Money Management Q&As

September 2, 2005

Rising rates; telemarketing pests; pension switch.

What to do if rates keep rising

Q. I'm wondering about the best way to play an interest-rate uptrend in fixed-income investments for an IRA account. I can get a 4.5 percent annual yield on a $10,000 five-year certificate of deposit. Would I do better to invest in a one-year CD at 3 percent and reinvest in a four-year CD when it matures?

A. Yes, if four-year CD rates rise to roughly 5 percent or more a year from now. A $10,000 five-year CD at 4.5 percent would be worth $12,462 at maturity. The 3 percent one-year CD would give you $10,300 to invest for four years. This would give you the same $12,462 with an annual return of 4.88 percent. But at 5.5 percent, you'd have $12,760 and at 6 percent, $13,004. Of course, it's possible that rates will fall instead of rise, so you'll have to decide if the projected gain is worth the risk.

Q. I've been spending a good deal of money this year to lay the groundwork for a therapy center that will open soon. How do I treat these expenses for tax purposes?

A. You can write off up to $5,000 of certain start-up costs and $5,000 of organizational expenses on your 2005 return, provided they don't add up to more than $50,000. Any amount above that limit reduces your 2005 deduction dollar for dollar. Expenses you can't write off for 2005 must be amortized over 15 years, starting with the month your business becomes active.

Qualifying start-up costs include outlays for market analysis, pre-opening advertisements, employee training, business travel, and salaries and fees for executives, consultants, and other professionals. Organizational expenses include the costs of internal meetings, state incorporation fees, and accounting and legal services for setting up the corporation.

Don't include outlays for interest and taxes associated with the business in the total. They're fully deductible the year you pay them. And claim equipment costs separately, in accordance with the rules for depreciation.

If a telemarketer keeps calling

Q. Even though my phone number is on the National Do Not Call Registry, I keep getting telemarketing calls from a company I once bought something from. Isn't that illegal?

A. No, says the FTC, which enforces the Registry in conjunction with the Federal Communications Commission and state officials. The company may call you for up to 18 months after your last purchase, last delivery from it, or your last payment to it. Even if you merely inquire about a company's products or services, or submit an application to it, you've established a "business relationship" that allows the company to continue phoning you for the next three months. However, if you ask the company to stop calling and it fails to honor your request, it risks being fined up to $11,000.

You can file a complaint at http://www.donotcall.gov, or at 888-382-1222, provided you know either the name or the phone number of the company that called you. You also must provide the date of the call and your registered phone number.

Protecting profits on a volatile stock

Q. I've got a nice gain in a stock that I think has more mileage left, but I'll be taking a vacation soon and want to protect my profit against an unexpected slide. I understand that either a stop order or a stop-limit order can help me do this, but how do they differ?