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This Year, Get Your Financial Health in Tip Top Shape

coins and pencils

Happy New Year,

Just like so many people vow to commit to exercise and dieting as a New Year’s resolution, it’s also not a bad idea to take stock of your financial situation and throw in some fiscal goals. Taking a good look into your overall savings plan, wasteful spending and debt can help you get your financial health in tip top shape and increase your prosperity.

Here’s a list of five valuable exercises you can do to make sure you’re closer to where you want to be financially by this time next year.

Cut wasteful spending. This may seem like an obvious choice but for many it can be an ever-so-hard one! All too often people aren’t even sure exactly where they’re spending their money. The following are some apps you can utilize to help on this front: BillGuard, Penny and Level Money. These apps can link your accounts, track all of your credit card purchases and cash withdrawals and then categorize them into types of spending. You can use the knowledge these apps provide to cut back on purchases that may seem inconsequential at the time but add up in the end.

Create a cushion in your savings. This can first and foremost be accomplished by cutting wasteful spending. But another easy way to save more for emergency expenses is to start utilizing and/or adjusting automatic transfer features on your bank account that allow you to push your money from recurring deposits into designated savings accounts. A lot of times when we see the money sitting in our checking account we tend to think it’s available to spend. So by setting up these transfers, the money is no longer in an account where it’s easy to access!

Get a handle on credit card debt. If you have multiple credit cards, you may want to consolidate to one or two cards. Start by looking at each of your credit card statements to see which has the lowest interest rates—transferring your other balances onto those cards can save you hundreds of dollars a month and thousands a year. Then, challenge yourself to lower these balances by spending only cash on everything you purchase for an entire month and see how it affects your spending habits.

Improve your credit rating. Whether you’re looking to buy a new home, rental property, car or solar panels, everyone wants to first…run your credit! You don’t want to be surprised by a low credit score and be faced with a higher interest rate right as you’re applying for a new loan. Make it a priority over the next 12 months to research your credit report, make sure everything is accurate and then take the necessary action to improve it.

Protect your estate. If you don’t have an estate plan, now’s the time to create one. If you already have one, now may be the time to make sure it is up to date. As time passes, things in life change and estate plans need to be updated. Has your family had any recent births or deaths, have you gained new assets, have there been any marriages or divorces? Any of these life changes can alter your estate wishes and should be addressed in your estate documents as they happen to ensure you’re always prepared. Give the office a call if you have had any changes to your situation so I can be sure you are properly covered.
You work hard for your money, and by doing these financial exercises I know you can make sure it works just as hard for you.

All the best,

Steve Lindquist

steve

Steve Lindquist
stevelindquist@peakfns.com
Financial Consultant
9600 S McCarran Blvd
Reno, NV 89523
(775) 789-3140
http://www.gbfinancial.org/

What 2018 Tax Reforms Mean for Investors

Jason BortzJason Bortz
Senior Counsel and Senior Vice President

 

 

KEY TAKEAWAYS

  • Tax reform presents important changes for investors, while also preserving several areas some thought could change. 529s get more useful, while 401(k) plans remain mostly unchanged.
  •  Planning opportunities abound especially for high net worth clients, business owners, those interested in philanthropic efforts and others planning for education expenses.
  • Business owners might consider changing their form of business to take advantage of tax breaks for pass-through entities. Decisions regarding philanthropy before the year ends could also be an option.

Congress’ sweeping overhaul of the tax code presents a range of planning opportunities for investors.

For individual taxpayers, the headline provisions include a lowering of the top tax rate to 37% from 39.6%. There could also be secondary benefits to investors resulting from lower corporate taxes.

A deeper look at the new tax law, though, reveals equally important changes beyond tax rates, especially for business owners. Individuals are also potentially affected, especially when it comes to their retirement accounts, philanthropy and education savings accounts.

 

WHAT’S CHANGING

1. Big breaks for business owners who qualify for pass-through income. 

Perhaps the most significant tax change for individuals is the modification in the treatment of income from pass-through entities.  Many businesses are pass-through entities, so the effect could be large and swift.

Pass-through income is generated via business income from business structures like partnerships, S corporations and sole proprietorships.

The new tax rates have a large effect on pass-through income, since this form of income is currently taxed to the end taxpayer, not at the corporate level. In 2017, this popular type of business income potentially faced the maximum tax rate of 39.6%.

That changes in 2018. If you’re eligible for the pass-through deduction, 20% of taxable income gets taken off the table for tax calculation purposes. That means if you’re in the new highest 37% tax rate for 2018, this rule lowers your effective tax rate to 29.6%. 

