You can catch Smart Money Radio every Saturday from 12-12:30 PM ET and every Sunday from 9-10 AM ET and 11-12 PM ET on WIOD-AM 610! Tune in to begin your journey to a smarter financial future!

Missed an Episode? We Got You Covered!

You can catch up on episodes of Smart Money Radio on major streaming platforms. Be sure to follow and bookmark this page to never miss an episode!

Meet Your Host, Tatyana Bunich

With over 30 years of experience as a Financial Advisor and Wealth Manager, Tatyana Bunich specializes in tax strategies, retirement planning, investments, and estate planning. She holds Series 7, 63, and 66 licenses and is a Certified Estate Planner (CEP) and Five Star Professional. As the founder of Financial 1 Wealth, Tatyana leads a comprehensive financial planning firm with offices in Columbia, Maryland and South Florida (Boca, Aventura, & Miami).

Tatyana hosts Smart Money Radio on WIOD-AM 610 every Saturday and Sunday, where she shares insights on financial strategies to help listeners secure their future.

Want to learn more about Tatyana? Read her full bio

Got a Question?

Send it in for the chance to have Tatyana read it on air!

We will get back to you to discuss your tax scenario and options to prepare your taxes. You can also reach us here.

The post Smart Money Radio with Host Tatyana Bunich appeared first on Financial 1 Tax.

Your crypto transactions have tax implications, and reporting correctly to the IRS is very important in 2022.  We’ve put a quick guide together for you to get set up to help protect yourself. As always, we are happy to answer questions and work with you to maximize your return and make sure you are following the latest tax laws.

A Starter Guide to Crypto Taxes

You will notice a question on your 2021 Form 1040 about cryptocurrency.

The question reads: “At any time during 2021, did you receive, sell, send, exchange or otherwise acquire any financial interest in any virtual currency?”

The IRS requires you to answer with yes or no. If you check the “yes” box, the IRS will expect income, transactions or reporting from crypto on your return. If you are not sure if you need to check yes, please give us a call or schedule an appointment. You can work with us in person, on an online Zoom call, or on the phone.

Since the IRS has various tracking methods and exchanges do formal reporting, it’s not a good idea to try to avoid your crypto obligation. More audits are predicted.

How It Works

• Cryptocurrency is treated like “property” for taxes.
• When you buy, sell or exchange it, it counts as a taxable event with a capital gain (or loss).
• Earning income from cryptocurrency is taxed as ordinary income.

Since the IRS considers cryptocurrency to be property for taxes, it’s taxed the same way as stocks or gold.

You will report these capital gains and income on your tax return in different forms. The most important thing you can do to prepare is to keep records of your transactions. For some of you, this means a lot of details from your digital wallets. If possible, download that transaction activity where ever possible, and include that for your tax appointment.

Guidelines for Reporting

When you buy and hold cryptocurrency, it is not necessarily a “taxable event”. For example, you can buy Bitcoin and hold it for years and not have to pay taxes on it.

Taxes come in to play when crypto is sold or traded, as described in some of the scenarios below. Please note: these don’t apply if you trade in tax-free or tax-deferred accounts, such as IRAs (individual retirement accounts).

I purchased crypto with U.S. dollars — if you just bought Bitcoin with dollars, you do not have to report that to the IRS, according to the 1040 guidance. Same with transferring crypto to your personal wallet (a wallet you own).

I exchanged cryptocurrency — exchanging one coin for another is taxable. For example, purchasing Bitcoin (BTC) using Ethereum (ETH) is a taxable event.

I bought something with crypto — paying for goods and services using your crypto has tax implications. For example, when you buy an item with Bitcoin, it is a transaction that can result in a gain or loss. This depends on the value of Bitcoin at the time you received your BTC, and the price of BTC when you used it as payment (effectively “selling” it at the point of sale).

I sold crypto — when you place a trade, that is a taxable event. For example, you may have sold some of your Ethereum back to U.S. dollars in your FTX account for more than you originally paid, which resulted in a gain. Similar to selling shares of a stock, your taxes will consider the cost basis (what you originally paid) and what you sold it for (resulting in a gain or loss).

