Categories
Stocks

Trading and the Law of Attraction – Using the Law of Attraction in Day Trading

Day trading is hazardous enough without having your mind sabotaging you. Yet that’s what a lot of day traders do. Then they wonder why their bank implodes. Using the law of attraction in your day trading is an excellent tool to add to the charts or fundamentals that you already use. And having the right mindset could be all that you need to turn your trading into profit. Here’s how…

If you’ve not come across it before, the law of attraction simply states that what you think about most is what you will attract into your life.

And if that is the first time you’ve heard that assertion, it’s likely that the first thought that comes into your mind is “Rubbish”. After all, you’re constantly running the numbers, backtesting and refining your system. Surely the thing you’re thinking about most is how you’re going to spend your first million?

Our minds sometimes move in mysterious ways – especially our subconscious mind, which is the part that deals with all the boring stuff that keeps your body going, day in, day out, without you having to think things like “it’s time to blink my eyes again” or “must take another breath and pump some oxygen around my body”.

Your subconscious also deals with targets and attraction. And it’s this part that is helped by applying the law of attraction.

If you have a little nagging voice that pipes up every time you think about making your fortune with day trading, that’s where you need to start applying the rules of the law of attraction.

Some of the works that teach the subject imply that there’s no effort involved in attracting stuff. Although that’s true to an extent, it’s a bit like saying that all you need to do to turn a profit from day trading is to scalp a few pips or take a trade at a peak or trough, that kind of thing.

If only day trading was that easy, we’d all be rich!

The truth is that – as with near enough everything that makes you wealthier – there is a lot more detail hiding just below the surface.

The good news is that you don’t have to apply things like stochastics or pivots or anything complicated like that to get the law of attraction to work in your favor.

The bad news is that you do have to do something to help make it work!

Start by working out what it is you want to attract with your trading. Probably the easiest way to do this is with a daily or weekly or monthly amount of pips. If you prefer, it could be a percentage of your bank.

You’ve probably got this lurking at the back of your mind already but you may not have totally formalized it. Now’s the time to do that.

Write down your target. Read it out loud on a regular basis (no matter how self conscious this makes you feel at first).

What this will do is start to get your subconscious mind round to the way of thinking that you’re serious about the amount of cash you’re going to make from your day trading. And once that “clicks” it will start to work with you rather than against you.

Categories
Taxes

Ways To Pay Less Tax and Still Stay Within the Law

We would all like to pay a little less tax to the tax authorities and with careful planning you can do just that whilst staying, of course, completely within the law and abiding by the tax regulations. These ways of saving tax refer to the tax jurisdiction of the United Kingdom so may not be relevant if you live elsewhere in the world.

One of the easiest ways of saving tax is to make full use of your available allowances.

If you have a spouse (or civil partner) who has no income then transferring savings and investments that are currently paid interest after the deduction of tax will save you the tax on that interest. Even if you only have a small amount of savings the tax saved can mount up quickly. Of course, you would want to trust your other half completely before embarking on this strategy especially if you have considerable investments.

From 6th April 2015 new rules come into force that will mean a spouse can transfer 10% of their personal allowance to the other partner, provided you are not a higher rate tax-payer. This would only be beneficial if one partner had an income that didn’t allow full use of their own personal allowance but the other did.

For high earners with incomes over £100,000 per year their personal allowance is reduced gradually for every £1 over that limit until the point where there is no personal allowance for those earning over £120,000 per year (in the 2014/15 tax year). There are several ways for such high earners to retain their personal tax-free allowance of £10,000 per year. One is to transfer any savings and investments that produce an income to their spouse or civil partner to bring their annual income back below £100,000. Another is to make contributions into their own pension, again of an amount that will reduce their yearly earnings below the threshold.

Age-related Personal Allowances

Currently anyone born before 6th April 1948 is entitled to a higher personal tax-free allowance and those born before 6th April 1938 to a higher allowance still. However, these allowances are gradually being phased out by keeping the amount at the same level until the non-age-related allowance is at the same level.

While this allowance is still available the same strategies to maintain the full allowance apply as for the standard personal allowance.

Annual CGT Exemption

Anyone with a portfolio of investments generating a capital gain should make sure to use the annual capital gains tax exempt amount.

For the 2014/15 tax year in the UK any sales of assets where the gain is less than £11,000 will benefit from this amount being tax free. Selling some assets or shares each year where the gain is below this threshold will allow you to take tax free profit from your portfolio over a period of time. The timing of selling shares is, therefore, crucial if you want to save tax.

These and other strategies to save tax can be complicated so always seek the advice of a chartered accountant or professional tax advisor to make sure you both stay within the law but, at the same time, benefit from all allowances that you are entitled to.

Categories
Taxes

Jingle Mail And California Law – Giving The Mortgage Back To The Bank

If you owe $800,000 on a $550,000 house, and give the bank the $550,000 house, can the bank then try to collect the $250,000 difference? Or to use the legal terminology, can the bank seek a deficiency judgment?

The answer, in California, is probably not. California Code of Civil Procedure §580b states:

No deficiency judgment shall lie in any event after a sale of real property or an estate for years therein for failure of the purchaser to complete his or her contract of sale, or under a deed of trust or mortgage given to the vendor to secure payment of the balance of the purchase price of that real property or estate for years therein, or under a deed of trust or mortgage on a dwelling for not more than four families given to a lender to secure repayment of a loan which was in fact used to pay all or part of the purchase price of that dwelling occupied, entirely or in part, by the purchaser.

In plain English, this means California is for most homeowners a non-recourse state when it comes to “purchase money mortgages.” These are mortgages, including in some cases second mortgages, that were taken out in order to purchase a house that the buyer actually lived in.

California’s Anti-deficiency Laws: Who’s Protected

Three major groups of California mortgage debtors are thus excluded from the protection of California’s pro-homeowner C.C.P. 580b:

(1) Investors who purchased homes in order to flip them without ever intending on living or renting in them

(2) investors who purchase a property as a rental

(3) homeowners who take on additional mortgage debt after purchasing their house.

