Financial Advisors Comprehensive Guide

Comprehensive Guide by Financial Advisors

How Does Surety Bonding Work?

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A surety bond is a means of lowering the risk of some business activities. In essence when somebody puts up a surety bond he or she guarantees that somebody else will perform a job.

Surety bonding is widely used in some industries including construction and is often required for businesses that apply for business contracts. The bond itself is actually a sort of insurance that ensures that the work will be done even if the contractor is unable to perform it.

Examples of Surety Bonding

The best way to demonstrate how surety bond works is to provide an example of it. Let’s say that Dave’s Restaurant hires Joe the Plumber in a new waste disposal system. As part of the contract Joe takes out a surety bond. If Joe was injured and unable to perform the work the surety bonding company would pay for another plumber to complete it.

Another example would involve a building project. If the Townsville School District hired Speedy Construction to build its new school it would be required Speedy to purchase a surety bond. Then if Speedy did substandard work that required repairs the surety bonding company would cover the cost of the additional work.

Most persons involved in contracting will need a surety bond. Such bonds may also be required in some service businesses and by anybody that applies for a government contract.

Why Surety Bonds are Required

Part of the reason why surety bonding is required is that bonding companies will only work with contracts that they consider a good risk. If Speedy Construction applied for a bond the bond company would examine its background.

The bond company would check out Speedy’s record to see if it had completed past projects on time. It would also investigate the company’s executives and their records. If the bond company found that Speedy’s President had a criminal record, it probably would not issue a bond. Nor would it issue a bond if it found that Speedy was being sued by a former client.

The idea behind surety bonding is to limit the risks inherent in hiring a contractor. The person hiring the contractor knows that the contractor is not likely to default on the bond.

Surety Bonding and You

In some states many professionals and companies maybe required to get surety bonding to get certain licenses. When you are hiring a contractor it is always a good idea to ask about surety bonding. Many professionals including plumbers, excavators, roofers, tree removal companies, exterminators and others will be bonded.

In particular you should always insist that those who perform construction work have a surety bond. A builder you retain to build or remodel a house should definitely have surety bonding. So should anybody engaged in major projects such as putting on a new roof.

Many people find themselves at the mercy of second rate contractors because they fail to insist upon surety bonding. A contractor that lacks it may have serious problems such as a record of poor work. It is also a good idea to insist upon seeing the bond yourself to make sure it is real.

Surety bonding provides an added layer of protection when you hire a contractor. It will not completely protect you but at least it will cover financial losses related to the use of a contractor.

Steven Hart is a freelance writer and a Financial Advisor from Cary, IL. He writes about Annuity topics like Annuities Explained, Fixed Income Annuity, and Annuity Leads.

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Written by thefranksteak

January 11, 2012 at 4:21 pm

Charity Donations and Taxes

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Deducting a charity donation from your taxes is not as easy or as clear cut as many people think it is. Contrary to popular belief not all donations are deductible only those that meet certain criteria. That means you should familiarize yourself with the IRS’s rules for charitable deductions before trying to write them off.

If you want to make such deductions you will need to file a 1040 tax return and itemize the deductions on Schedule A. You will be not be able to itemize the deductions on the 1040EZ form. The 1040 and Schedule A are included in most popular tax preparation software packages including TurboTax.

Make Sure the Charity is Qualified

A donation can only be written if the organization is qualified that is it meets the IRS’s criteria as a charity. If the organization you donate to is not qualified you will not be able to write your donation off. Such organizations are defined in IRS Publication 526 which is available for free at the agency’s website. The IRS also maintains a searchable database of qualified charities online.

If you are donating to a charity for the first time you should check to see if it is a qualified organization. There are some excellent charities that perform good works which are not qualified.

Be Prepared to Verify the Donation

If you itemize a cash donation your Schedule A you will have to have paperwork to prove that you gave the money. The IRS recommends you have paperwork for all donations of more than $250 but it would be a good idea to document all donations you plan to deduct.

Verification of a donation can be any document that lists the name of the charity, the amount of the contribution and the date the donation was made. Documents the IRS accepts include bank statements, cancelled checks, receipts, credit card bills and telephone bills for text donations. For donations over $250 it would be a good idea to have both the receipt from the charity and some sort of financial record.

Non-Cash Donations

There are different rules for non-cash donations. Physical items you donate such as clothing or furniture must be in good physical condition. The amount you can deduct them for is the fair market value what they would sell for used. You probably will not be able to deduct the price you paid such for such items when they were new.
You should also have a receipt from the charity acknowledging the donation. This receipt will usually list the value of the items – that is the amount you should deduct.