I traded or minted NFTs — NFTs are non-fungible tokens, created on a blockchain to prove you are the owner of a digital item. You may be buying and selling these one-of-a-kind assets in a marketplace like OpenSea. These transactions are taxable, but the guidance from the IRS on these is seemingly limited (so far). Many factors can affect your liability, such as if you are a creator or an investor, and if it’s a hobby or a business. Here are some notes and considerations, but keep in mind these conditions can be much more nuanced:

• Paying gas fees when you mint NFTs is a taxable event.
• Trading Etherum when minting NFTs can generate capital gains (short term or long term rates below).
• Minting NFTs for your business can be treated as ordinary income (ask us for help with this).
• Generally, you can deduct expenses only if it’s part of your business.
• Once you sell or exchange an NFT, this is a new taxable event.
• Royalties you earn from an NFT is taxed as income.

I invested in NFTs — taxes for these investments work much the same way as crypto trading. NFTs can be considered “collectibles” for taxes, especially for artwork. Collectibles are subject to capital gains, just like other cryptocurrencies. When you buy an NFT with Ethereum (or sell the item), what you owe will be reported based on if you made a profit and how long you held the NFT (short term or long term). You can claim losses, too.

Short Term and Long Term Capital Gains

Find your tax rates for 2021 and 2022.

How long you hold crypto before a sale or transaction plays a part in what you report.

In a simple trade example where you made money — you buy $500 of Bitcoin, and then sell it for $1,000. You will have a capital gain of $500. This is calculated as: sale price ($1,000) minus the cost basis ($500) = +$500 profit.

Similarly, in a trade you lost money — you buy $500 of Bitcoin, and then sell it for $400. You will have capital loss. This is calculated as: sale price ($400) minus the cost basis ($500) = -$100 loss.

Important note: you can adjust your cost basis (what you paid) by subtracting any fees or commissions paid to complete the transaction. Since what qualifies for this varies (adjusted cost basis and adjusted sale amount), it’s important to get the most up-to-date guidance before making your calculations.

Keep in mind: your losses can reduce the gains for tax purposes. Individual filers can deduct up to $3K of losses from taxable income if losses exceed gains.

The Difference Between Short and Long Term

Generally, you can follow these guidelines:

The tax rates for long-term and short-term are different. Your overall taxable income can vary these rates, too.

Here are the relevant tax forms:

• Form 8949 — capital gains and losses.
• Form 1040 — Schedule D.

Side note: non-business related NFT trades can also be reported on Schedule D. Code “C” in column F can designate an NFT sale as a “collectible”. We recommend working with a tax professional, please contact us.

Short-Term Tax Rates

Calculate your short-term capital gains or ordinary income earned through crypto trades bought and sold in less than a year.

Long-Term Tax Rates

Calculate your long-term capital gains for crypto held for more than one year.

Crypto Income and Other Events

Did you receive cryptocurrency as payment for work? Does your business accept Bitcoin as payment? Receiving income this way, instead of U.S. dollars, should be reported.

Likewise, mining coins or receiving tokens as a reward are included as income. The market value of that crypto at the time you receive it, will contribute to your gross income calculation.

“A taxpayer who receives virtual currency as payment for goods or services must, in computing gross income, include the fair market value of the virtual currency, measured in U.S. dollars, as of the date that the virtual currency was received.” -Source: Internal Revenue Service

If you mine cryptocurrency — miners receive cryptocurrency as a “reward”. If you earn cryptocurrency this way, it is taxable income and could be reported on a Form 1099-NEC. It should be priced at the “fair market value” on the day you received the reward. This income must be reported even if you do not receive a form 1099.

If you receive cryptocurrency as payment for goods or services — businesses that accept Bitcoin and cryptocurrency should consider those the payments as taxable income, just like cash or credit card. When reporting for taxes, the dollar value is the “fair market value” of the cryptocurrency on the day and time you received it.

If you participate in a fork or airdrop — when a crypto project sends out free tokens as an airdrop, the new coins count as a taxable event, and taxes should be factored in on these new coins. A hard fork (change in the blockchain’s protocol) doesn’t always mean new crypto is issued. If you do receive an airdrop with new virtual currency following a hard fork, this will be considered ordinary income for tax purposes. If you do not, the fork is not a taxable event for you.

If you stake cryptocurrencies — “staking” earns rewards, similar to earning interest. This money paid to you is taxable income, valued at the fair market value at the time you earn it.