California also has a second law protecting mortgage debtors from their banks: C.C.P. 580d. This law covers all housing debt, including HELOCs, home improvement loans, and 2nd mortgages, but the law only applies to non-judicial foreclosures. These creditors can still collect the remaining debt in a judicial foreclosure.

Anti-deficiency Laws in Practice: An Example

Here is a scenario showing how 580b and 580d work together:

Bob purchased a house with $0 down and a 500K interest-only mortgage. After the value of his house went up he took out a 2nd mortgage, on which he owes 100K. Now his house is worth 400K and has 600K in mortgage debt.

Let’s say Bob stops paying and his house is foreclosed and sold for 400K. That leaves 200K in debt unpaid. The first lender gets all of the 400K, but cannot get the 100K remaining that Bob owes.

The second lender now has a choice. It can just eat the entire 100K loss, or it can go the route of a judicial foreclosure. The bank probably won’t do that if Bob has little assets and lots of debt, but if Bob has a high-paying steady job the lender just might try: $100,000 is a lot of money to lose.

In these circumstances, Bob’s best strategy is probably to stop paying the 1st mortgage but to keep paying the 2nd. There are a lot of complicated rules and strict time limits involved with a judicial foreclosure. If Bob keeps paying lender 2 while he stops paying lender 1 and waits for lender 1 to foreclose, the chance of lender 2 noticing and undertaking the complicated judicial foreclosure process on time is lower than if Bob stiffs both lenders at the same time. Further, the amount owed to lender 2 will decrease as payments keep getting made, so the value of seeking a deficiency judgment decreases.

It’s Best to Talk to a Lawyer First

Someone considering walking away from their mortgage but wants to protect his income and his other assets from his banks would best be advised to seek the assistance of a licensed California attorney who could advise them on a number of issues, such as:

– Can the bank use some other legal means of pushing its loss onto the former owner, for example under an equitable or tort theory? Assuming the bank tries, does it have any chance of winning?

– Does 580b protect a homeowner who bought a condo as an investment and rented it out for a year, then moved in himself, and then stopped paying the mortgage?

– What are the state and federal income tax consequences of a foreclosure?

Lawyers are not cheap, but the mortgage companies all have their own army of lawyers and collections personnel. Would you really want to go it alone against them?

Categories
Taxes

5 Possible Real Estate Ramifications Of Tax Law

While there has been a significant amount of disagreement, and dispute, regarding the proposed (apparently, soon, to be adopted), tax legislation, there can be little doubt, real estate, will be, one of most, impacted entities, and components, of the American economy. The National Association of Realtors (NAR) has opposed these proposals, because of fears of adverse ramifications, on the industry, etc. Although, no one can be certain, of what will occur, in the future, this article will attempt, to briefly, discuss, consider and evaluate, 5 possible/ potential ramifications, of this law, once enacted, on things, related to real estate, and housing.

1. Capping real estate tax deductions will hurt pricing, etc: The legislation has significantly changed, how state and local taxes (referred to as SALT), which includes income tax, sales tax, and real estate taxes, are handled, from a tax perspective. Presently, these taxes are deductible on one’s federal return, for many reasons, including, the previous, overwhelming agreement, not doing so, is a sort of double taxation, as well as, would hurt the housing market. When potential buyers can’t fully deduct these, but, rather, they are capped at $10,000, many markets are affected, more than others. In states, such as New York, New Jersey, Connecticut, Massachusetts, California, New Hampshire and Texas, either the real estate, and/ or combination of these with income taxes, homeowners will discover, their income tax, will probably increase. This overly affects middle, and upper – middle – income citizens, to a disproportionate degree! Logic should indicate, when the benefits are reduced, home prices will decrease in value (many economists state by 10% or more).

2. More potential home buyers might opt to rent, rather than buy: While single family home prices, and sales, might suffer, multi – family, rental properties, might potentially benefit. However, if this causes a significant increase in demand for income properties, it could cause higher selling prices, which would result in higher rents, for tenants. Potential buyers will always consider the comparative benefits of ownership, versus renting, and this may, make a significant difference in perspective.

3. Owning rental property benefits: While real estate tax deductions for your personal home are being capped, they are not, for income properties. In addition, if more people seek rentals, it reduces the associated risks, involved, in purchasing and owning, these.

4. Negative impacts on specific local economies: The greater, New York City, area, especially Long Island, will be severely harmed, when this becomes law. Newsday states, Long Island, will be injured, far more, than anywhere else, because of the real estate taxes, and income taxes, and, the $10,000 cap, is somewhat insignificant, in relation, to the reality!

5. Upper – level/ priced home sales could suffer: While these homeowners have the same potential challenges, as others, their potential resale values, could significantly suffer, because of the cap, on deducting mortgage interest. This legislation will bring with it, the ability to deduct, only the interest on a maximum, new mortgage, up to $750,000.

An evaluation of this legislation, should indicate, while some middle – class people, in certain areas, might slightly benefit (estimates are, approximately 1% lower, income taxes – this means, for someone owing $10,000 per year, in federal taxes, about $100 savings, or $2 per week), most of the advantages, go to the wealthiest individuals, because of the lowering of the upper bracket, higher estate tax levels, and significant reduction in corporate taxes. Beware, the housing market will probably be the biggest victim, and, once again, the politicians, refuse to envision, and consider, ramifications of their politically motivated, actions!

Categories
Taxes

Payroll Texas, Unique Aspects of Texas Payroll Law and Practice

There is no personal state income tax in Texas. Which means no withholding of State Income Taxes.

The Texas State Agency charged with enforcing the state wage and hour laws is:

The Texas Workforce Commission

101 East 15th St.

Austin, Texas 78778-0001

512-837-9559

http://www.twc.state.tx.us/

Except for taxes and student loans there are no garnishments in Texas. No creditor other than the IRS or one of the student loan collection agencies can take money out of your paycheck without your permission.

The agency that collects and pays unemployment benefits is the Texas Workforce Commission.

