it's fair to say they would provide little value to most people. If this thread stays open, I'd be curious if anyone can cite an example where filing separately actually benefits the couple. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: How to divide a mortgage and living area fairly? ### Answer: I suggest that you first decide on what %'s of the home value you each have a legal claim to. Then split the mortgage using the same %'s. Then, if someone feels their % is slightly higher, they are compensated because they 'own' a correspondingly higher share of the house. Use the same %'s for downpayments (which may mean that an 'adjustment' payment might be required to bring your initial cash outlay from 70/30 into the %'s that you agree to). Tenant income gets split the same way. Utilities are a bit more difficult - as heating depends more on square feet, but water and hydro depend more on how many people are there. You can try to be really precise about working out the %'s, or just keep it simple by using the same %'s as the mortgage. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: How to divide a mortgage and living area fairly? ### Answer: In my opinion, since she will live in one apartment, as will you and your husband, the simplest method is to divide the ratio exactly the same as the area for your living space. If it's 40/60, she puts 40% down, you put 60%. And you split expenses the same. The tenant income can be applied to the house expenses, as it's no different than giving her 40% and you keep 60%. No matter how well you get along, it's easy for someone to feel a split of expenses isn't fair unless it's discussed and agreed up front. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: How to divide a mortgage and living area fairly? ### Answer: I think what you have here is actually TWO agreements with your sister, and explicitly splitting it into two agreements will bring some clarity. The first is ownership of and responsibility for the building. The second is each of your personal use of a unit. Here's what you do: Treat ownership as if you're not living there. Split the down payment, the monthly mortgage, taxes and insurance, responsibility for cost of maintenance, etc. as well as the ownership and benefit of the building 70%/30%. Put all that in a contract. Treat it like a business. Second, lease those units to yourselves as if you were tenants. And yes, I means even with leases. This clarifies your responsibilities in a tenant capacity. More to the point, each of you pays rent at the going rate for the unit you occupy. If rent from all three units equals the monthly expenses, nothing more needs to be done. If they're more than the monthly expenses, then each of you receives that as business income on that 70%/30% breakdown. If those three rents are less than the monthly expenses, then each of you are required to make up the difference, again at 70%/30%. Note: if any of those expenses are utilities, then they should be apportioned via the rent -- just as you would if you'd rented out the whole building to strangers. 2nd note: all that can be done with ledger entries, rather than moving money around, first as rent, then as expense payments, then as payouts. But, I think it will benefit all of you to explicitly pay rent at first, to really clarify your dual relationship as joint owners and as tenants. Final note: I think this is a stickier situation than you may think it is. Familial relationships have been destroyed both by going into business together, and by renting to family members. You're doing both, and mixing the two to boot. I'm not saying it will destroy your relationship, but that there's a solid risk there. Relationship destruction comes from assumptions and vague verbal agreements. Therefor, for the sake of all of you, put everything in writing. A clear contract for the business side, and clear leases for the tenant side. It's not about trust -- it's about understood communication and positive agreement on all important points. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: How to maximize small business 401k contribution? ### Answer: My understanding is that to make the $18,000 elective deferral in this case, you need to pay yourself at least $18,000. There will be some tax on that for social security and Medicare, so you'll actually need to pay yourself a bit more to cover that too. The employer contribution is limited to 25% of your total compensation. The $18,000 above counts, but if you want to max out on the employer side, you'll need to pay yourself $140,000 salary since 25% of $140,000 is the $35,000 that you want to put into the 401k from the employer side. There are some examples from the IRS here that may help: https://www.irs.gov/retirement-plans/one-participant-401-k-plans I know that you're not a one-participant plan, but some of the examples may help anyway since they are not all specific to one-participant plans. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: How to maximize small business 401k contribution? ### Answer: According to the 401K information from the IRS' website, it seems that you could seemingly get away with a salary as low as $53,000. It's tough, and I'd suggest speaking with an Accounting professional to get the clear answers, because as Brick's answer suggests, the IRS isn't super clear about it. An excerpt from a separate page regarding 401K contributions: The annual additions paid to a participant’s account cannot exceed the lesser of: There are separate, smaller limits for SIMPLE 401(k) plans. Example 1: Greg, 46, is employed by an employer with a 401(k) plan and he also works as an independent contractor for an unrelated business. Greg sets up a solo 401(k) plan for his independent contracting business. Greg contributes the maximum amount to his employer’s 401(k) plan for 2015, $18,000. Greg would also like to contribute the maximum amount to his solo 401(k) plan. He is not able to make further elective deferrals to his solo 401(k) plan because he has already contributed his personal maximum, $18,000. He has enough earned income from his business to contribute the overall maximum for the year, $53,000. Greg can make a nonelective contribution of $53,000 to his solo 401(k) plan. This limit is not reduced by the elective deferrals under his employer’s plan because the limit on annual additions applies to each plan separately. https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-401k-and-profit-sharing-plan-contribution-limits ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: How to maximize small business 401k contribution? ### Answer: I would hire an accountant to help set this up, given the sums of money involved. $53,000 would be the minimum amount of compensation needed to maximize the 401k. The total limit of contributions is the lesser of: 100% of the participant's compensation, or $53,000 ($59,000 including catch-up contributions) for 2015 and 2016. and they don't count contributions as compensation Your employer's contributions to a qualified retirement plan for you are not included in income at the time contributed. (Your employer can tell you whether your retirement plan is qualified.) On the bright side, employer contributions aren't subject to FICA withholdings. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: VAT and German freelance working on international project ### Answer: 11 / 111 / 11111 looks like the (old) tax number: it is used by the tax office to know who you are, it isn't good at all for the spanish company. It would even change when you move inside Germany. VAT IDs are not exclusive to GmbHs (but a GmbH always has one). As freelancers you can get at VAT ID but you don't always have to. The tax office offers a "small business" treatment (§ 19 UStG) for freelancers, kind of an opt-out for the VAT ID. As you do not have a VAT ID, this is probably your case. It means So what to do? If I were you, I'd write them that according to §19 UStG and the European Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, TITLE XII CHAPTER 1 "Special scheme for small enterprises" you were not assigned a VAT ID, and VAT is not applicable to your bill. The fact that VAT is not applicable in this case does not mean that they are allowed to refuse payment. I heard a rumour (but don't really know) that a number similar to the VAT ID is planned also for freelancers (Wirtschafts-IDNr.). You could go to your tax office and ask them about. Maybe that yields a number that satisfies spanish burocracy. AFAIK, you can go to your tax office and ask them to give you a real VAT number. But careful: that has the serious drawback that you have to do do an advance VAT estimate and pay that to the tax office at least quarterly (for bigger business monthly). And (AFAIK) you are not allowed to change back to the small business treatment for several years. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: VAT and German freelance working on international project ### Answer: The VAT number should be equivalent from the point of view of your client. The fact that you are a sole trader and not a limited liability doesn't matter when it comes down to pay VAT. They should pay the VAT to you and you will pay it to the government. I'll guess that their issue is with tax breaks, it is a bit more tricky to receive a tax break on paid taxes if you buy something abroad (at least it is here in Finland). If they won't pay you because of that, you could open a LTD or contract the services of a 'management company' which will do the job of invoicing, receiving the money and passing it back to you, for a fee. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: Best way for for soon to turn 18 to learn about money? ### Answer: Excellent questions! Asking such questions indicates something special about yourself. The desire to learn and adjust your beliefs will increase your chance of success in your life. I would use a wide variety of authors to increase your education. Myself I prefer Dave Ramsey to Clark Howard, but I think Clark is very good. The first thing you should focus on is learning how to do and live by a budget. Often times, adults will assume that you are on a budget because you are broke. It happens with my friends and my youngest child is older than you. Nothing could be further from the truth. A budget is simply a plan on how you will spend your income so you don't run out of money before you run out of month. Along with budgeting I would also focus on goal setting. This is the type of "investing" you should be doing at your age. For example if your primary goal was to become an engineer, my recommendation is to hold off buying stocks/mutual funds and using your current income to get through school with little or no student loans. Another example might be to open your own HVAC business. Your best bet might be to learn the trade, working for someone else, and take night classes for business management. Most 18 year olds have very little earning power. Your focus at this point should be increasing your income and learning how to manage the income you have. Please keep in mind that most debt is bad. It robs you of your income which is your greatest wealth building tool. Car loans and credit card debt is just plain stupid. Often times a business case can be made for reasonable student loans. However, why not challenge yourself to take none. How much further ahead could you be if you graduate, with a degree, when your peers are strapped with a 40K loan? Keep up the good work and keep asking questions. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: Best way for for soon to turn 18 to learn about money? ### Answer: Do you have a smart phone? Check out the Clark Howard Podcast. I listen every day. Of course you can listen from your computer but its far easier to consume from a pod catcher ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: Why do consultants or contractors make more money than employees? ### Answer: The benefits and taxes thing, in my opinion is the biggie. Most people don't realize that the cost to the company for a full-time employee with benefits can be 2x or even 3x the amount they see in their paycheck. Health plans are extremely expensive. Even if you are having money taken from your check for health insurance, it is often just a fraction of the total cost, and the employer is subsidizing the rest. More expensive benefits that contractors don't typically get are 401K matches and paid vacation days. When contractors call in sick or don't work because it is a national holiday, they don't get paid for that day. Also, see that line on your paycheck deducting for Social security and Medicare? That is only half of the tax. The employer pays an equal amount that is not shown on that statement. Also, they pay taxes that go towards unemployment benefits , and may be required to pay higher taxes if they churn through a lot of full-time employees. You can usually let contractors go with relative impunity . For the unemployment tax reasons, not paying for people's days off or benefits, a lot less paperwork, and less risk to the business associated with committing to full-time employees all provide value to the company. Thus companies are willing to pay more because they are getting more. Think of it like a cell phone-contract. If you commit to a three year contract it can be a pain/expensive to get out of the deal early, but you will probably get a better rate in exchange for the risk being shifted to your end of the deal. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: Why do consultants or contractors make more money than employees? ### Answer: There are a couple of reasons, including: ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: Why do consultants or contractors make more money than employees? ### Answer: All the existing answers are right and the general theme is: contracting is a different kind of relationship. It's a business-to-business relationship rather than a business-to-employee relationship. This has implications such as: Of course, some contractors are effectively just over-paid employees, and some of the above points don't apply to them, but that's the idea behind bona fide contracting. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: Why do consultants or contractors make more money than employees? ### Answer: In addition to the other answers, consultants and contractors face a real risk (though admittedly small) of not getting paid. The more short-term the gigs are, the higher the risk of not getting paid for a particular job. As an employee, there are laws to ensure that you get your paycheck. As a contractor, you're just another creditor. I know a couple of contractors (software engineers) who have had difficulty collecting after a job. (I'm not even sure one ever got paid the full amount.) I also personally witnessed a contractor show up for a job who was then told by the company that they unilaterally decided that they would pay half of their pre-arranged rate. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: Why do consultants or contractors make more money than employees? ### Answer: The "more money" aspect is only true if you ignore the lack of symmetry between employment and contracting. Consulting is another story altogether. Companies are willing to pay consultants for a number of reasons but the most important is deniability. If a decision is recommended and goes wrong then the consultants can be sued. Liability cover is expensive. Cynicism aside, it often isn't cost-effective to keep specialists permanently on the payroll for tasks that are performed once a year. Recently I've noticed that the nature of consulting is changing. Companies are starting to assemble brains-trusts of internal consultants who can create and manage projects while outsourcing only the labour-intensive data-collection roles. Expect this to have a big impact on the management consulting industry. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: Why do consultants or contractors make more money than employees? ### Answer: Note too that being a contractor means that you will unavoidably have periods between contracts; you tend to be out of work more often than a salaried employee would. You need to set your rates so your average income, including those down times, adds up to a living wage including all those benefits that aren't being covered. If a company hires a contractor, they understand that this is part of the trade-off. They avoid making a long-term commitment when they don't have a long-term need, and they accept that this convenience may cost a bit more in the short term. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: Why do consultants or contractors make more money than employees? ### Answer: Contractors earn less. Especially the people that are hired under them. They usually have no education, and base pay; long hours and hard work. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: What are the alternatives to compound interest for a Muslim? ### Answer: There are many Shariah compliant investments, so that could direct your resulting searches. Shariah compliance is a very strict interpretation of Islam and for investing offers strict guidelines in what to invest in and excludes investments in companies that engage in certain businesses such as gambling, tobacco, pork and trading of gold and silver on a deferred basis (and more). Many multinational financial service companies such as the Standard & Poors (S&P) offer Shariah Compliant funds and indices, as such, it makes it easier to invest in a variety of different assets through them. You can also look at their fund's constituents and invest in those assets directly. Secondly, going back to your original question about a compound interest equivalent, you can look at the products offered by Shariah Compliant banks. Now, if it is really important for you to adhere to the strictest interpretations of your faith, you should know that most Islamic Banks have interest bearing assets within them and that they disguise that fact. The global financial system is based on interest bearing instruments such as bonds, and Islamic banks are large holders and issuers of those instruments, and all of their consumer products are also based on the interest rates of them. Even convoluted alternatives such as Islamic mortgages, where they are advertised as non-interest bearing equivalents, many times are also the interest bearing version. Unfortunately, these lies are enough for the banks to continue to get business from their target audiences, but outside of Islam this is a very standard and stable business practice. The point is that you should look very carefully at the alternatives you find. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: What are the alternatives to compound interest for a Muslim? ### Answer: My understanding of Muslim finance is that you may not lend money at interest, including investing in in things that pay interest. However you may still make investments: it just has to be in places where you get a share of profit, rather than a fixed rate of return. You would be better asking the Muslim community specifically for more details. The benefits of compound interest apply, more or less, to other non-fixed-interest investments. If you invest $1000 in a business and get a 10% rate of return, you have $1100 to invest in your next venture, which means it will be more profitable and so on. That's why the growth happens, not specifically because it is interest. Stocks do not pay interest, and the 'magic' applies to them too. The fact that you might lose as well as win complicates things, but doesn't change the principle. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: What are the alternatives to compound interest for a Muslim? ### Answer: I cannot tell you what is or is not allowed under Islamic law. What I can tell you is that when most investors talk about the "power of compound interest," they are not actually necessarily talking about interest! The idea of the magic of compound interest is that when you receive an interest payment on your investment, you now have a larger investment, earning more interest. Your investment grows exponentially. This doesn't just apply to interest payments, however, but can apply to any type of investment where the profits of the investment cause the investment to get larger. For example, if you invest in a company's stock, and the value of the stock goes up 10% in a year, after that year your investment is worth more than it was at the beginning. If it goes up another 10% the following year, you have gained more money in the second year than you did in the first. Your gains are compounding, even though interest payments are not involved at all. The same is true if you reinvest dividends or if you use business profit to expand your business, for example. The term "power of compound interest" is so named for historical reasons, but really applies to any type of investment where the investment itself is growing. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: What are the alternatives to compound interest for a Muslim? ### Answer: Invest in growth stocks which do not pay any dividends (Note that some part of the dividends issued by a corporation might be from interest received by the company and passed on to you as a dividend); Buy a house from a bank that practices Islamic Banking. See this question which you yourself answered a few weeks ago to understand how this works. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: What are the alternatives to compound interest for a Muslim? ### Answer: Because so many businesses make some money through some form of compound interest, like a business that saves its earnings in a business account that pays interest, it heavily depends on how strict you interpret this law. Some Muslims I know interpret it to mean directly and indirectly, while for some it's just direct interest earned. What I would suggest is either a direct investment in agriculture or a share in agriculture, where you are directly paid from your share in the investment and not through money that comes from a bank account earning interest. If you do a direct investment in agriculture, like owning livestock, you will be paid money in the form of food, which compounds through reproduction and can sell the offspring to others and collect the money. Year to date, agriculture is crushing the S&P 500 and many places around the world are facing shortages in food, like sugar and corn. If you don't have enough money for a direct investment, you can try the share route where you own a share of a direct investment. Rather than go through stock exchanges, where many of these companies make money indirectly through interest also, you can negotiate directly with farmers, ranchers, livestock owners, etc. Some of these individuals are looking to diversify their money, so they may be willing to let you own a fraction of what they produce and pay you directly. All of this comes with risk, of course. Livestock and plants die for a variety of reasons, but none of it will be interest from lending whether to individuals or through a bank. In addition, if we experience very high inflation in the future, livestock and plants do very well in this environment. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: What are the alternatives to compound interest for a Muslim? ### Answer: I am not sure if these are available today in your country: but supposedly, back when Catholic countries similarly forbade usury, sinecures were invented to circumvent religious restrictions on finance. Meaning literally 'without care', sinecures were formally prestigious salary-paying jobs with few responsibilities. They were bought by the wealthy from the Church or State. The salaries for sinecures, accumulated over time, exceeded the initial purchase price. As such, some moderns consider sinecures usury in all but name. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: What are the alternatives to compound interest for a Muslim? ### Answer: In the UK at least, we have Credit Unions. Credit Unions are not-for-profit organisations that don't pay interest on your balance, but instead give you a share of their profits at the end of the year (or at least my local branch do). This normally equates to around 1% of my balance. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: What are the alternatives to compound interest for a Muslim? ### Answer: There are lot of options. I personally avoid keeping money in bank accounts and invest in one of the funds. It's just my personal opinion, you can ask your Ulamas ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: What are the alternatives to compound interest for a Muslim? ### Answer: It depends whether you want to be technically compliant with the letter of the law or compliant with the underlying meaning. For instance, in some countries you can find shell companies that do nothing but deal in fixed income instruments (those that you want to avoid) and dividend stocks (those that you might or might not be allowed to use). You can buy stock of that shell company, which does not hand out dividends itself. Thereby, you transform interest and dividends into capital gains. These shell companies exist for fiscal reasons, the more risky capital gains are often less taxed than interest or dividends. This might technically solve your problem, but not really change anything in the underlying reality. P.S. Don't worry too much about missing compounding interest. The rates are incredibly low right now. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: Why invest for the long-term rather than buy and sell for quick, big gains? ### Answer: There are people (well, companies) who make money doing roughly what you describe, but not exactly. They're called "market makers". Their value for X% is somewhere on the scale of 1% (that is to say: a scale at which almost everything is "volatile"), but they use leverage, shorting and hedging to complicate things to the point where it's nothing like a simple as making a 1% profit every time they trade. Their actions tend to reduce volatility and increase liquidity. The reason you can't do this is that you don't have enough capital to do what market makers do, and you don't receive any advantages that the exchange might offer to official market makers in return for them contracting to always make both buy bids and sell offers (at different prices, hence the "bid-offer spread"). They have to be able to cover large short-term losses on individual stocks, but when the stock doesn't move too much they do make profits from the spread. The reason you can't just buy a lot of volatile stocks "assuming I don't make too many poor choices", is that the reason the stocks are volatile is that nobody knows which ones are the good choices and which ones are the poor choices. So if you buy volatile stocks then you will buy a bunch of losers, so what's your strategy for ensuring there aren't "too many"? Supposing that you're going to hold 10 stocks, with 10% of your money in each, what do you do the first time all 10 of them fall the day after you bought them? Or maybe not all 10, but suppose 75% of your holdings give no impression that they're going to hit your target any time soon. Do you just sit tight and stop trading until one of them hits your X% target (in which case you start to look a little bit more like a long-term investor after all), or