World Class Mergers & Acquisitions  |  For Companies $5 Million to $250 Million in Revenue

Mergers & Acquisition FAQ – June 2010

Q: I am planning on financing my child’s education for college.  Are there any good strategies to follow when saving for college expenses?

A: There are a number of good avenues to follow when planning your child’s education financing.  First, most states have some form of a 529 College Saving Plan.  The main feature of these is that contributions made to the 529 Plan grow tax free until the child goes to college.  At that time, the money is discharged tax free to pay tuition and other necessary expenses.  Another unconventional approach to financing college is the Roth IRA.  As you know, Roth contributions are not deductible when contributed, but are tax free when taken out, somewhat synonymous with the 529 plans.  However, the main advantage to the Roth, as opposed to using a 529 plan for education is that the holder of a Roth has more liberty as what to do with the funds.  The holder could use the funds contributed for education or retirement, depending on the circumstances.

Q: My portfolio has diminished in value in the month of May.  If I decide to take a loss, is there any limit as to how much I can deduct against my taxable income?

A: First, losses taken from selling depreciated stock is what is known as “a capital loss.”  Second capital losses are directly deductible against any capital gains you might have had, such as any sale of stock taken at any time during the year.  Last, any excess capital losses can be deducted against ordinary income at a rate of $3000 a year until the loss is used in its entirety.

Q: Recently, one of my clients applied for credit.  Upon receiving his credit report, it was noted that the client had filed for Chapter 11 bankruptcy protection.  Given the client has previously filed bankruptcy, is it now safe to extend this client credit?

A: No.  A Chapter 11 bankruptcy is a reorganization of debt.  And while the client is standing on better financial ground than what they were, there is no guarantee that the subsequently created debts will be paid.  Further, if things get bad enough for the client, they can elect a Chapter 7 bankruptcy and possibly discharge all of their debts, including yours.

By: Basi & Basi at the Center for Financial, Legal and Tax Planning for Transworld M&A Advisors