Its main office is in Austin, Texas. Their address is:

Texas Workforce Commission

101 East 15th Street

Austin, Texas 78778-0001

512-837-9559

http://www.twc.state.tx.us/

The unemployment rate varies based on your company's experience but the initial rate starts at 2.7% on the first 9000.00 of wages paid to an employee in the state.

There is no requirement in Texas for a company to carry Workers Compensation Insurance. Texas is the only state where it is not required.

Texas now allows mandatory imposition of Direct Deposit. The employer just cannot choose the financial institution the employee has the right to pick any financial institution that accepts direct deposits. There must be no additional fees to the employee for direct deposit.

Another unique aspect of Payroll in Texas is there is no provision in the State law for overtime. All overtime is governed only by FLSA if appropriate. So a purely intrastate employer in Texas does not have to legally pay overtime premium.

The state minimum wage in Texas is $ 5.15 per hour. It used to be well under federal rates.

In Texas you must pay at least semi-monthly except that FLSA-exempt employee can be paid on a monthly basis.

Payment on termination in Texas is six days for an involuntary termination and the next regular payday for a voluntary resignation

Texas requires the following information on an employee's paystub:

  • Employee's Name
  • Pay rate
  • Gross and net earnings
  • Amount and purpose of deductions
  • Hours worked or work done if piece work

Escheat laws in Texas require that unclaimed wages be paid over to the state after one year and 180 days if less than $ 100.00. The employer is further required in Texas to keep a record of the wages abandoned and turned over to the state for a period of 10 years.

Wages due a deceased employee are not covered by any provision in Texas.

Texas State new hire reporting requirements are that every employer must report every new hire and rehire. The employer must report the federally required elements of:

  • Employee's name
  • Employee's address
  • Employee's social security number
  • Employer's name
  • Employers address
  • Employer's Federal Employer Identification Number (EIN)

Plus they can optionally report

  • Date of Birth
  • Date of Hire
  • Payroll address for Child Support Notice

This information must be reported within 20 days of the hiring or rehiring.
The information can be sent as a W4 or equivalent by mail, fax or electronically.
There is no penalty currently for a late report.
The Texas new hire reporting agency can be reached at 888-839-4473 or on the web at [http://www.newhire.org/tx].

There is no provision in the Texas State Payroll laws covering mandatory rest or meal breaks.

Cafeteria Plan and 401 (k) deferrals that are exempt from federal income tax are counted as taxable income for unemployment insurance calculation in Texas.

Texas requires magnetic media reporting of earnings and contributions for unemployment insurance purposes if the employer has at least 250 employees to report.

Texas has no State Income tax so no State W2's have to be prepared, distributed or transmitted to the state

Texas has the following provisions for child support deductions:

  • When to start Withholding? Immediately after receipt of order.
  • When to send Payment? Within 7 days of Payday.
  • When to send Termination Notice? Within 7 days of termination.
  • Maximum Administrative Fee? $ 2 per month.
  • Withholding Limits? Federal Rules under CCPA.

The Texas agency charged with enforcing Child Support Orders and laws is:

Child Support Division

Office of the Attorney General

300 W. 15th Street

Austin, TX 78701

512-460-6000

http://www.oag.state.tx.us/child/#services

States have different requirements for maintaining wage and hour records that vary from the two or three years FLSA requires depending on the type of record. Texas has no provision in the law concerning retention

Categories
Taxes

Tax Filing Season and Tax Law Changes for 2015

Tax laws undergo some minor changes every year, such as inflation adjustments, renewal of deductions, new taxes, and tax increases. As the 2015 tax filing season has started, it is important to stay informed on the latest changes to the tax code and how they can affect you. This article will explore three key areas where some of the biggest changes have been made to the Internal Revenue Code (IRC).

Affordable Care Act Changes for 2015

The Affordable Care Act is the law of the land that requires most individuals to have health insurance or risk paying a tax penalty. Per the federal health law’s individual mandate, individuals above certain income thresholds should get health insurance coverage if they are not covered by public programs such as Medicare and Medicaid. If health coverage is not supplied through his or her job, an individual may choose to purchase an individual private policy or get covered under the state-operated insurance marketplace.

Those who do not have the minimum level of coverage should be wary because they will be subjected to IRS penalties at the end of the tax year. Here is a brief summary of the non-compliance penalties: the penalty for the 2014 tax year is one percent of income for both individuals and families or $95 for single adults and $285 for families, whichever is greater. This may not seem bad at all when compared to insurance premiums; however, the fact is, the penalty structure is formulated to increase over time. In 2015, the fine will rise significantly to $325 per adult and up to $975 for a family or 2% of income. In 2016, the penalty will be sky high: $695 per individual and $2,085 for a family or 2.5% of income.

Small-business owners obtaining insurance through the Small Business Health Options Program (SHOP) marketplace can qualify for tax credits and tax breaks. Businesses that employ less than 25 full-time workers and pay average annual salaries of less than $50,000 can make use of this program for group health coverage. Per ObamaCare’s employer mandate, businesses with more than 100 full-time employees will have to provide health coverage to at least 70% of their workers starting in 2015. This rule does not apply to companies with 50 to 99 full-time workers until Jan 1, 2016.

New Limits on IRA Rollovers in 2015

Finally, some good news from the IRS! Contribution limits to 401(k), 403(b), and other qualified retirement plans have now increased by $500, bringing them to $18,000 in 2015. The catch-up contribution limit for individuals who are 50 or older has also increased by $500.

A new year ushered in a new rule from the IRS that put restrictions on the number of IRA-to-IRA rollovers. Starting in 2015, taxpayers can do only one rollover in a 12-month period, irrespective of how many IRAs the individual has. A second 60-day IRA-to-IRA rollover could result in a 10% early withdrawal penalty, and the distribution will be subject to taxation. The old rules allowed individuals to do one such rollover per year for each IRA that they owned, which created penalty-free and interest-free loans. Sadly, the new change limits taxpayers from taking such tax-free rollover provisions.