Who This Affects: Many business owners who receive pass-through income including professionals like doctors and lawyers as well as some financial advisors. There is complexity, though, that might curtail this option for some, so it’s important to consult your tax professional.

What to Consider: Business owners might consider converting from a C corporation structure to S corporation or partnership to take advantage of the pass-through preference. Retirement plan contributions, however, may dilute the benefit of the pass-through deduction.

2. Limits rise even more for estate and gift taxes.

Federal estate taxes affect a small subset of high net worth investors now, but that number is likely to dwindle even further. That’s because new tax rules double the federal estate tax exclusion to $11 million for individuals and $22 million for couples. Very few estates are this large, making this type of planning even more of a specialty for advisors.

Who This Affects: A very small percentage of the population with an estate value at death of $11 million.

What to Consider: Estate planning strategies can be recalibrated for a much higher upward limit.

3. Expansion of 529 education savings accounts make them even more useful. 

Since their creation in 2001, 529s could only be used for college expenses. But now, for the first time, these accounts can be used for primary and secondary education up to $10,000 a year per student. This is a big expansion of the appeal and utility of 529 plans.

Previously, investors looking for tax preference on education costs prior to college had to use other account types such as Coverdell Education Accounts. Coverdell accounts will remain available, despite speculation they would be curtailed. Those accounts have disadvantages to 529s, though, including much lower contribution limits.

Who This Affects: Clients looking for ways to gain tax efficiency when paying for private school prior to college. 529s plans are growing in popularity, but there are many investors who have yet to take advantage of their numerous benefits.

What to Consider: The 529 account is now potentially even more compelling than it was before. Contribution limits remain the same, allowing for annual contributions in 2018 of $15,000 for single taxpayers and $30,000 for those married filing jointly. Some taxpayers might consider making five years of contributions ahead of time, amounting to $75,000 for individuals or $150,000 for couples.

4. The cap on state income tax deductions and doubling of standardized deductions changes the math.

Many of the tax changes are positives for investors, at least in the early years, but not all. Over time, some taxpayers could end up in higher brackets due to a change in the way the annual increases to the brackets are calculated.

The math gets more complicated in other ways. For instance, taxpayers’ state and local income tax deduction is capped at $10,000, which is a negative for taxpayers in states with higher state taxes. But, the standard deduction is also doubled to $12,000 for individuals and $24,000 for married couples.

The end result? Roughly 30% of taxpayers itemize now. That number will likely be far smaller following the tax changes.

 

Standard Deduction: The New and the Old

Who This Affects: The increase in the standard deduction could have ramifications on charitable giving, which is an itemized deduction. Investors who take the standard deduction in 2018 may not get any tax benefit from charitable giving. The tax bill also eliminates all miscellaneous itemized deductions. One of those deductions is for investment expenses. Fees to financial advisors will no longer be deductible.

What to Consider: Philanthropic investors, who itemize, might consider accelerating donations to before December 31, 2017. As with many provisions for individuals, the limit on state and local tax deductibility expires in 2025. Meanwhile, the complex alternative minimum tax remains, but has been restructured in a way that is likely to affect far fewer people.  

 

WHAT’S NOT CHANGING

While much attention is paid to the parts of the tax code that are changing, perhaps equally as important to investors are aspects that are staying the same. 

1. Tax rates on dividends and capital gains remain unchanged.

Tax rates on dividends and long-term capital gains stay where they are in 2018. For capital gains and qualified dividends, that means a maximum tax rate of 15% for taxpayers in the lower tax brackets. For those in the highest tax bracket, the tax rate is 23.8%, including the 3.8% Net Investment Income Tax, associated with the Patient Protection and Affordable Care Act.

Who This Affects: Investors with taxable portfolios that generate dividends or where investment sales are being considered.

What to ConsiderInvestors and advisors can continue to strategically position investments in accounts to take advantage of preferential tax treatment given to qualified dividends and long-term capital gains. 

2. Tax benefits to retirement accounts, such as 401(k)s and IRAs, stand.

Good news for investors in 401(k) retirement plans: The tax benefits of tax-deferred retirement accounts stand, despite worries they would be curtailed. Changes were small and affect only a subset of taxpayers and investors.

Who This AffectsRetirement accounts remain attractive options for taxpayers looking to save and invest for their retirement.

What to ConsiderThere are some minor changes that investors should be aware of. For instance, investors who converted funds from a traditional IRA to a Roth IRA can no longer undo or recharacterize the conversion once it’s done. Investors may want to check with their tax professionals to see if any other changes affect them.

