Question:
I wanted to get your opinion on CIT Group and Aaron’s Inc. before I buy.
Answer:
CIT Group (NYSE: CIT) is a bank holding company involved in small business lending. The company struggled to maintain it business during the financial turmoil of 2008/2009, but seems to be on the path to recovery now. Given their recent gains in financial strength and price underperformance, the company looks attractive according to price ratios. The company’s long term growth rate is projected at 10%. The stock has a price-to-earnings ratio of 13.61 and a price-to-earnings-to-growth of 1.26. They have a tier 1 capital rating of more than 16%, which is higher than average. It does not meet the Henssler criteria for quality, but for an investor who doesn’t mind a little risk, it may be worth considering.
Aaron’s (NYSE: AAN) is an office and residential furniture retailer/rental store with a national scope. The company targets the lowest 50% of consumers, but has struggled with sales and earnings since the economic recovery began to take hold. Now that furniture retailers are able to offer no-interest financing to more people, companies like Aaron’s are likely to suffer. We recommend avoiding this company for now. The company is currently looking to be bought out by Vintage Capital Management, a private equity company, for approximately its current market value of $2.32 billion. However, it’s too late to get involved, but if you owned it before February 17, 2014, you could have made 12.4% on the announcement.
Question:
What is a “worthless stock?”
Answer:
As the name implies, worthless stock has no market value. A company’s stock becomes worthless when the company ceases operations or liquidates its assets. A company’s stock is not worthless if the stock is still trading, even if only for pennies. A company that is in bankruptcy may not be defunct. Its stock may still be trading and, in fact, may retain some or all of its value.
Taxpayers may deduct the loss from totally worthless stock, but no loss deduction is allowed for a mere decrease in the value of a security. Taxpayers who take a loss deduction for worthless stock must be prepared to prove to the IRS the shares are really worthless. IRS Publication 550 includes more information about recognizing capital gains and losses.
Question:
We recently acquired some shares of Copart, Inc. through some inherited assets. We are unfamiliar with this company and were thinking of selling, but would like to get your assessment first.
Answer:
Copart, Inc. (NASDAQ: CPRT) buys and sells salvaged vehicles from insurance companies and sells the parts through online auctions and vehicle remarketing services. It is a high volume businesses. Copart has very low debt and is rated A for Financial Strength by Valueline. Since you inherited the assets, we think it is OK to hold. It’s also good to note that with inherited assets, you receive a step-up in cost basis. For investors who do not own the company, we think it is worth considering.
Question:
Is my student loan interest tax deductible?
Answer:
You may be able to deduct all or part of the student loan interest you’ve paid during the year, assuming you meet the requirements. You may be able to deduct up to $2,500 each year from your gross income if you’ve paid interest on a qualified education loan for qualified higher education expenses during the year.
To be eligible for the deduction, your modified adjusted gross income (MAGI) must fall below a threshold figure. The deduction begins to phase out as your MAGI exceeds $60,000 if you’re single or $125,000 if you’re married and file jointly. It phases out completely when your MAGI exceeds $75,000 ($155,000 for married persons filing jointly). These amounts are indexed for inflation. No deduction is allowed if your filing status is married filing separately.
Generally, a qualified education loan is a debt you incur to pay qualified higher education (undergraduate and graduate) expenses for yourself, your spouse, or a dependent at an eligible educational institution in a program that leads to a degree. The IRS provides specific requirements regarding the definitions of both an eligible educational institution and qualified higher education expenses. To qualify for the deduction, you must have been enrolled in the institution at least half-time at the time of the loan.
If you are claimed as a dependent, you may not take the deduction. If you are a dependent and your parent borrows money to pay for your college tuition, he or she may claim the student loan interest deduction. For additional details, see IRS Publication 970 and/or consult a tax professional.
Question:
What is a family limited partnership, and will it help reduce estate taxes?
Answer:
A family limited partnership (FLP) is a partnership created and governed by state law and generally comprises two or more family members. As a limited partnership, there are two classes of ownership: the general partner(s) and the limited partner(s). The general partner(s) has control over the day-to-day operations of the business and is personally responsible for the debts that the partnership incurs. The limited partner(s) is not involved in the operation of the business. Also, the liability of the limited partner(s) for partnership debts is limited to the amount of capital contributed.
An FLP can be a powerful estate planning tool that may (1) help reduce income and transfer taxes, (2) allow you to transfer an ownership interest to other family members while letting you keep control of the business, (3) help ensure continued family ownership of the business, and (4) provide liability protection for the limited partner(s).
An FLP is often formed by a member(s) of the senior generation who transfers existing business and income-producing assets to the partnership in exchange for both general and limited partnership interests. Some or all of the limited partnership interests are then gifted to the junior generation. The general partner(s) need not own a majority of the partnership interests. In fact, the general partner(s) can own only 1 or 2 percent of the partnership, with the remaining interests owned by the limited partner(s).
There are several advantages to organizing your business as an FLP:
- Limited partnership interests gifted to other family members are generally valued at less than the full fair market value of the underlying assets. That is, reasonable discounts to the value of the limited partnership interests are permitted for lack of marketability and lack of control. This means by gifting the assets via a limited partnership interest instead of an outright transfer of the business assets themselves, you may be saving gift and estate taxes.
- At death, only the value of your ownership interest in the partnership will be included in your gross estate.
- The use of the partnership entity allows you to shift some of the business income and future appreciation of the business assets to other members of your family.
- You maintain management control of the business while transferring limited ownership of the business to family members.
- Restrictions within the partnership agreement limiting the transfer of the partnership interests may help ensure continuous family ownership of the business.
Question:
I own L Brands Inc. and Finisar Corp. I wanted to get a little insight on these two and see what you recommend I do with them. Are they worth holding?
Answer:
L Brands, Inc. (NYSE: LB) is the parent company behind Bath and Body Works and Victoria’s Secret. While the stores are well-known, the company has 120% debt to capital. It has had numerous spinoffs over the years, including Abercrombie & Fitch. If you are a long-term investor of L Brands, you have probably done well, but we recommend taking your profits and getting out of the stock.
Finisar Corp. (NASDAQ: FNSR) is a telecom equipment company with low debt. While it looks promising, circumstances can change quickly in that industry. The products can quickly become a commodity. We feel this is a risky play.
Question:
I’m invested in Reinsurance Group of America. It’s quite a specialized field, but the stock seems pretty stable over the past year. What are your opinions?
Answer:
When we think of reinsurance, we think of the unknowns as many had issues with credit default swaps years ago. However, Reinsurance Group of America, Inc. (NYSE: RGA) ranks among Forbes “50 Most Trustworthy Financial Companies.” They are considerably more conservative than their competition. They appear to be a good businesses with 15% dividend growth and a current 1.7% dividend yield. The company is fairly priced. If you are invested in it, we think it is OK to hold.
At Henssler Financial we believe you should Live Ready, and that includes consulting experts for financial matters you do not understand. If you have questions regarding your stock holdings, the experts at Henssler Financial will be glad to help. You may call us at 770-429-9166 or email at experts@henssler.com.
Disclosures
The following information is reprinted with permission from Forefield, a division of Broadridge Financial Solutions, Inc. This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