There is no reason to be alarmed, since this new rule change does not apply to traditional IRA to Roth IRA conversions or trustee-to-trustee transfers. This direct rollover transfer method lets investors transfer funds any number of times between IRA accounts without taking control of the money. This transfer is tax-free and does not trigger the 10% early withdrawal penalty. Get expert guidance if you hold multiple IRA accounts and are planning to do transfers but are not confident about whether they fall within the rollover limit or the distribution is tax-free.

2015 Tax Rates and Other Inflation Changes

For 2015, inflation-based adjustments are made for all tax brackets: the top 39.6% tax bracket, for example, will start at $413,200 for unmarried filers (up from $406,750 in 2014) and $464,850 for married joint filers (up from $457,600). The standard deduction for the 2015 tax year is $6,300 for single filers and $12,600 for married joint filers. The personal exemption gets an increase of another $50 to $4,000 in 2015. Individuals in the 25%, 33%, and 35% federal income tax brackets will pay the same 15% on capital gains, but taxpayers in the 39.6% bracket will have to pay more, as they will now be taxed at a 20% rate on long-term capital gains.

Categories
Taxes

New Bankruptcy Law Makes it Harder to Stop Foreclosure

On October 17, 2005 President Bush's sweeping bankruptcy reform law goes into effect forever changing the rules of debt collection in this natiion. Consumer advocates and the public appear to be completely unaware of the total and complete victory of the creditors under the new legislation. This article opens the door to the Trogan Horse so that consumers can prepare themselves for the worse.

The most important aspect of the bankruptcy code was the "automatic stay" provision. This allowed consumers to file for bankruptcy at anytime during the creditor's collection process putting an immediate stop to all contact and collection activities from the creditor. The new law requires that a debtor receive credit counseling from an approved non-profit credit counseling agency for 180 days prior to filing Chapter 7 or Chapter 13 bankruptcy.

While this may sound benevolent, a much closer look at the practical effect of this provision reveals the crafty peeling of the debtor's rights. The 180 day requirement is to provide the credit counseling agency the opportunity to work out payment plans with creditors. However, during this same period of time the creditor is not restrained from collection efforts. For example, Margaret is a homeowner in Jacksonville, Florida and is six months behind on her mortgage. As a rule, credit counseling agencies only work with credit card companies and have little or no training with dealing with mortgage companies.

After receiving foreclosure papers, Margaret goes to see her attorney to file for bankruptcy and is told that she must first seek credit counseling before filing for bankruptcy protection. Meanwhile, the foreclosure proceeds on schedule and a sale date is set 120 days later. However, Margaret still has not completed her 180 day requirement. What will happen to Margaret's home? That's right! The home will be sold and she cannot stop the sale by filing bankruptcy.

This is the most sweeping shift in debt collection in the past 50 years. Margaret's only hope will be to work out a repayment plan or a loan restructure with her mortgage company. This is a process called loss mitigation and is explained in great detail to consumers in our new book, How to Save Your Home, ISBN # 09753754-0-7, $ 19.95, SYH University, LLC, 2005 which is sold at Amazon.com.

Loss Mitigation works because lenders lose an average of $ 28,000 to $ 50,000 per foreclosure nationwide. It is a myth that the lender wants your home and makes a profit off of foreclosure. A lender has to pay attorney fees, court and collection costs, maintain fire insurance, hire a real estate professional, repair structural and other damage to the home, and pay property taxes. The homeowner can work out an agreement with the lender in over 90% of cases. Our company has provided housing counseling service to thousands of homeowners and loss mitigation absolutely works.

In conclusion, it is up to the consumer to educate and prepare themselves for worse case scenarios. How to Save Your Home is an excellent training tool and will teach homeowners how to protect themselves under the new bankruptcy law. Most Americans do not have health or disability insurance and are vulnerable to job layoffs because of a stagnant economy. Who amongst us is immune to heart attacks, business failure, strokes, law suits, tax liens or other challenges that life sometimes presents. One pay check is literally what separates many families from home security and despair and the new bankruptcy law will severely punish those who slip behind on their mortgage payments.

Categories
Taxes

The Law Governing Inheritance Tax in the UK

Laws, rules, and regulations are established to ensure that equality and justice prevails in the country. On the other hand, tax laws are created to generate revenue for the government to support its operations. The government of a country has many sources to earn revenue for its operations. However, taxes are among the most common sources of revenue for a country.

The government of every country has many duties, which it needs to perform, and obviously needs revenue to perform them. Therefore, different taxes and duties on imports and exports are levied to gather enough revenue to perform these duties.

In the United Kingdom, there is a fixed percentage of inheritance tax, which is to be paid if an individual inherits some property. There are few laws regarding the calculation of inheritance tax. According to the system of law enforced in the United Kingdom, when a person inherits some property, a 40% tax is to be paid on the amount of property inherited, above the Nil Rate band. For the year 2009/2010, the Nil Rate band is £325,000.

According to the tax laws of the United Kingdom, if, after the death of the first spouse, a part or the entire amount to be included in the Nil Rate band is not used at all, it is transferred, and is available for use at the time of death of the second spouse. For example, if ‘A’ died leaving behind 100,000 worth of chargeable estate and the Nil Rate band for that year was 200,000 and ‘B’, the remaining spouse, didn’t use 50% of the Nil Rate band, it is transferable for the calculation of tax for the inheritance when the other spouse dies.

In this case, let us suppose when B dies, she leaves behind an estate of 400,000 then the Nil Rate band would be the exempt amount plus 50% of the Nil Rate band i.e. 450,000 if the Nil Rate band for the year were 300,000. The Nil Rate band is the amount of exemption granted by the government for the calculation of tax on the inherited of property.

If A leaves behind 400,000 worth of estate to his heirs and the Nil Rate band for the year is 325,000 then 75,000 would be the amount on which the tax would be applicable. On the other hand, if A had left behind a property worth less than 325,000, let’s say an estate worth 300,000 then no tax would be applicable on the amount inherited by the heirs.

