Think Inc.
A forum for Hawaii's
business community to discuss
current events and issues.
Think Inc.
A forum for Hawaii's
business community to discuss
current events and issues.
The passion tax | Careful giving | Remote office access |
DAVID SWANN / DSWANN@STARBULLETIN.COM I attended the Melissa Etheridge concert a few Fridays ago, my first live concert since Bon Jovi and Fleetwood Mac. Paying the passion tax
Too many in the islands
can't afford the high price
of hanging onto their dreamsBy Stephany L. Sofos
Watching Etheridge perform was truly amazing. She had so much passion and energy for her music and audience that I was astonished at the low turnout for such an international rock and roller.
The following week I asked my friends, associates and clients why they had not gone to the concert. The consensus was she was "controversial" and "out there." These are people who have paid money to see the likes of Kiss, Queen, the Rolling Stones and Elvis. Personally, I think every rocker is a bit peculiar and different, but with the right public relations it's amazing how even the most unusual, I'm thinking Michael Jackson here, can become mainstream.
So while indulging in my favorite pastime of drinking coffee at Mocha Java, I started to think about how all of us former bra burners, Vietnam War protesters, Save Kalama Valley believers, and streakers (something I did my first year at the University of Hawaii at Manoa and never told my parents about) have become so middle of the road.
What happened to our passion? Some say it is the onset of middle age, children and divorce, but even our younger people straddle the fence these days and are anxious to remain politically correct. Some say it is because of our national and international problems, but the majority of people in Hawaii don't seem as concerned over global situations because we are so far away.
I believe our depth of conservatism has more to do with our 11 years of protracted recession in the islands and our stifling state government. We have become afraid and tired. We are struggling to send our children to private school; fearful of losing our jobs and homes; concerned we have, or will become, our parents' long-term care providers; and desperate to create some form of wealth so that we are protected and our young ones will not have to leave us.
Prior to the Persian Gulf War in 1991, our economy was humming at a developing country's growth rate of about 5 percent to 6 percent per year. Hawaii was the land of milk and honey and life was good. You could build anything from hotels to shopping centers, warehouses to condominiums and they would sell quickly.
However, the people who came to power during this time in state government -- who had been raised through the Great Depression, on plantations, and honed in World War II -- saw this free flow of money and wanted to make sure no one was left out. They were also concerned about the balancing of wealth, power and growth. They created growth regulations at first, then taxes extracting more and more to balance opportunities for all. They created numerous government jobs to help establish a middle class of residents that would balance the private sector. They wanted to protect the local resident who was not able to be a part of this emerging growth.
As time moved forward, the power of government grew and culminated with the election of governors and legislators who wanted to manage almost every aspect of Hawaii through regulations and taxes, and control enterprise.
In today's economy, it is difficult to create wealth because the burden and cost of this egalitarian solution is crushing all of the middle class, both private and public. With the cost of mandatory employee health care and benefits, high personal and corporate income taxes, user fees everywhere and salaries adjusted to compensate for all these costs and taxes, the incomes of average citizens of Hawaii do not pay enough to establish significant enough cash flow to build wealth.
Now more than ever, there must be a concerted effort by all of us to make the politicians in this state focus on preserving the middle class. We need to have the passion of a Melissa Etheridge again.
In J.K. Rowling's book, "Harry Potter and the Prisoner of Azkaban," Professor Dumbledore says to Harry, "The consequences of our actions are always so complicated, so diverse, that predicting the future is a very difficult business indeed."
However I know our middle class is losing ground daily and without us there will be no equilibrium and future growth.
Stephany L. Sofos is president of SL Sofos and Company Ltd. and a licensed real estate broker and appraiser. She can be reached at stephany@slsofos.com.
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One of the time-tested strategies in estate planning is reducing the overall size of your estate by gifting. However, when and how you gift can be just as important as whether you gift. YOUR ESTATE MATTERS
When giving gifts
to reduce the size
of your estate, be
careful how it is doneBy Judith Sterling and Michelle Tucker
Each person can give up to $11,000 each year to as many people as they want for any reason; this is called the "annual exclusion." By gifting early in the year rather than late in the year -- like Christmas -- you are effectively giving not only the $11,000, but also whatever the $11,000 earns during the year.
Simply writing the check is not enough. If you write a check to each of your three children and seven grandchildren but they do not cash them, the gift is not complete. If something happens to you before the checks are cashed, the entire $110,000 ($11,000 for 10 recipients) is still taxed in your estate. Therefore, it is important to make sure that your loved ones cash the checks as quickly as possible. You can also make the gift using a cashier's check or wire transfer to avoid this problem.
You can gift an unlimited amount of money for anyone's tuition or medical expenses. This transfer must be made directly to the educational institution or the medical care provider. It can be a great way to transfer a large sum, without being subject to gift or estate tax. For example, if your grandson is attending a private high school, you can pay the tuition and that will not be considered a gift to your child or grandchild. You simple pay the tuition directly to the high school. Similarly, if your niece has medical bills not covered by her insurance, you can pay those bills and it will not be considered a gift by you. As tuition and medical expenses can be quite significant, this can be a very powerful way to transfer money to those you love without incurring a gift or estate tax.