3. Tax-lot selling rules stay the same.

Investors are still able to determine the most appropriate tax lot to use for cost-basis purposes on investment sales. This preserves an important planning tool for investors. In some versions of the tax bill, it was proposed investors would need to use first-in first-out accounting, where investors would use the cost basis of the shares they bought first. That could have meant higher capital gains for many investors.

Who This AffectsTax-aware investors who have bought investments over time, have unrealized gains and are considering selling.

What to ConsiderInvestors and advisors are still able to analyze investments bought over time and consider which lots are most appropriate to sell for tax purposes. Investors can choose the specific lots to use for cost basis, or, in many cases with mutual fund shares, opt for the average cost of the shares bought over time.

4. Municipal bonds’ appeal is unchanged.

The reduction of the top tax rate could reduce the appeal of municipal bonds for some taxpayers. But at the same time, munis get more interesting due to the loss of itemized deductions. The bottom line: Munis remain important options for tax-aware investors.

Who This Affects: Investors who look to municipal bonds as a source of tax-exempt income.

What to Consider: Demand for municipal bonds from banks and insurers may ease a little. But individuals seeking income may still find municipals to be a potential source of tax-advantaged income and diversification. For higher tax bracket investors in states like New York and California, the relative attractiveness of local bonds could actually improve.

This material does not constitute legal or tax advice.

What’s Up With Bitcoin?

Bitcoin is a hot topic right now. Here are some details that explain what it is and why it has caused so much buzz. For the full article, click here.

This year, Bitcoin has become an increasingly hot topic as its price has gone from around $1,000 to over $11,000. As the Bitcoin website describes it, “(Bitcoin) is the first decentralized, peer-to-peer payment network that is powered by its users, with no central authority or middlemen.” 

One benefit to Bitcoin holders is that a currency, which is not backed by any central entity like a government, is not prone to the risks of inflation. When debt-laden governments print or create more money, this causes inflation and a devaluing of the currency. Since Bitcoin is not issued by a government with debt to service, this is not a risk for Bitcoin holders. In other words, the idea of a worldwide cryptocurrency, like Bitcoin, can be attractive to individuals who feel their country has issued too much debt and may devalue its currency in the future.

Additional key features of Bitcoin are that transactions are completely anonymous and fees are generally low. No one can trace Bitcoin transactions back to the buyer and no one can determine how many bitcoins someone has. Traditional currency systems can allow third parties or governments to potentially access personal financial data.

Some of Bitcoins’ benefits can actually be a double-edged sword… read more about why, here.

So, as a currency, Bitcoin isn’t a very good store of value since it can be very volatile. It also may be difficult to spend in the traditional sense since not many institutions accept Bitcoin for payments. Security can be a concern as it is not FDIC or SIPC insured, and it is possible to lose all your bitcoins if your hard drive crashes or your digital wallet gets hacked. But what about Bitcoin as a speculative investment? Ultimately, that depends on whether this digital currency will be successful as a form of payment. Unlike companies, which are valued by dividends, earnings or expected future earnings, Bitcoin has no cash flow or expected future cash flow. The value is simply determined by supply and demand. Since Bitcoin is relatively untested as a currency, speculators should be very cautious.

As Bitcoin is highly volatile and may prove to be an unreliable investment, investors should proceed with extreme caution, regardless of how festive the noise around bitcoin continues to be.

This report is created by Tower Square Investment Management LLC

Tax Planning Checklist

ornaments

Happy Holiday Greetings,

As year-end approaches, I want to send a quick reminder about important tax planning deadlines. The following checklist can help you simplify and manage these critical deadlines as you take advantage of opportunities to help reduce your 2017 tax burden. 

December 31st marks the deadline for:  

Gifts and Charitable Contributions: 

  • Making tax-year 2017 charitable contributions of cash or securities  
  • Gifting to family members (you can give up to $14,000 per individual free of gift or estate tax)
  • Donating real property, such as a car, boat, household items, or clothing to qualified charities

Investments and Retirement Accounts: 

  • Tax harvesting: selling stocks or listed options to realize a gain or loss
  • Contributing the maximum to employer-sponsored qualified retirement plans such as (401(k) and 403(b) plans ($18,000 if you’re under age 50); you may be eligible to make an additional $6,000 catch-up contribution for a maximum contribution of $24,000 if you’re age 50+
  • Completing a 2017 Roth IRA conversion

Employment and Medical Expenses: 

  • Deferring bonuses or self-employment income into 2018 
  • Rolling over Flexible Spending Account (FSA) balances in employer-sponsored plans 
  • Paying for qualified out-of-pocket healthcare services, procedures, or equipment to itemize medical expenses (qualified expenses for 2017 must exceed 10% of adjusted gross income (AGI) regardless of your age)
  • Avoiding tax penalties by adjusting withholding or estimated tax payments to make up for any shortfall
  • Accelerating income to “zero-out” the alternative minimum tax (ATM); check with your tax adviser first; this can be counterproductive for certain taxpayers

If you have questions or need assistance with year-end financial and tax planning, please contact me at your earliest convenience.