Sometimes, the tax calculation for inheritance related matters become very complex and difficult to understand. In such cases, a proper consultancy lawyer should be consulted as they are proficient in dealing with such issues and are able to deal with the most complex calculations.

Although some people would argue that paying an extra fee for the consultancy services would be an added expense, which they can save by making tax calculations themselves, but the fact is that in some cases, paying this added fee might save one from a heavy future loss.

Categories
Wealth Building

What Happens With Charitable Giving and the New Tax Law

Now that we’re into 2018, it’s vital if you’re a nonprofit leader, fundraiser, or board member to understand what the Tax Cuts and Jobs Act may do to the philanthropic sector. Keep in mind that this is the first major overhaul of tax regulation in more than a generation, so it’s going to have wide-ranging impact. Lawyers and accountants have been working overtime to understand the implications for the new tax law and the IRS is gearing up to get ready for what is going to be an interesting tax season.

If work or lead a charitable organization, you need to be aware of the reality that the new law is expected to affect your fundraising efforts adversely. In other words, you need to speak to your professional advisors, and you should get your team together to prepare an all-hands on deck approach to ensuring the ongoing sustainability of your organization as donor giving patterns will undoubtedly change.

  • The Council on Foundations released a statement that said the following, “Today’s passage of the Tax Cuts and Jobs Act will result in a decrease of $16-$24 billion in charitable giving every year, significantly decreasing the philanthropic sector’s ability to provide resources and services to people across the United States and abroad.”
  • The most significant reason for the expected drop in charitable giving in 2018 is because the majority of individuals and families will no longer itemize deductions on their tax return. Because the standard deduction was doubled ($12,000 for individuals and to $24,000 for married couples), the average taxpayer will no longer be itemizing, and thus the charitable deduction disappears for many families when filing taxes–meaning the tax incentive for them is gone.
  • Since 2018 is the first year under the new Tax Cuts and Jobs Act law, most families will not have a full understanding of how their tax obligations will be shaping up until more months pass, and they file their taxes. That means the uncertainty will likely begin to depress charitable giving as early as the beginning of the year. This may also include major donors who are financially comfortable but did not do any tax planning preparation in December of 2017 to see the full impact of the tax laws on their households.
  • The estate tax threshold level has increased under the new law from $5.5 million to $11.2 million for individuals and $22.4 million for families. Without getting into too much of the details, the reason why this can adversely impact charitable giving is that families have less of a reason to give their money to charity as opposed to their heirs. Because they can now transfer higher amounts to heirs, those who have assets in the low millions are more likely to bequeath it to their families or heirs as opposed to give to charity because so they can minimize estate taxes.

The reality is that 2018 is going to be a significant year for nonprofits and it’s essential that organizations understand how the new tax law will affect them and also charitable giving. If fundraising dollars decrease, which is expected, then most nonprofits, which already survive with slim margins will have a tougher year. Tough decisions will have to be made if donor dollars dry up such as shutting down programs or eliminating staff. Planning will make all the difference.

What’s important at this time is to get your facts and eventually to message appropriately with your supporters. Your donors want to help you and a lot of the reasons they do come from the heart and not from the head or because of a charitable deduction or estate planning. But, if you’re a nonprofit leader, you would be foolish if you didn’t take into account that your donors have to think about how the new tax law will affect their families and may well pause so they can get a better handle on what’s happening in their finances and taxation.

Understand the trends and how thought leaders are addressing the expected drop in funding, and inevitable decrease in services that could follow. Speak to your peers in the industry and also speak to your supporters. Figure out ways to give donors the space they need to understand their tax issues, but also continue to help your organization. It’s essential as a nonprofit leader to have frank conversations and be open about the choppy waters that may lie ahead.

Categories
Insurance

Insurance Law – An Indian Perspective

INTRODUCTION

“Insurance should be bought to protect you against a calamity that would otherwise be financially devastating.”

In simple terms, insurance allows someone who suffers a loss or accident to be compensated for the effects of their misfortune. It lets you protect yourself against everyday risks to your health, home and financial situation.

Insurance in India started without any regulation in the Nineteenth Century. It was a typical story of a colonial epoch: few British insurance companies dominating the market serving mostly large urban centers. After the independence, it took a theatrical turn. Insurance was nationalized. First, the life insurance companies were nationalized in 1956, and then the general insurance business was nationalized in 1972. It was only in 1999 that the private insurance companies have been allowed back into the business of insurance with a maximum of 26% of foreign holding.

“The insurance industry is enormous and can be quite intimidating. Insurance is being sold for almost anything and everything you can imagine. Determining what’s right for you can be a very daunting task.”

Concepts of insurance have been extended beyond the coverage of tangible asset. Now the risk of losses due to sudden changes in currency exchange rates, political disturbance, negligence and liability for the damages can also be covered.

But if a person thoughtfully invests in insurance for his property prior to any unexpected contingency then he will be suitably compensated for his loss as soon as the extent of damage is ascertained.

The entry of the State Bank of India with its proposal of bank assurance brings a new dynamics in the game. The collective experience of the other countries in Asia has already deregulated their markets and has allowed foreign companies to participate. If the experience of the other countries is any guide, the dominance of the Life Insurance Corporation and the General Insurance Corporation is not going to disappear any time soon.

The aim of all insurance is to compensate the owner against loss arising from a variety of risks, which he anticipates, to his life, property and business. Insurance is mainly of two types: life insurance and general insurance. General insurance means Fire, Marine and Miscellaneous insurance which includes insurance against burglary or theft, fidelity guarantee, insurance for employer’s liability, and insurance of motor vehicles, livestock and crops.

LIFE INSURANCE IN INDIA

“Life insurance is the heartfelt love letter ever written.

It calms down the crying of a hungry baby at night. It relieves the heart of a bereaved widow.

It is the comforting whisper in the dark silent hours of the night.”

Life insurance made its debut in India well over 100 years ago. Its salient features are not as widely understood in our country as they ought to be. There is no statutory definition of life insurance, but it has been defined as a contract of insurance whereby the insured agrees to pay certain sums called premiums, at specified time, and in consideration thereof the insurer agreed to pay certain sums of money on certain condition sand in specified way upon happening of a particular event contingent upon the duration of human life.