If you donate non-cash items worth more than $500 you will have to file IRS Form 8283 with your 1040 and complete Schedule A on it. This should be included in your tax preparation software. If the items are worth more than $5,000 you will to fill out Schedule B on Form 8283. Like all other federal tax forms, 8283 is available for free at the IRS website.

The rules for donating stocks and other investments are the same as for donating actual goods. You will have to fill out Form 8283 and you can only deduct the fair market value of the donation.

There are different rules for donating a vehicle such as a car or boat. These are spelled out in theIRS’s Guide to Vehicle Donations. You should read it before donating a vehicle to charity.

Steven Hart is a freelance writer and a Financial Advisor from Cary, IL. He writes about Annuity topics like Ordinary Annuity, Retirement Annuity, and Income Annuity.

Written by thefranksteak

January 11, 2012 at 4:14 pm

How Does the SEC Work?

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The SEC or Securities and Exchange Commission is essentially a law enforcement agency that is charged with overseeing the investment industry in the United States. Its’ major role is to make sure that individuals and companies which sell investments obey the laws.

Therefore one of the SEC’s primary activities is to investigate allegations of investment fraud. If fraud is detected it can take actions including filing lawsuits in federal court, retaining the US Attorney to prosecute offenders and barring the sale of illegal investments. The SEC also licenses some financial professionals and maintains databases of certain financial information to help investors stay informed.

What the SEC Tries to Prevent

The main goal of the commission is to prevent certain activities by those selling investments. These activities include:

Lying about investments or misrepresenting their nature. An example of this would be a broker who didn’t tell investors how risky an investment really was. Closely related to this is deliberately omitting information about investments. An example of this would be a company that put out promotional materials mentioning its high profits but neglecting to mention the amount of debt it had taken on.

Any sort of market manipulation or insider trading. An example of market manipulation would be somebody that bought up a large amount of stock in order to encourage its sell. Insider trading is the use of information about investments not available to the public to make trades. An example of it would be an executive who sold or bought stock in his company based on information in its annual report before the report was made public.

Any case in which somebody steals or embezzles’ investors money. An example of this would be a broker who used money collected from investors to pay his gambling debts. Another would be a Ponzi scheme or the payment of past investors with money from new investors.

Cases involving the sale of unregistered securities, an unregistered security is a vehicle that should be registered with the SEC but is not. An example of this would be a company issuing stock without telling the SEC.

How the SEC Enforces the Law

If the commission received a complaint about a broker it would ask its Enforcement Division to conduct an investigation. The Division might conduct a private investigation by examining materials in the public domain. It can also use subpoenas to collect information and compel witnesses to testify.

If the SEC learns that securities laws are being violated it can take one of two kinds of actions: a civil action or an administrative action. In a civil action the Commission can go to a federal judge and ask for an injunction or a court order against those accused. The injunction could order an audit of a company’s books or bar somebody from selling investments. It could also order somebody to give investors back their money. A person that violates such an injunction can be found in contempt of court and sent to federal prison.

In an administrative action the SEC turns the case over to an administrative law judge. The judge conducts a hearing and takes action based on the findings of the hearing. Either the SEC staff or the defendant in the hearing can appeal the findings to the Commission itself.

The SEC cannot prosecute anybody instead it will turn evidence of crimes over to the US Attorney. The US attorney can prosecute individuals and have the FBI arrest them if necessary.

If you become aware of an investment fraud or have a complaint about a financial professional you can report it to the SEC here. The SEC will investigate tips made through this website and take appropriate action.

Steven Hart is a freelance writer and a Financial Advisor from Cary, IL. He writes about Annuity topics like Single Premium Immediate Annuities, What is an Annuity, and Current Annuity Rates.

Written by thefranksteak

January 11, 2012 at 4:01 pm

What is the SEC?

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The Securities and Exchange Commission or SEC is the federal agency that is supposed to police the investment industry and the investment markets. It creates and enforces the rules by which investment industry professionals are supposed to operate.

The main roles of the SEC are to ensue that investments are legitimate and that investors have complete information about what they are buying. To this end it licenses investment professionals and requires companies selling stock and other investments to the details of their operations and finances available to the public.

How the SEC Operates

The Securities and Exchange Commission is a five member commission appointed by the President. The commission’s main role is to interpret federal securities laws and to create rules designed to apply those laws to the industry.

The commission oversees 11 regional offices and a staff in Washington that oversees private regulatory agencies such as FINRA license and inspect brokerages, investment advisors and ratings agencies, and coordinate securities regulation with state and foreign governments.