are you tempted to change your strategy as the months and years roll by? If you will eventually sell things at a loss to make cash available for new trades, then you cannot assess your strategy "as if" you always make an X% gain, since that isn't true. If you don't ever sell at a loss, then you'll inevitably sometimes have no cash to trade with through picking losers. The big practical question then is when that state of affairs persists, for how long, and whether it's in force when you want to spend the money on something other than investing. So sure, if you used a short-term time machine to know in advance which volatile stocks are the good ones today, then it would be more profitable to day-trade those than it would be to invest for the long term. Investing on the assumption that you'll only pick short-term winners is basically the same as assuming you have that time machine ;-) There are various strategies for analysing the market and trying to find ways to more modestly do what market makers do, which is to take profit from the inherent volatility of the market. The simple strategy you describe isn't complete and cannot be assessed since you don't say how to decide what to buy, but the selling strategy "sell as soon as I've made X% but not otherwise" can certainly be improved. If you're keen you can test a give strategy for yourself using historical share price data (or current share price data: run an imaginary account and see how you're doing in 12 months). When using historical data you have to be realistic about how you'd choose what stocks to buy each day, or else you're just cheating at solitaire. When using current data you have to beware that there might not be a major market slump in the next 12 months, in which case you won't know how your strategy performs under conditions that it inevitably will meet eventually if you run it for real. You also have to be sure in either case to factor in the transaction costs you'd be paying, and the fact that you're buying at the offer price and selling at the bid price, you can't trade at the headline mid-market price. Finally, you have to consider that to do pure technical analysis as an individual, you are in effect competing against a bank that's camped on top of the exchange to get fastest possible access to trade, it has a supercomputer and a team of whizz-kids, and it's trying to find and extract the same opportunities you are. This is not to say the plucky underdog can't do well, but there are systematic reasons not to just assume you will. So folks investing for their retirement generally prefer a low-risk strategy that plays the averages and settles for taking long-term trends. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: Why invest for the long-term rather than buy and sell for quick, big gains? ### Answer: If they return to their earlier prices Assuming I don't make too many poor choices That's your problem right there: you have no guarantee that stocks, will in fact return to their earlier prices rather than go down some more after the time you buy them. Your strategy only looks good and easy in hindsight when you know the exact point in time when stocks stopped going down and started going up. But to implement it, you need to predict that time, and that's impossible. I would adopt a guideline of "sell when you've made X%, even if it looks like it might go higher." Congratulations, you've come up with the concept of technical analysis. Now go and read the hundreds of books that have been written about it, then think about why the people who wrote them waste time doing so rather than getting rich by using that knowledge. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: Why invest for the long-term rather than buy and sell for quick, big gains? ### Answer: On Black Friday, 1929,the market fell from over 350 to just above 200. If you were following your plan then you would buy in at about 200. But look what the market did for two years after Black Friday. It went down to about 50. You would have lost around 75% of your capital. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: Why invest for the long-term rather than buy and sell for quick, big gains? ### Answer: The technical term for it is "timing the market" and if you can pull it off correctly, you will do quite well. The problem is that it is almost impossible to consistently do well. If it were that easy there would be a lot of billionaires walking around. Even Wall street experts haven't been able to predict the market that well. This idea is almost universally considered a bad idea. Consider this: When has the stock dropped low enough that you are "buying low" and let's say you do buy low and it doubles in a month. When do you get out? What if you are wrong and it doubles again? Or if it drops 10% do you keep waiting? This strategy is rife with problems. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: Why invest for the long-term rather than buy and sell for quick, big gains? ### Answer: Every time you buy or sell a share for some price, somebody must have thought that that was exactly the right moment to sell or buy that share at that price (and to trade with you). Every time a trade is made, both sides think they are doing the smart thing. Most of the time, one will turn out to be wrong, the other right. Nothing in your proposed method of trading explains why you would be the side that was right more often. So they'll probably even out. Or maybe there are people in the market who actually do have a slightly better than average method, and you'll be wrong somewhat more often than right. Each trade has transaction costs. If you simply hang on to your shares, that's more or less the same as evening out good trades and bad trades, but without the transaction costs. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: Why invest for the long-term rather than buy and sell for quick, big gains? ### Answer: The price of a shares reflects the expected future returns of that company. If it does not someone will notice and buy until it does. Look at this chart http://www.finanzen.net/chart/Arcandor (click on max), that's a former DAX company, so one of the largest german companys. Now it's bankrupt. Why do you think you are the only one who is going to notice? There are millions of people and even more computers, some a going to be smarter than you. Of course that does not happen to everyone but who knows. Is Volkswagen going to survive the current crisis? Probably. Is it coming back to former glory in the next half year? Who knows? Here comes the obvious solution: Don't buy single stocks, spread it out over many companies, some will shine, some will plument and you get the average. Oh that's an index, how convinent. Now if there were a way to save on all these transaction costs you're incurring... ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: Why invest for the long-term rather than buy and sell for quick, big gains? ### Answer: As an easy way to answer... look at an index, let's say the S&P 500. Look at the price this last October, and predict where it will move in November... easy right? It already happened, and you have the benefit of hindsight. The move looks like such a consistent, obvious continuation of the previous up and down pattern. It looks predictable, like you could have guessed that. Now, look at today's price, and predict where it will go next month. Not so easy now? The problem is, every point you're at, all the time, looks like a possible inflection point or turning point. If you're following an uptrend, you may think it'll continue, but you may also think that it zigged so far up already, that now it's ready for a zag down where you'll buy. So you wait... and it keeps rising, and you kick yourself for missing out. Next time, you see another uptrend and resolve to buy it regardless, thinking now it'll keep going, but it turns down the second you buy it, and keeps dropping. You kick yourself again. The market is amazing at doing this to you every time. In real time, every wiggle in the price looks simultaneously like a trend that could continue, and like a trend that has moved far enough and is ready to reverse. And more likely you'll guess the wrong one. The ONLY way with some little hope of succeeding is to study study study, and find and learn trading rules with just over 50/50 chances (like buying when a moving average is touched within an uptrend as an example, and setting a stop loss at -1%, and a sell limit at +2% or something), and then never ever deviate from that strategy, because your only hope is in the consistency of statistics and odds over time. You'll get many -1% losses, and hopefully enough 2% gains to compensate the losses, plus some profit. OR, to make it easier, just buy in on a dip, and hold and hold and collect dividends, and be content to match the market without effort. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: Why invest for the long-term rather than buy and sell for quick, big gains? ### Answer: The stock market's principal justification is matching investors with investment opportunities. That's only reasonably feasible with long-term investments. High frequency traders are not interested in investments, they are interested in buying cheap and selling expensive. Holding reasonably robust shares for longer binds their capital which is one reason the faster-paced business of dealing with options is popular instead. So their main manner of operation is leeching off actually occuring investments by letting the investors pay more than the recipients of the investments receive. By now, the majority of stock market business is indirect and tries guessing where the money goes rather than where the business goes. For one thing, this leads to the stock market's evaluations being largely inflated over the actual underlying committed deals happening. And as the commitment to an investment becomes rare, the market becomes more volatile and instable: it's money running in circles. Fast trading is about running in front of where the money goes, anticipating the market. But if there is no actual market to anticipate, only people running before the imagination of other people running before money, the net payout converges to zero as the ratio of serious actual investments in tangible targets declines. By and large, high frequency trading converges to a Ponzi scheme, and you try being among the winners of such a scheme. But there are a whole lot of people competing here, and essentially the net payoff is close to zero due to the large volumes in circulation as opposed to what ends up in actual tangible investments. It's a completely different game with different rules riding on the original idea of a stock market. So you have to figure out what your money should be doing according to your plans. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: Why invest for the long-term rather than buy and sell for quick, big gains? ### Answer: Someone entering a casino with $15 could employ a very simple strategy and have a better-than-90% chance of walking out with $16. Unfortunately, the person would have a non-trivial chance (about one in 14) of walking out with $0. If after losing $15 the person withdrew $240 from the bank and tried to win $16, the person would have a better-than-90% chance of succeeding and ending up ahead (holding the original $15, plus the additional $240, plus $1) but would have at that point about a one in 14 chance from that point of losing the $240 along with the original $15. Measured from the starting point, you'd have about a 199 out of 200 chance of gaining $1, and a one out of 200 chance of losing $240. Market-timing bets are like that. You can arrange things so you have a significant chance of making a small profit, but at the risk of a large downside. If you haven't firmly decided exactly how much downside you are willing to accept, it's very easy to simultaneously believe you don't have much money at risk, but that you'll be able to win back anything you lose. The only way you can hope to win back anything you lose is by bringing a lot more money to the table, which will of course greatly increase your downside risk. The probability of making money for the person willing to accept $15 of downside risk to earn $1 is about 93%. The probability of making money for the person willing to accept $255 worth of risk is about 99.5%. It's easy to see that there are ways of playing which have a 99.5% chance of winning, and that there are ways of playing that only have a 15:1 downside risk. Unfortunately, the ways of playing that have the smaller risk don't have anything near a 99.9% chance of winning, and those that have a better chance of winning have a much larger downside risk. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: Why invest for the long-term rather than buy and sell for quick, big gains? ### Answer: Plenty of good answers here, but probably the best answer is that The Market relies on suckers...er...investors like you. The money has to come from somewhere, it might as well be you. So-called "day traders" or "short-term investors" are a huge part of the market, and they perform a vital function: they provide capital that flows to the large, well-equipped, institutional investors. Thing is, you can never be big enough, smart enough, well-informed enough, or quick enough to beat the big guys. You may have a run of good fortune, but over the long term aggregate, you're a PAYOR into the market, not a DIVIDEND reaper. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: Why invest for the long-term rather than buy and sell for quick, big gains? ### Answer: A lot of people have already explained that your assumptions are the issue, but I'll throw in my 2¢. There are a lot of people who do the opposite of long term investing. It's called high frequency trading. I'd recommend reading the Wikipedia article for more info, but very basically, high frequency traders use programs to determine which stocks to buy and which ones to sell. An example program might be "buy if the stock is increasing and sell if I've held it more than 1 second." ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: Why invest for the long-term rather than buy and sell for quick, big gains? ### Answer: Playing the markets is simple...always look for the sucker in the room and outsmart him. Of course if you can't tell who that sucker is it's probably you. If the strategy you described could make you rich, cnbc staff would all be billionaires. There are no shortcuts, do your research and decide on a strategy then stick to it in all weather or until you find a better one. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: Why invest for the long-term rather than buy and sell for quick, big gains? ### Answer: The problem is that short-term trends are really unpredictable. There is nobody who can accurately predict where a fund (or even moreso, a single stock or bond) is going to move in a few hours, or days or even months. The long-term trends of the entire market, however, are (more or less) predictable. There is a definite upward bias when you look at time-scales of 5, 10, 20 years and more. Individual stocks and bonds may crash, and different sectors perform differently from year to year, but the market as a whole has historically always risen over long time scales. Of course, past performance never guarantees future performance. It is possible that everything could crash and never come back, but history shows that this would be incredibly unlikely. Which is the entire basis for strategies based on buying and holding (and periodically rebalancing) a portfolio containing funds that cover all market sectors. Now, regarding your 401(k), you know your time horizon. The laws won't let you withdraw money without penalty until you reach retirement age - this might be 40 years, depending on your current age. So we're definitely talking long term. You shouldn't care about where the market goes over a few months if you won't be using the money until 20 years from now. The most important thing for a 401(k) is to choose funds from those available to you that will be as diverse as possible. The actual allocation strategy is something you will need to work out with a financial advisor, since it will be different for every person. Once you come up with an appropriate allocation strategy, you will want to buy according to those ratios with every paycheck and rebalance your funds to those ratios whenever they start to drift away. And review the ratios with your advisor every few years, to keep them aligned with large-scale trends and changes in your life. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: Why invest for the long-term rather than buy and sell for quick, big gains? ### Answer: There are many technical answers above , but the short story to me is that very few active fund managers consistently beat the market. Look at the results of actively managed funds. Depending on whose analysis you read, you will find out that somewhere between 80-90% of fund managers in a given year do not beat passive index funds. So go figure how you will do compared to a mutual fund manager who has way more experience than you likely have. So, that in itself is moderately interesting, but if you look at same-manager performance over several consecutive years it is rare to find anyone that goes beats the market for more than a few years in a row. There are exceptions, but go pick one of these guys/gals - good luck. Getting in and out of the market is a loser. This is because there is no way to see market spikes and down turns. There are many behavioral studies that have been done that show people do the wrong thing: they sell after losses have occurred and they buy after the market has gone up. Missing an up spike and not being in before the spike is as devastating as missing a down turn and not getting out in time. There is another down side, if you are trading in a personal account, rather than a tax deferred account, going in and out of stocks has tax complications. In short, a broad based equity index will, over time, beat about anything out there and it will do it in a tax efficient manner. Exchange traded funds (ETFs) are a wonderful way to obtain diversification immediately at very low cost. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: Why invest for the long-term rather than buy and sell for quick, big gains? ### Answer: Another benefit of holding shares longer was just pointed out in another question: donating appreciated shares to a nonprofit may avoid the capital gains tax on those shares, which is a bigger savings the more those shares have gone up since purchase. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: 2 houses 450k each or one 800k? ### Answer: Having someone else paying you rent is always going to be the better deal financially. The question is, what does $450k buy in the neighborhood in which you want to live, vs $800k? I'm going to assume you can afford either option (buying a $450k home and not selling, or an $800k home and selling your current one) whether someone's paying you rent or not. Let's make up some numbers here; a $450k home, financed 80/20 (360k principal) at 4% for 30 years will cost you about $1720 in P&I payments per year (plus escrows such as RE taxes, PMI, and homeowners insurance where applicable). An $800k home financed 80/20 (640k principal) at 4% for 30yr will give you payments of about $3,055/mo before taxes and insurance. So, the worst case overall is that you buy a 450k home in the new neighborhood and are not, at any given time, collecting rent on the old property. That would (assuming the mortgage terms on both home loans were comparable) cost you $3440/mo and you'd be living in a $450k home in a neighborhood where 450k may not buy a home as nice as the one you moved out of. The question as I stated above is this; assuming you had a reliable tenant in your home for the entire remaining life of the loan on your current home, which is more acceptable to you: buying $450k of home (which might be a downgrade in sqft or amenities) and paying $2020 in P&I, or paying about a grand more ($3055/mo) for a much nicer home in the new location? Strictly from a money perspective, the renter is going to be the best option, IF you get reliable tenancy for the entire life of the mortgage on that house; you'll be paying $2020/mo for 30 years, which is $727,200, to end up with $950k of total home value (plus adjustments for actual home value appreciation/depreciation). That's the only way you'll come out ahead on any mortgage; have someone else pay most of it for you. If you don't rent, the $800k home will cost you $1,099,800, while two $450k homes will cost you $1,454,400. The percentage of home value over total payments for the 800k home would be 72% (you will have paid 137% of the value of the home), while you will have paid 153% of the value of two 450k homes. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: 2 houses 450k each or one 800k? ### Answer: Forget the math's specifics for a moment: here's some principles. Additional housing for a renter gives you returns in the form of money. Additional housing for yourself pays its returns in the form of "here is a nice house, live in it". Which do you need more of? If you don't need the money, get a nicer house for yourself. If you need (or want) the money, get a modest house for yourself and either use the other house as a rental property, or invest the proceeds of its sale in the stock market. But under normal circumstances (++) don't expect that buying more house for yourself is a good way to increase how much money you have. It's not. (++ the exception being during situations where land/housing value rises quickly, and when that rise is not part of a housing bubble which later collapses. Generally long-term housing values tend to be relatively stable; the real returns are from the rent, or what economists call imputed rent when you're occupying it yourself.) ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: 2 houses 450k each or one 800k? ### Answer: Because it appears you have in the neighborhood of 30 years remianing on your mortgage for the first house, If you can sell it you will likely be better off in the end. While renting has the potential for greater income it is a business. And like any business there are risks, expenses, and work required to make it successful. There will be times where you can not find a renter immediately and will be responsible for making both payments, maintaining both houses, the insurance(which for an owner is higher for a rental property than a domicile), and paying the applicable taxes. You need to look at your best and worst case numbers. If your best case numbers leave you in the hole 300/month then that is not the sort of business you want to run. Your investment should build your savings and retirement funds not deplete them. Further you are more likely to fall between your best and worst case scenerios. So you need to be able to thrive at that level. If something in the middle is going to take you into bankruptcy then sell the property. If you are not willing to put the time into your business that it will need (My rental home took about 10-30 hours a month despite renters being responsible for basic upkeep and maintenance. Finally your plan B: A home with 800k value will have higher costs and higer expenses and maintenance. If the 800k home is the home you and your family needs then by all means go for it. But if it can do just as well in the 450k Home then go there. Pay the home off early by making the payments you would be making for the 800k home. In this way you pay less in total cost of the home and set your self up for the greatest chance of success. Once that home is paid off the break even point for renting goes way down as well. So the rental option could be in the future. I would just aviod it now if possible. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: Is inflation a good or bad thing? Why do governments want some inflation? ### Answer: Sensitive topic ;) Inflation is a consequence of the mismatch between supply and demand. In an ideal world the amount of goods available would exactly match the demand for those goods. We don't live in an ideal world. One example of oversupply is dollar stores where you can buy remainders from companies that misjudged demand. Most recently we've seen wheat prices rise as fires outside Moscow damaged the harvest and the Russian government banned exports. And that introduces the danger of inflation. Inflation is a signal, like the pain you feel after an injury. If you simply took a painkiller you may completely ignore a broken leg until gangrene took your life. Governments sometimes "ban" inflation by fixing prices. Both the Zimbabwean and Venezuelan governments have tried this recently. The consequence of that is goods become unavailable as producers refuse to create supply for less than the cost of production. As CrimonsX pointed out, governments do desperately want to avoid deflation as much as they want to avoid hyperinflation. There is a "correct" level and that has resulted in the monetary policy called "Inflation targetting" where central banks attempt to manage inflation into a target range (usually around 2% to 6%). The reason is simply that limited inflation drives investment and consumption. With a guaranteed return on investment people with cash will lend it to people with ideas. Consumers will buy goods today if they fear that the price will rise tomorrow. If prices fall (as they have done during the two decades of deflation in Japan) then the result is lower levels of investment and employment as companies cut production capacity. If prices rise to quickly (as in Zimbabwe and Venezuela) then people cannot save enough or earn enough and so their wealth is drained away. Add to this the continual process of innovation and you see how difficult it is to manage inflation at all. Innovation can result in increased efficiency which can reduce prices. It can also result in a new product which is sufficiently unique to allow predatory pricing (the Apple iPhone, new types of medicines, and so on). The best mechanism we have for figuring out where money should be invested and who is the best recipient of any good is the price mechanism. Inflation is the signal that investors need to learn how best to manage their efforts. We hide from it at our peril. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: Is inflation a good or bad thing? Why do governments want some inflation? ### Answer: Basically, in any financial system that features fractional reserve banking, the monetary supply expands during times of prosperity. Stable, low inflation of 2-4% keeps capital available while keeping the value of money stable. It also discourages hoarding of wealth. Banks aren't vaults. They take deposits and make an explicit promise to repay the depositor on demand. Since most depositors don't need to withdraw money regularly, the lend out the money you deposited and maintain a reserve sufficient to meet daily cash needs. When times are good, banks lend to people and businesses who need capital, who in turn do things that add value to the overall economy. When times are bad, people and businesses either cannot get capital or pay more for it, which reduces the number of times that money changes hands and has a negative impact on the wider economy. People who are trying to sell you commodities or who have a naive view of how the economy actually works decry the current monetary system and throw around scary words like "fiat currency" and "inflation is theft". What these people don't realize is that before the present system, where the value of money is based on promises to repay, the gold and silver backed systems also experienced inflation. With gold/silver based money, inflation was driven by discoveries of gold and silver deposits ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: Is inflation a good or bad thing? Why do governments want some inflation? ### Answer: Inflation, like trade deficits or surpluses, have winners and losers in an economy. Clear losers are people who are on a fixed income, as they often have a fixed income and a prices keep on going up, meaning they can afford less. Numerous articles on the internet discuss the inflation of the 1970s, here are Google's results. I'm not so sure that governments want "some inflation" as much as they desperately want to avoid deflation. Deflation means that the price for today's product, like a car, will decrease in price tomorrow (or a month from now) which creates a powerful incentive for people to put off a purchase until later, which brings consumer demand down in a country's economy. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: Is inflation a good or bad thing? Why do governments want some inflation? ### Answer: Although there are some good points made here as to the cause of inflation (mostly related to supply and demand), azcoastal does head in a different direction, one which I myself was going to take. Let me give a different angle, however. Another cause of inflation is the printing of money by the government (not simply replacing old money with new, but adding to the total money in circulation). If the government doubles the amount of currency in circulation (for the sake of argument and easy math), the value of all money decreases by a factor of 2. That's inflation, and the way G. Edward Griffin in The Creature From Jekyll Island puts it, it's really tantamount to a hidden tax. In a nutshell, the federal government wants to buy some cool stuff like new tanks or planes, or they want to give a bunch of food stamps to poor people, or they want to fly their private jets around, but they don't have enough money from taxes. So, they print money and spend it and buy their stuff. Because they've just increased the money in circulation, however, money loses its value. For example, your savings has dropped in value by half, despite the fact that the same number of dollars is in your savings account. This is just a way the government can tax you without taxing you. They buy stuff and you now have less money (i.e., your retirement is worth less) and you don't even know you just got taxed. Makes me sick that we let our "leaders" get away with this. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: Is inflation a good or bad thing? Why do governments want some inflation? ### Answer: Inflation is what happens, it is not good or bad in and of itself. But consider the following. In a thriving economy with low unemployment, people are buying, buying, buying. People are not saving for later, they are buying now. Industry is also making purchases. Now. From economics 101: high demand for goods/services leads to relative scarcity leading to higher prices. Inflation tends to be one byproduct of a thriving economy. Governments want the thriving economy that brings inflation with it. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: Is inflation a good or bad thing? Why do governments want some inflation? ### Answer: The classic definition of inflation is "too much money chasing too few goods." Within a tight range, say 1-3%, inflation is somewhat benign. There's a nice inflation widget at The Inflation Calculator which helps me see that an item costing $1000 in 1975 would now (2010) be about $4000, and $1000 from 1984 till now, just over $2000. I chose those two years to make a point. First, I am 48, I graduated college in 1984, so in my working life I've seen the value of the dollar drop by half. On the other hand it only took 9 years from 75-84 to see a similar amount of inflation occur. I'd suggest that the 26 year period is far more acceptable than the 9. Savers should be aware of their real return vs what was a result of inflation. I'm not incensed either way but logically have to acknowledge the invisible tax of inflation. I get a (say) 6% return, pay 2% in tax, but I'm not ahead by 4%, 3% may be lost to inflation. On the flip side, my mortgage is 3.5%, after taxes that's 2.625%, but less than 0% after (long term) inflation. So as a debtor, I am benefiting by the effect of inflation on what I owe. Interesting also to hear about deflation as we've grown used to it in the case of electronics but little else. Perhaps the iPad won't drop in price, but every year it will gain features and competitors will keep the tablet market moving. Yet people still buy these items. Right now, there's not enough spending. I'd suggest that, good financial advice aside, people as a whole need to start spending to get the economy moving. The return of some inflation would be a barometer of that spending starting to occur. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: Is inflation a good or bad thing? Why do governments want some inflation? ### Answer: In general the consensus is that a small amount of inflation (usually 1.5-2% per year) is desirable. That is why the Federal Reserve sets its inflation target in that range. The reasons why are quite complex though. One reason is "wage stickiness" - ie., the observed phenomenon that employers don't like to cut wages. Having a small rate of inflation means that when wages are steady in nominal terms, they are actually falling in real terms. This gives employers more flexibility. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: Is inflation a good or bad thing? Why do governments want some inflation? ### Answer: Inflation is an increase in the money supply. Increases in consumer prices follow from inflation. It's not the same as inflation. Some inflation is necessary for a growing economy. If your gross national product is only $1,000, then you can get away with having less money than if your gross national product is $1 trillion. Inflation beyond this, though, is used to allow governments to live beyond their means. If there is more money chasing the same amount of goods, prices will rise. There is truth in what azcoastal says about this kind of inflation. It's theft. Governments like inflation because it allows them to pay off their debts with cheaper money. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: Is inflation a good or bad thing? Why do governments want some inflation? ### Answer: If there's no inflation (or alternately there's deflation) people would tend to sit on money and wait for the prices to drop. This in pretty bad for pricier stuff like real estate/housing industry where a few percent can make a big difference. For a growing economy a small inflation is good as people would go out and buy new stuff when they want it knowing they will not get a better deal if they wait a year or so. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: Is inflation a good or bad thing? Why do governments want some inflation? ### Answer: Inflation is a bad thing. It makes it much more difficult for people to compare prices and prosperity over a long period of time. This causes people to ignore the wisdom of their elders (who remember prices from a long time ago). Back in my day, you could get a burger and fries for 15 cents -- a dime for the burger, and a nickel for the fries. But the minimum wage was only a quarter an hour! That doesn't help me decide if things have gotten better or worse. How long is "a long period of time"? That depends on the inflation rate. At 1 percent per year, 50 or 100 years is "a long time". At 10 percent per year, 5 or 10 years. At 100 percent per year, a few months. Because of the Spanish conquests of gold and silver mines in Mexico and Peru, prices in the sixteenth century rose by a factor of 5.5 during the century. This inflation was recognized as causing lots of social and governmental problems. Note that this means an average inflation rate of 2 percent per year for a century is known to be a very bad thing. There are several reasons that most governments want some inflation: ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: Is inflation a good or bad thing? Why do governments want some inflation? ### Answer: Inflation is theft! It is caused when banks lend money that someone deposited, but still has claim to - called fractional reserve banking. On top of that, the Federal Reserve Bank (in the US) or the Central Bank of the currency (i.e. Bank of Japan, European Central Bank, etc.) can increase the monetary base by writing checks out of thin air to purchase debt, such as US Treasury Bonds. Inflation is not a natural phenomenon, it is completely man-made, and is caused solely by the two methods above. Inflation causes the business cycle. Lower interest rates caused by inflation cause long-term investment, even while savings is actually low and consumption is high. This causes prices to rise rapidly (the boom), and eventually, when the realization is made that the savings is not there to consume the products of the investment, you get the bust. I would encourage you to read or listen to The Case Against the Fed by Murray N. Rothbard - Great book, free online or via iTunes. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: What are the costs to establish an LLC and to maintain it? ### Answer: The cost will be around $300-$500 if you do it correctly it in Florida and can be over a $1,000 if you do it in New York (New York is more expensive due to a publication requirement that New York has for LLC’s). The price ranges I’ve given include filing, state fees, getting a tax ID number (EIN), operating agreement, membership certificates, registered agent fees and publication fees if done in New York. Each state also have licensing boards and city fees that are applicable, so you would want to also make sure that you are keeping compliant there. Yearly paperwork to keep the LLC running won’t be so expensive, expect the state to charge a yearly fee and require some basic information to be submitted. I had a quick look at Florida, and with someone filing it for you, expect around $200 to $250 a year, plus registered agent fees. If you are late in Florida the penalty is $400 so you definitely would want a service that provides compliance calendar notifications to make sure you are on time with fees. In regards to bookkeeping and taxes, yearly tax filing will start at $250 to $500 for an LLC and move up from there depending on the services being offered and the amount of time of work. I recently referred someone to an accountant that will charge $250 to file an almost zero tax return on an LLC. I think $40 an hour is a little low for a bookkeeper but it all depends on where you are. I know in some major cities bookkeepers expect $75 an hour or higher. So the expectation in Miami and Manhattan will probably be more expensive than Jacksonville and Albany. If you doing a little business don’t expect the cost to be too much on the bookkeeping. So, breakdown: $300-$500 (FL) - $1,000 (NY) Registration of LLC + any business license, city or other registrations $250 Yearly Fee + Yearly Registered Agent + any business licenses, city or other fee $500 Tax Return + Bookkeeping Fee Banks will charge more than a personal account so expect $120 a year plus. In regards to service I would look at companies that specialize in foreigners setting up businesses in the US, because they will have services designed to help you more than services that primarily specialize with US clients. You are going to have some different needs, based on not having a Social Security Number or establishing from overseas. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: What are the costs to establish an LLC and to maintain it? ### Answer: I'll answer in general terms, since I'm not familiar with the price ranges in Florida. The LLC formation costs $125 (state fee). In addition you'll need a registered agent. Registered agent could be your CPA/EA/bookkeeper/property manager/local friend, or you can pay firms specializing in providing registration and agents services such as NorthWestern or LegalZoom (there are many others). You'll need to pay an annual fee of ~$140 in Florida. If you are using someone to do the formation, they'll charge more (usually the on-line services are cheaper than a local CPA or attorney, by $100-$300). Bookkeeping will probably be charged by the hour, but some bookkeepers charge flat fees for small accounts. Per hour would be probably in the range of $40-$80. You'll have to pay taxes - both in Florida (where the property is) and on the Federal level to the IRS. You'll be paying them as a non-Resident individual. Your CPA/EA will charge you anywhere between $150 to $500 for that (if they charge more - run away, unless there's some specific complication that requires extra costs). You will need a ITIN for that, your CPA/EA can help you get one or you can apply yourself. Be careful with all those people selling cr@p about organizing in Delaware/Wyoming/Nevada (like CQM in his answer). Organizing in a state other than where the properties are located (or off-shore) won't save you a dime, and not only that - it will add to the costs. Because you'll have to pay to the state where you organized (CQM mentioned Wyoming - $50/year), keep registered agent in the state of organization (+$99) and also do all the things I've described above about Florida - as a "Foreign" (out of state) entity, which may mean higher fees. It won't save you any taxes as well, because you pay taxes to the state from which you derive income, which is Florida, either way. Remember that what you call LLC in Italy may be in fact a "Corporation" as defined in the US, and there's a huge difference. You should probably not put a real-estate property in a Corporation in the US. You must get a legal advice from a (Florida) lawyer ($0-$500/hr consultation), and a tax advice from a (Florida) CPA/EA ($0-$200/hr consultation). Do not consider anything I write here as a legal or tax advice, because it is not. You need a professional to help you because as an Italian, you don't know how things work exactly and relying on rumours and half-truths that you may find and get over the Internet may end up costing you significantly in damages. Also, talk to a reliable real estate agent and property manager before making any purchases. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: Why does the share price tend to fall if a company's profits decrease, yet remain positive? ### Answer: It has got to do with market perceptions and expectation and the perceived future prospects of the company. Usually the expectation of a company's results are already priced into the share price, so if the results deviate from these expectations, the share price can move up or down respectfully. For example, many times a company's share price may be beaten down for increasing profits by 20% above the previous year when the expectation was that it would increase profits by 30%. Other times a company's share price may rise sharply for making a 20% loss when the expectation was that it would make a 30% loss. Then there is also a company's prospects for future growth and performance. A company may be heading into trouble, so even though they made a $100M profit this year, the outlook for the company may be bleak. This could cause the share price to drop accordingly. Conversely, a company may have made a loss of $100M but its is turning a corner after reducing costs and restructuring. This can be seen as a positive for the future causing the share price to rise. Also, a company making $100M in profits would not put that all into the bank. It may pay dividends with some, it may put some more towards growing the business, and it might keep some cash available in case cash-flows fluctuate during the year. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: Why does the share price tend to fall if a company's profits decrease, yet remain positive? ### Answer: The company's value (which should be reflected in the share price) is not how much money it has in the bank, but something along the lines of 'how much money will it make between now and the end of times' (adjusted for time value of money and risk). So when you purchase a share of a company that has, say, little money in the bank, but expects to make 1M$ profit this year, 2M$ for the following 3 years, and say, nothing after, you are going to pay your fraction of 7M$ (minus some discount because of the risk involved). If now they announce that their profits were only 750k$, then people may think that the 2M$ are more likely to be 1.5M$, so the company's value would go to ~ 5M$. And with that, the market may perceive the company as more risky, because its profits deviated from what was expected, which in turn may reduce the company's value even further. ###end
Below is an instruction that describes a task. Write a response that appropriately completes the request. ### Question: Why does the share price tend to fall if a company's profits decrease, yet remain positive? ### Answer: You are omitting how the company made 120 million in the previous year and may be facing a shrinking market and thus have poor future prospects. If the company is shrinking, what will the shares be worth down the road. Remember companies like AOL or Blackberry? There was a time they had big profits before things changed which is the part you aren't considering here. If the company has lost something big on its earnings, e.g. the oil wells it owned have run out of reserves or the patents on its key drugs have expired, then there could be the perception that the company won't be able to compete in the future to continue to deliver earnings. Some companies may well end up going broke as one could look at GM for a company that used to be one of the largest car companies in the world and yet it ended up going broke. ###end

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