Life insurance is superior to other forms of savings!

“There is no death. Life Insurance exalts life and defeats death.

It is the premium we pay for the freedom of living after death.”

Savings through life insurance guarantee full protection against risk of death of the saver. In life insurance, on death, the full sum assured is payable (with bonuses wherever applicable) whereas in other savings schemes, only the amount saved (with interest) is payable.

The essential features of life insurance are a) it is a contract relating to human life, which b) provides for payment of lump-sum amount, and c) the amount is paid after the expiry of certain period or on the death of the assured. The very purpose and object of the assured in taking policies from life insurance companies is to safeguard the interest of his dependents viz., wife and children as the case may be, in the even of premature death of the assured as a result of the happening in any contingency. A life insurance policy is also generally accepted as security for even a commercial loan.

NON-LIFE INSURANCE

“Every asset has a value and the business of general insurance is related to the protection of economic value of assets.”

Non-life insurance means insurance other than life insurance such as fire, marine, accident, medical, motor vehicle and household insurance. Assets would have been created through the efforts of owner, which can be in the form of building, vehicles, machinery and other tangible properties. Since tangible property has a physical shape and consistency, it is subject to many risks ranging from fire, allied perils to theft and robbery.

Few of the General Insurance policies are:

Property Insurance: The home is most valued possession. The policy is designed to cover the various risks under a single policy. It provides protection for property and interest of the insured and family.

Health Insurance: It provides cover, which takes care of medical expenses following hospitalization from sudden illness or accident.

Personal Accident Insurance: This insurance policy provides compensation for loss of life or injury (partial or permanent) caused by an accident. This includes reimbursement of cost of treatment and the use of hospital facilities for the treatment.

Travel Insurance: The policy covers the insured against various eventualities while traveling abroad. It covers the insured against personal accident, medical expenses and repatriation, loss of checked baggage, passport etc.

Liability Insurance: This policy indemnifies the Directors or Officers or other professionals against loss arising from claims made against them by reason of any wrongful Act in their Official capacity.

Motor Insurance: Motor Vehicles Act states that every motor vehicle plying on the road has to be insured, with at least Liability only policy. There are two types of policy one covering the act of liability, while other covers insurers all liability and damage caused to one’s vehicles.

JOURNEY FROM AN INFANT TO ADOLESCENCE!

Historical Perspective

The history of life insurance in India dates back to 1818 when it was conceived as a means to provide for English Widows. Interestingly in those days a higher premium was charged for Indian lives than the non-Indian lives as Indian lives were considered more risky for coverage.

The Bombay Mutual Life Insurance Society started its business in 1870. It was the first company to charge same premium for both Indian and non-Indian lives. The Oriental Assurance Company was established in 1880. The General insurance business in India, on the other hand, can trace its roots to the Triton (Tital) Insurance Company Limited, the first general insurance company established in the year 1850 in Calcutta by the British. Till the end of nineteenth century insurance business was almost entirely in the hands of overseas companies.

Insurance regulation formally began in India with the passing of the Life Insurance Companies Act of 1912 and the Provident Fund Act of 1912. Several frauds during 20’s and 30’s desecrated insurance business in India. By 1938 there were 176 insurance companies. The first comprehensive legislation was introduced with the Insurance Act of 1938 that provided strict State Control over insurance business. The insurance business grew at a faster pace after independence. Indian companies strengthened their hold on this business but despite the growth that was witnessed, insurance remained an urban phenomenon.

The Government of India in 1956, brought together over 240 private life insurers and provident societies under one nationalized monopoly corporation and Life Insurance Corporation (LIC) was born. Nationalization was justified on the grounds that it would create much needed funds for rapid industrialization. This was in conformity with the Government’s chosen path of State lead planning and development.

The (non-life) insurance business continued to prosper with the private sector till 1972. Their operations were restricted to organized trade and industry in large cities. The general insurance industry was nationalized in 1972. With this, nearly 107 insurers were amalgamated and grouped into four companies – National Insurance Company, New India Assurance Company, Oriental Insurance Company and United India Insurance Company. These were subsidiaries of the General Insurance Company (GIC).

The life insurance industry was nationalized under the Life Insurance Corporation (LIC) Act of India. In some ways, the LIC has become very flourishing. Regardless of being a monopoly, it has some 60-70 million policyholders. Given that the Indian middle-class is around 250-300 million, the LIC has managed to capture some 30 odd percent of it. Around 48% of the customers of the LIC are from rural and semi-urban areas. This probably would not have happened had the charter of the LIC not specifically set out the goal of serving the rural areas. A high saving rate in India is one of the exogenous factors that have helped the LIC to grow rapidly in recent years. Despite the saving rate being high in India (compared with other countries with a similar level of development), Indians display high degree of risk aversion. Thus, nearly half of the investments are in physical assets (like property and gold). Around twenty three percent are in (low yielding but safe) bank deposits. In addition, some 1.3 percent of the GDP are in life insurance related savings vehicles. This figure has doubled between 1985 and 1995.

A World viewpoint – Life Insurance in India

In many countries, insurance has been a form of savings. In many developed countries, a significant fraction of domestic saving is in the form of donation insurance plans. This is not surprising. The prominence of some developing countries is more surprising. For example, South Africa features at the number two spot. India is nestled between Chile and Italy. This is even more surprising given the levels of economic development in Chile and Italy. Thus, we can conclude that there is an insurance culture in India despite a low per capita income. This promises well for future growth. Specifically, when the income level improves, insurance (especially life) is likely to grow rapidly.

INSURANCE SECTOR REFORM:

Committee Reports: One Known, One Anonymous!

Although Indian markets were privatized and opened up to foreign companies in a number of sectors in 1991, insurance remained out of bounds on both counts. The government wanted to proceed with caution. With pressure from the opposition, the government (at the time, dominated by the Congress Party) decided to set up a committee headed by Mr. R. N. Malhotra (the then Governor of the Reserve Bank of India).