All the best,

Steve Lindquist

steve 

Steve Lindquist 
stevelindquist@peakfns.com 
Financial Consultant
9600 S McCarran Blvd
Reno, NV 89523 
(775) 789-3140

http://www.gbfinancial.org/

Steve Lindquist is a registered representative offering securities and advisory services through Cetera Advisor Networks LLC, member FINRA/SIPC.  Cetera is under separate ownership from any other named entity. Registered address: 9600 S McCarran Blvd., Reno NV 89523.

Investments are not deposits; not NCUSIF insured; and not insured by any federal government agency.  No credit union guarantee.  May lose value.

Investors should consider the investment objectives, risks, charges and expenses associated with municipal fund securities before investing. This information is found in the issuer’s official statement and should be read carefully before investing.

Investors should also consider whether the investor’s or beneficiary’s home state offers any state tax or other benefits available only from that state’s 529 Plan. Any state-based benefit should be one of many appropriately weighted factors in making an investment decision. The investor should consult their financial or tax advisor before investing in any state’s 529 Plan.

 

 

Thanksgiving Traditions

squash and pumpkins

Thanksgiving is right around the corner! This year, why not throw in one or two new activities and see how they are received by your guests? If they are enjoyed, you may have a few fun Thanksgiving traditions for years to come!

Here are some simple tradition-starting ideas that cost virtually nothing but can add a bit more meaning and a few more memories to your Thanksgiving holiday.

1. Give back before feasting – Whether it’s running a 5K Turkey Trot that sponsors food bank charities or volunteering to help prepare and serve a hot Thanksgiving meal for a local soup kitchen, giving back to your community has a way of kicking off the holiday season in its intended spirit and yields thankfulness for what you have.

2. Create a “What We Are Thankful for Tree” – Gather a few fallen branches from outside and place them in a vase so they resemble a tree. Cut out colorful pieces of paper into shapes of leaves and place them underneath the tree. Invite family and friends to write down anything they feel thankful for. Glue, tape or hang them from the tree and use it as a centerpiece for your Thanksgiving meal as a reflection on the year’s blessings.

3. Toast all the way around the table – Invite each person, young and old, to take a moment to toast to “what they are most thankful for this year.” This quickly floods Thanksgiving dinner with a strong sense of gratitude and helps the flow of conversation throughout the meal as special moments are shared, remembered and celebrated.

4. Get active after dinner – After the meal has been eaten, and possibly before dessert has been served, gather everyone in your Thanksgiving celebration to enjoy a bit of time being active outside. Grab a glass of hot cocoa, coffee or wine and take a nice, long walk around your neighborhood together. Or, host a competitive game of wiffle ball with your family and/or neighbors! It should help stimulate everyone’s metabolism and at the very least will create some great memories.

5. Celebrate “Friendsgiving” – Start a tradition with your friends to have a potluck party with all of your Thanksgiving leftovers the Saturday after Thanksgiving. Make it a competition to see who can have the best re-purposed leftover dish or turn the gathering into an annual board game tournament! This can be a fun time to reconnect with those close friends after the Thanksgiving holiday.

If you have any unique Thanksgiving holiday traditions that your family celebrates, we’d love to hear about them! Enjoy your Thanksgiving Day!

All the best,

Steve Lindquist

steveSteve Lindquist
stevelindquist@peakfns.com
Financial Consultant
9600 S McCarran Blvd
Reno, NV 89523
(775) 789-3140
http://www.gbfinancial.org/

Steve Lindquist is a registered representative offering securities and advisory services through Cetera Advisor Networks LLC, member FINRA/SIPC. Cetera is under separate ownership from any other named entity. Registered address: 9600 S McCarran Blvd., Reno NV 89523.
Investments are not deposits; not NCUSIF insured; and not insured by any federal government agency. No credit union guarantee. May lose value.

Investors should consider the investment objectives, risks, charges and expenses associated with municipal fund securities before investing. This information is found in the issuer’s official statement and should be read carefully before investing.
Investors should also consider whether the investor’s or beneficiary’s home state offers any state tax or other benefits available only from that state’s 529 Plan. Any state-based benefit should be one of many appropriately weighted factors in making an investment decision. The investor should consult their financial or tax advisor before investing in any state’s 529 Plan.