One of the SEC’s major missions is to inform and educate investors. To this end it requires all publicly traded companies to issue reveal basic information such as the state of their finances, the amount of money they are making and how much debt they have to the public. This information is listed on disclosure documents that are available to the public in the online Edgar Database.

A person thinking about investing in the Z Company could go to Edgar and learn the state of that company’s finances. The Z Company might tell investors about its expansion plans but neglect to mention all of the money it borrowed to finance that expansion. The amount it borrowed would be listed in the disclosure documents.

What the SEC Regulates

The SEC regulates companies that issue securities or equities for sale to the public. This would include any company with shares that trade on the stock exchanges or sells shares through brokerages. In addition to stocks this includes exchange traded funds and mutual funds which are considered publicly traded companies.

A privately held company is one that is not regulated by the SEC. A privately-held company cannot issue stock but you can invest in it directly. A hedge fund is a privately held investment company in which you have to be asked to participate. When a company is publicly held and regulated by the SEC anybody with the money can invest in it.

The SEC licenses individuals and organizations that sell such investments. That would include stockbrokers and brokerage houses. It would only license a retirement planner if he or she actually sold investments. The SEC has no authority over individuals that simply give investment advice even if they charge a fee for it.

Why There is an SEC

The SEC exists because despite what some people think the markets cannot regulate themselves. In the bad old days before the SEC was created in 1934 anybody could sell a piece of paper and say it was a stock or bond. Not surprisingly a lot of people lost at lot of money purchasing worthless paper. The SEC exists to make sure that the stock being sold is real.

Something to remember is that the SEC is only in business to enforce the rules. An investment that complies with will all of its rules can still be completely worthless. Even with the SEC around you will still have to research investments on your own to make sure they are worth purchasing.

Steven Hart is a freelance writer and a Financial Advisor from Cary, IL. He writes about Annuity topics like Annuity Definition, Annuity Rate, and Best Annuity Rates.

Written by thefranksteak

January 11, 2012 at 3:56 pm

How Day Trading Works

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Day trading is not an investment nor is it necessarily trading. Instead this activity is actually a form of speculation. Contrary to popular belief such trading is nothing new people have been engaging in this kind of behavior since trading was invented. The only difference is that a person can now make such trades almost anywhere at anytime thanks to modern electronics.

What is a Day Trade?

A day trade is a transaction in which a person buys a stock, a contract or an option and tries to sell it off within one day. The idea behind this is to make a quick profit by selling it at a higher price.

Here’s how it is supposed to work: Greedo buys $100 worth of grain options at 8 a.m. He sits at his computer all day and watches the grain market carefully. When the grain prices hit what Greedo thinks is the high for the day; say $120 at 3 p.m, Greedo sells the options. Greedo has just made $20 by simply pushing a few buttons and sitting at the computer.

The drawback to this is quite obvious, if the price falls, Greedo cannot make any money. Another problem is that Greedo has to sit and watch the computer all day to make sure he catches the right price. Many day traders try to compensate for this by using trading robots. These are computer programs that are set to sell or buy vehicles when they hit a certain price. Greedo might have a trading program that sells his grain futures when grain hits $120.

Day Trading is Nothing New

Day trades are actually nothing new, historically they were made on trading floors such as the Chicago Mercantile Exchange. These were large buildings in which traders gathered and made trades. The rise of electronic trading systems in the last thirty years has allowed anybody with a computer and an internet connection to engage in day trading.

Anything that trades on an exchange can be used for day trading including currencies futures (FOREX), commodities, stocks and stock options to name just a few. The volume of such trades is massive and it grows everyday as more and more people log onto the markets. In a way, such trading is capitalism at its most basic even though it is being done online it is the same as the old time exchanges.

Day Trading Dangers

Despite what some people something day trading in itself is neither harmful nor destructive. The problem is not with the practice but the way in which some people engage in it.

Many get day traders get themselves into trouble by trading on the margin. When somebody trades on the margins, he trades on credit and plans to use the profit from the trade to pay off the loan.

If Greedo opened a margin account the brokerage would give him a line of credit, he could make trades equal to that credit. The problem with this arrangement is obvious sooner or later Greedo will have to pay the credit. If Greedo made $5,000 worth of trades and they did not work out he would owe the brokerage $5,000 plus interest.

Day trading might be a fun pastime if you used your own cash and limited the number of trades you made. Full-time day trading would be stupid and stressful and it would probably bankrupt you sooner or later.

Steven Hart is a freelance writer and a Financial Advisor from Cary, IL. He writes about Annuity topics like Annuity Calculator, Annuity Interest Rates, and Annuities Good or Bad.

Written by thefranksteak

January 11, 2012 at 3:46 pm