Malhotra Committee

Liberalization of the Indian insurance market was suggested in a report released in 1994 by the Malhotra Committee, indicating that the market should be opened to private-sector competition, and eventually, foreign private-sector competition. It also investigated the level of satisfaction of the customers of the LIC. Inquisitively, the level of customer satisfaction seemed to be high.

In 1993, Malhotra Committee – headed by former Finance Secretary and RBI Governor Mr. R. N. Malhotra – was formed to evaluate the Indian insurance industry and recommend its future course. The Malhotra committee was set up with the aim of complementing the reforms initiated in the financial sector. The reforms were aimed at creating a more efficient and competitive financial system suitable for the needs of the economy keeping in mind the structural changes presently happening and recognizing that insurance is an important part of the overall financial system where it was necessary to address the need for similar reforms. In 1994, the committee submitted the report and some of the key recommendations included:

o Structure

Government bet in the insurance Companies to be brought down to 50%. Government should take over the holdings of GIC and its subsidiaries so that these subsidiaries can act as independent corporations. All the insurance companies should be given greater freedom to operate.

Competition

Private Companies with a minimum paid up capital of Rs.1 billion should be allowed to enter the sector. No Company should deal in both Life and General Insurance through a single entity. Foreign companies may be allowed to enter the industry in collaboration with the domestic companies. Postal Life Insurance should be allowed to operate in the rural market. Only one State Level Life Insurance Company should be allowed to operate in each state.

o Regulatory Body

The Insurance Act should be changed. An Insurance Regulatory body should be set up. Controller of Insurance – a part of the Finance Ministry- should be made Independent.

o Investments

Compulsory Investments of LIC Life Fund in government securities to be reduced from 75% to 50%. GIC and its subsidiaries are not to hold more than 5% in any company (there current holdings to be brought down to this level over a period of time).

o Customer Service

LIC should pay interest on delays in payments beyond 30 days. Insurance companies must be encouraged to set up unit linked pension plans. Computerization of operations and updating of technology to be carried out in the insurance industry. The committee accentuated that in order to improve the customer services and increase the coverage of insurance policies, industry should be opened up to competition. But at the same time, the committee felt the need to exercise caution as any failure on the part of new competitors could ruin the public confidence in the industry. Hence, it was decided to allow competition in a limited way by stipulating the minimum capital requirement of Rs.100 crores.

The committee felt the need to provide greater autonomy to insurance companies in order to improve their performance and enable them to act as independent companies with economic motives. For this purpose, it had proposed setting up an independent regulatory body – The Insurance Regulatory and Development Authority.

Reforms in the Insurance sector were initiated with the passage of the IRDA Bill in Parliament in December 1999. The IRDA since its incorporation as a statutory body in April 2000 has meticulously stuck to its schedule of framing regulations and registering the private sector insurance companies.

Since being set up as an independent statutory body the IRDA has put in a framework of globally compatible regulations. The other decision taken at the same time to provide the supporting systems to the insurance sector and in particular the life insurance companies was the launch of the IRDA online service for issue and renewal of licenses to agents. The approval of institutions for imparting training to agents has also ensured that the insurance companies would have a trained workforce of insurance agents in place to sell their products.

The Government of India liberalized the insurance sector in March 2000 with the passage of the Insurance Regulatory and Development Authority (IRDA) Bill, lifting all entry restrictions for private players and allowing foreign players to enter the market with some limits on direct foreign ownership. Under the current guidelines, there is a 26 percent equity lid for foreign partners in an insurance company. There is a proposal to increase this limit to 49 percent.

The opening up of the sector is likely to lead to greater spread and deepening of insurance in India and this may also include restructuring and revitalizing of the public sector companies. In the private sector 12 life insurance and 8 general insurance companies have been registered. A host of private Insurance companies operating in both life and non-life segments have started selling their insurance policies since 2001

Mukherjee Committee

Immediately after the publication of the Malhotra Committee Report, a new committee, Mukherjee Committee was set up to make concrete plans for the requirements of the newly formed insurance companies. Recommendations of the Mukherjee Committee were never disclosed to the public. But, from the information that filtered out it became clear that the committee recommended the inclusion of certain ratios in insurance company balance sheets to ensure transparency in accounting. But the Finance Minister objected to it and it was argued by him, probably on the advice of some of the potential competitors, that it could affect the prospects of a developing insurance company.

LAW COMMISSION OF INDIA ON REVISION OF THE INSURANCE ACT 1938 – 190th Law Commission Report

The Law Commission on 16th June 2003 released a Consultation Paper on the Revision of the Insurance Act, 1938. The previous exercise to amend the Insurance Act, 1938 was undertaken in 1999 at the time of enactment of the Insurance Regulatory Development Authority Act, 1999 (IRDA Act).

The Commission undertook the present exercise in the context of the changed policy that has permitted private insurance companies both in the life and non-life sectors. A need has been felt to toughen the regulatory mechanism even while streamlining the existing legislation with a view to removing portions that have become superfluous as a consequence of the recent changes.

Among the major areas of changes, the Consultation paper suggested the following:

a. merging of the provisions of the IRDA Act with the Insurance Act to avoid multiplicity of legislations;

b. deletion of redundant and transitory provisions in the Insurance Act, 1938;

c. Amendments reflect the changed policy of permitting private insurance companies and strengthening the regulatory mechanism;

d. Providing for stringent norms regarding maintenance of ‘solvency margin’ and investments by both public sector and private sector insurance companies;

e. Providing for a full-fledged grievance redressal mechanism that includes:

o The constitution of Grievance Redressal Authorities (GRAs) comprising one judicial and two technical members to deal with complaints/claims of policyholders against insurers (the GRAs are expected to replace the present system of insurer appointed Ombudsman);

o Appointment of adjudicating officers by the IRDA to determine and levy penalties on defaulting insurers, insurance intermediaries and insurance agents;

o Providing for an appeal against the decisions of the IRDA, GRAs and adjudicating officers to an Insurance Appellate Tribunal (IAT) comprising a judge (sitting or retired) of the Supreme Court/Chief Justice of a High Court as presiding officer and two other members having sufficient experience in insurance matters;

o Providing for a statutory appeal to the Supreme Court against the decisions of the IAT.

