• Cybercurrencies: A Risky Choice

    Investors attracted by bitcoin & other altcoins should recognize their downsides.

     

    Provided by MidAmerica Financial Resources

     

    Bitcoin. Ethereum. Litecoin. Ripple. These are just four of the cybercurrencies attracting opportunistic investors today. Are they the next big thing? Or the next big bust?

     

    The answer to that question may vary per day, week, month, or year. These altcoins are classified as commodities, not currencies, by the Commodity Futures Trading Commission. Like all commodities, their value can quickly change.1

     

    This spring, a bitcoin bubble popped. As 2017 unfolded, the value of a single bitcoin tripled, reaching more than $3,000 in May. Just weeks later, it was down to around $2,245, sliding roughly 25%. That tumble paled in comparison to the dive it took starting in late 2013, when its price sank from above $1,000 to about $200. After losing 80% of its value, the price then stayed around $200 for nearly three years.1

     

    Ethereum went on an even wilder ride. An ether was worth $8 when 2017 started. By June, its value was hovering near $400. In mid-July, the price slipped below $200.2

     

    If bitcoin and ethereum were stocks, price fluctuations like this would leave their shareholders alternately exhilarated, horrified, and exhausted. Yet, many equities investors are looking at cybercurrencies with great interest, seeing “money to be made.” 

     

    As the above examples show, money invested in these commodities can also easily be lost. Extreme volatility aside, ethical and moral issues are also complicating the acceptance of altcoins.

     

    Cryptocurrency may be revolutionary, but it is also shadowy. In the opinion of the Securities and Exchange Commission, bitcoin and other little-regulated altcoins are ripe for criminal activity, particularly fraud and currency manipulation. The Treasury Department’s Financial Crimes Enforcement Network agrees.1

     

    Cryptocurrencies have been linked to money laundering, a common practice of drug cartels. They are also convenient for online gambling operations. Does an investor really want to risk supporting these activities? Some analysts argue that these doings have been fundamental to the rise of bitcoin and ethereum.2

     

    You may be curious to know how the Internal Revenue Service sees cybercurrency. It defines bitcoin as a form of property, and it may end up broadly applying that definition to other altcoins.1

      

    As more and more businesses are taking digital currency payments, altcoins will remain economically viable. Analysts at Morgan Stanley, however, see the cryptocurrency rally slowing soon unless governments start to provide federal oversight for bitcoin and its ilk.3

     

    If you are nearing retirement and marveling over the rise of bitcoin and ethereum, take a step back and consider the risk exposure of these investments. Putting any portion of your retirement savings in such a hugely speculative commodity is perilous. If it scared you when the S&P 500 lost half its value in the bear market of 2007-09, imagine investing in a cybercurrency and seeing 25-80% of the value of your investment erode in weeks. It has happened, and it could happen again.4  

     

    Altcoins are spicing up the investment world these days, but you may be better off with a plain vanilla portfolio.

       

    MidAmerica Financial Resources may be reached at 618.548.4777 or greg.malan@natplan.com www.mid-america.us

     

    This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

          

    Citations.

    1 - tinyurl.com/y8j7q8qy [6/5/17]

    2 - marketwatch.com/story/ethereum-has-lost-175-billion-in-market-value-in-4-weeks-2017-07-11 [7/11/17]

    3 - marketwatch.com/story/stay-away-from-bitcoin-its-complete-garbage-2017-06-15/ [6/15/17]

    4 - cnbc.com/2016/10/24/safe-investing-strategies-for-the-us-election-and-uncertain-times.html [10/24/16]

     

  • Are Financial Advisory Fees Tax Deductible?

    In some cases, they may be. Read on.

     

    Provided by MidAmerica Financial Resources

     

    Do you itemize your tax deductions? Then you might have a chance to partly or fully deduct the cost of the advisory fees you pay for the investment, legal, and tax advice you receive.

     

    Under federal tax law, you may deduct “investment fees, custodial fees, trust administration fees, and other expenses you paid for managing your investments that produce taxable income.” In addition, you can “usually deduct legal expenses that you incur in attempting to produce or collect taxable income or that you pay in connection with the determination, collection, or refund of any tax.” (These passages come from Internal Revenue Service Publication 529.)1

     

    The big takeaway here? If you are in a fee-based investment program, you have an opportunity to deduct fees charged to you by investment professionals if such advice helped you generate taxable income. (Additionally, you can also possibly deduct the cost of hiring an accountant to help you prepare your federal tax return.)2

     

    Before you claim these miscellaneous deductions on your Schedule A, know this. You can only begin to deduct miscellaneous items if the total of your miscellaneous deductions surpasses 2% of your adjusted gross income (AGI). Once your miscellaneous deductions are above that 2% AGI floor, you can deduct anything over that 2% threshold.2

      

    In addition, some or all of your miscellaneous deductions may not be permitted if you find yourself subject to the Alternative Minimum Tax (AMT).3

     

    Claiming a miscellaneous deduction for investment fees could be advantageous. So often, these fees are paid with assets held inside of a taxable investment account or tax-deferred retirement plan. When these fees are paid with money coming from within the plan or account, they are not always tax deductible (as can be the case with IRAs). Paying these fees with dollars from outside the investment account or retirement plan leaves more assets in the account or plan to compound.3

        

    Consult your tax professional to see if you can legitimately claim such deductions. If you are in a position to do so and have a large investment portfolio under management, the potential deduction could be sizable.

      

    MidAmerica Financial Resources may be reached at 618.548.4777 or greg.malan@natplan.com www.mid-america.us

    This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

          

    Citations.

    1 - irs.gov/publications/p529/ar02.html [TY 2016]

    2 - marketwatch.com/story/what-qualifies-as-a-miscellaneous-itemized-deduction-2015-03-24 [4/14/17]

    3 - edelmanfinancial.com/education-center/articles/a/are-asset-management-fees-taxdeductible [1/13/17]