There are new rules in 2002 for educational funding plans called "529 Plans." These plans allow you to gift, at one time, as much as $55,000 to a loved one for their education. Earnings are not taxed and distributions are not taxed if used for their intended purpose -- education.
You can give minority or fractional interests in property and get a discount, enabling you to give even more. For example, imagine you own a closely held business worth $100,000. How much is a 20 percent interest in the company worth? Would you pay $20,000? Probably not because a 20 percent interest has no control over operations. A 20 percent interest may be worth $11,000. So, you effectively get $20,000 worth of business out of your estate and to your loved ones by using your $11,000 annual exclusion. You can do fractional giving with real estate too. For example, if you had farmland worth $100,000, a 15 percent undivided interest might only be worth $11,000. Again, you can give more by gifting fractional interests.
You should also consider the income tax "basis" of the property you choose to gift. "Basis" refers to the benchmark of the property for income tax purposes, typically your purchase price. When you sell at higher than your basis, you have a gain. When you sell at lower than your basis, you have a loss. When you gift property, the recipient gets the lower of your basis in the property or the fair market value of the property. So, if you have a loss in the property, that loss disappears by gifting. It would be better to sell loss assets and harvest the losses and gift the cash. The income tax basis of property in your estate is "stepped up" to fair market value when you die.
Accordingly, it usually does not make sense to give away property that has appreciated greatly, especially if your life expectancy is short.
For example, imagine you own Microsoft stock you purchased for $1,000 and it is now worth $50,000. If you give the stock to your son, he will have your $1,000 basis. If he sells the stock for $50,000, he will have a taxable gain of $49,000. If he inherits the stock when you die and it is worth $50,000, he can sell it the next day for $50,000 the next day and pay zero capital gains tax.
Finally, how will gifting assets to your descendants change your relationship with them and their relationships with each other? Will your granddaughter squander the assets if you give them to her outright? Will your son resent you because your granddaughter is financially less dependent on him? It is important to consider these personal issues as well as the financial ones.
Gifting is not as simple as it looks. There are many issues that come into play in deciding how and when to gift assets. A qualified attorney who specializes in estate planning can help you design a gifting strategy that can best meet your personal and financial goals.
Judith Sterling and Michelle Tucker are partners in Sterling and Tucker. Both are attorneys and certified public accountants. Reach them at 531-5391.
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In the Aloha State, living far from the mainland, we accept travel as a natural part of doing business. But nowadays, there's more to working off-site than simply downloading e-mail from the nearest Internet cafe. Consider VPN for
remote-access guardBy John Agsalud
Special to the Star-BulletinMore often than not, we need to access specific files or to operate a program located on an office machine or our personal computer. There are many communications programs that allow us to tap into databases or computers remotely.
However, using these programs may expose us to undue security risks. If you have a small business and are concerned about security when accessing remote computers, it's best to consider a VPN.
A VPN, or virtual private network, allows employees to privately share information over a public network like the Internet. It does this by encrypting data before sending it through the network and decrypting it at the receiving end. VPN software is typically installed as part of a company's firewall.
By providing encryption capabilities, a VPN allows you to communicate without great risk of having your e-mail or documents intercepted.
There are a number of inexpensive hardware and software VPN solutions. We looked at a box called the Tele3 from SonicWall, which is priced around $500 and is designed for offices with five users or less.
The SonicWall Tele 3 comes with a single VPN license. If you need to communicate with your office, you can set up the VPN client on your laptop or your home office machine.
If you have more users that need remote access, they must purchase extra licenses for another $75.
The biggest downside, for the average small business, is the hassle of setting it up, which can be daunting. Once the VPN is set up, however, the operation is easy to use.
For more sophisticated communications such as running programs remotely, you'll still need software such as pcAnywhere, Timbuktu or Laplink that you'll want to run in combination with your VPN. It's possible to run these programs with an average firewall/router, but certainly not as safe as with a VPN.
VPNs are standard for enterprise-level networks, and a small business with five or more users should seriously consider them. It's worth paying for the peace of mind that a first-rate security solution affords.
If you're a sole proprietor, I suggest GoToMyPC, a Web-based remote-access solution. I've found it works quite well, but test it out with your equipment before you purchase; it may not work well with older computers.
However, GoToMyPC, like other Web-based solutions, requires you to rely on the vendor to ensure secure connections. While Web-based remote-access vendors cite a litany of impressive certifications and audits that verify the security of their systems, many people have an inherent distrust of a middleman that they cannot see, feel or touch. If you are one of these people, then you may not be ready for a Web-based remote-access solution.
John Agsalud is the president of ISDI, a Honolulu-based IT outsourcing, systems integration and consulting firm. He can be reached at jagsalud@isdi-hi.com or by calling 944 8742.
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