LIFE & NON-LIFE INSURANCE – Development and Growth!

The year 2006 turned out to be a momentous year for the insurance sector as regulator the Insurance Regulatory Development Authority Act, laid the foundation for free pricing general insurance from 2007, while many companies announced plans to attack into the sector.

Both domestic and foreign players robustly pursued their long-pending demand for increasing the FDI limit from 26 per cent to 49 per cent and toward the fag end of the year, the Government sent the Comprehensive Insurance Bill to Group of Ministers for consideration amid strong reservation from Left parties. The Bill is likely to be taken up in the Budget session of Parliament.

The infiltration rates of health and other non-life insurances in India are well below the international level. These facts indicate immense growth potential of the insurance sector. The hike in FDI limit to 49 per cent was proposed by the Government last year. This has not been operationalized as legislative changes are required for such hike. Since opening up of the insurance sector in 1999, foreign investments of Rs. 8.7 billion have tipped into the Indian market and 21 private companies have been granted licenses.

The involvement of the private insurers in various industry segments has increased on account of both their capturing a part of the business which was earlier underwritten by the public sector insurers and also creating additional business boulevards. To this effect, the public sector insurers have been unable to draw upon their inherent strengths to capture additional premium. Of the growth in premium in 2004-05, 66.27 per cent has been captured by the private insurers despite having 20 per cent market share.

The life insurance industry recorded a premium income of Rs.82854.80 crore during the financial year 2004-05 as against Rs.66653.75 crore in the previous financial year, recording a growth of 24.31 per cent. The contribution of first year premium, single premium and renewal premium to the total premium was Rs.15881.33 crore (19.16 per cent); Rs.10336.30 crore (12.47 per cent); and Rs.56637.16 crore (68.36 per cent), respectively. In the year 2000-01, when the industry was opened up to the private players, the life insurance premium was Rs.34,898.48 crore which constituted of Rs. 6996.95 crore of first year premium, Rs. 25191.07 crore of renewal premium and Rs. 2740.45 crore of single premium. Post opening up, single premium had declined from Rs.9, 194.07 crore in the year 2001-02 to Rs.5674.14 crore in 2002-03 with the withdrawal of the guaranteed return policies. Though it went up marginally in 2003-04 to Rs.5936.50 crore (4.62 per cent growth) 2004-05, however, witnessed a significant shift with the single premium income rising to Rs. 10336.30 crore showing 74.11 per cent growth over 2003-04.

The size of life insurance market increased on the strength of growth in the economy and concomitant increase in per capita income. This resulted in a favourable growth in total premium both for LIC (18.25 per cent) and to the new insurers (147.65 per cent) in 2004-05. The higher growth for the new insurers is to be viewed in the context of a low base in 2003- 04. However, the new insurers have improved their market share from 4.68 in 2003-04 to 9.33 in 2004-05.

The segment wise break up of fire, marine and miscellaneous segments in case of the public sector insurers was Rs.2411.38 crore, Rs.982.99 crore and Rs.10578.59 crore, i.e., a growth of (-)1.43 per cent, 1.81 per cent and 6.58 per cent. The public sector insurers reported growth in Motor and Health segments (9 and 24 per cent). These segments accounted for 45 and 10 per cent of the business underwritten by the public sector insurers. Fire and “Others” accounted for 17.26 and 11 per cent of the premium underwritten. Aviation, Liability, “Others” and Fire recorded negative growth of 29, 21, 3.58 and 1.43 per cent. In no other country that opened at the same time as India have foreign companies been able to grab a 22 per cent market share in the life segment and about 20 per cent in the general insurance segment. The share of foreign insurers in other competing Asian markets is not more than 5 to 10 per cent.

The life insurance sector grew new premium at a rate not seen before while the general insurance sector grew at a faster rate. Two new players entered into life insurance – Shriram Life and Bharti Axa Life – taking the total number of life players to 16. There was one new entrant to the non-life sector in the form of a standalone health insurance company – Star Health and Allied Insurance, taking the non-life players to 14.

A large number of companies, mostly nationalized banks (about 14) such as Bank of India and Punjab National Bank, have announced plans to enter the insurance sector and some of them have also formed joint ventures.

The proposed change in FDI cap is part of the comprehensive amendments to insurance laws – The Insurance Act of 1999, LIC Act, 1956 and IRDA Act, 1999. After the proposed amendments in the insurance laws LIC would be able to maintain reserves while insurance companies would be able to raise resources other than equity.

About 14 banks are in queue to enter insurance sector and the year 2006 saw several joint venture announcements while others scout partners. Bank of India has teamed up with Union Bank and Japanese insurance major Dai-ichi Mutual Life while PNB tied up with Vijaya Bank and Principal for foraying into life insurance. Allahabad Bank, Karnataka Bank, Indian Overseas Bank, Dabur Investment Corporation and Sompo Japan Insurance Inc have tied up for forming a non-life insurance company while Bank of Maharashtra has tied up with Shriram Group and South Africa’s Sanlam group for non-life insurance venture.

CONCLUSION

It seems cynical that the LIC and the GIC will wither and die within the next decade or two. The IRDA has taken “at a snail’s pace” approach. It has been very cautious in granting licenses. It has set up fairly strict standards for all aspects of the insurance business (with the probable exception of the disclosure requirements). The regulators always walk a fine line. Too many regulations kill the motivation of the newcomers; too relaxed regulations may induce failure and fraud that led to nationalization in the first place. India is not unique among the developing countries where the insurance business has been opened up to foreign competitors.

The insurance business is at a critical stage in India. Over the next couple of decades we are likely to witness high growth in the insurance sector for two reasons namely; financial deregulation always speeds up the development of the insurance sector and growth in per capita GDP also helps the insurance business to grow.