If you give to charity — you can donate cryptocurrency to qualified charities, and, depending on how you itemize, get a tax deduction. Deduct the fair market value of your cryptocurrency at the time of the donation. When done correctly, you do not have to pay capital gains taxes on donations. Giving crypto to charity is considered non-cash charitable contributions. It is recommended you obtain documentation from the charity, especially for gifts over $250 in value.

If you lost crypto or it was stolen — in most cases, you cannot deduct these as losses. The two categories that the IRS recognizes for losses of capital assets include theft and casualty losses. Technically, both can apply in certain instances. For example, theft can apply if your wallet is hacked, or even if your exchange is hacked. Casualty loss could possibly apply when crypto is sent to the wrong wallet or similar “sudden” loss events (please note: there are other factors that would come in to play for these situations). Either way, you cannot deduct these kinds of losses due to new tax laws effecting tax years 2018 to 2025.

If you make a tax-free crypto transaction — transactions in a Traditional IRA (tax-deferred) or a Roth IRA (tax-free), can avoid taxation. You may also avoid taxes by holding your crypto long-term (more than 12 months) and selling it under certain filing and income scenarios. Your taxable income must be less than or equal to $40,400 (single filer), or less than or equal to $80,800 (married filing jointly). As you can see on the long-term capital gains table above, these conditions put you at 0% long-term capital gains tax.

Keeping Records and Planning for the Future

IRS guidance outlines that you should keep records, like date, time and value. If you receive Form 1099-B, that will help you with your records, and any activity on those forms should be included in your return. Looking ahead, you will see more 1099-B forms from crypto exchanges in tax year 2023, based on newly established laws in the U.S. (the American Infrastructure Bill of 2021).

It’s prudent to follow all tax regulations and report appropriate crypto activities on your tax return. While crypto has “anonymous” and decentralized qualities, the IRS has some methods of tracking, including blockchain analytics tools. Exchanges and brokerages may report transactions with Form 1099-B and/or provide information directly to federal agencies, following various laws and regulations. Mining may produce the issuance of form 1099-MISC or 1099-NEC, which reports the ordinary income you earned.

Coinbase shared millions of customer transactions to the IRS after a 2016 summons. They send out 1099-MISC for rewards, and transaction detail if you exceed the $600 minimum. In 2023, all exchanges will be required to send 1099-B forms with all transaction activity. Regardless of the forms you receive, even if documented in a 1099, you must still report taxable activity.

Keep in mind: whenever you receive a form 1099, they are also issued to the IRS.

You should consider planning in advance with one of our CPAs for:

• Large portion of your portfolio is in crypto.
• Staking or mining business.
• DeFi transactions.

Important Notes

This information is provided for educational purposes only. Please keep in mind that your taxes are unique and your personal scenario must be considered individually. Depending on your transactions, reporting your crypto may be more complicated than the guide presented here. Our aim is to get you familiar with the tax rules involved and prepare you for what to expect. We work directly with all of our clients to work out your individual tax scenarios. Questions? Call us!

The post Cryptocurrency Taxes and Reporting appeared first on Financial 1 Tax.

A new tax season is upon us! We’ve summarized income tax rates and details below for you, for the tax year 2021 and filings in 2022. You can compare rates for both tax years 2021 and 2022 to see the rate changes you can expect for next year. We’ll be addressing these carefully with our clients during the tax season this year, starting January – April 2022, and throughout the year.

The Federal IRS deadline this year is Monday, April 18, 2022, or October 2022 with an extension. It’s important to check your state’s deadlines and guidance. We recommend you prepare early! Since your tax situation is unique, please consult a tax professional for advice. Let us assist you in person, on the phone, or via Zoom.

Support for Cryptocurrencies

We also provide tax services for cryptocurrency, including tax obligations for Bitcoin (BTC), Ethereum (ETH), and other coins and tokens, along with DeFi activities. Have questions?

Federal Income Tax Brackets

Tax Rates for 2021 and 2022

Alternative Minimum Tax (AMT)

Standard Deductions

Top Tax Brackets

Top Capital Gain Tax Rate (20%) Thresholds

Unearned Income Medicare Contribution Tax (Net Investment Income Tax)

Standard Mileage Rates

Qualified Charitable Distributions (QCDs)

Qualified charitable distributions (QCDs) are distributions made directly from an IRA to a qualified charity. Such distributions may be excluded from income and count toward satisfying any required minimum distributions (RMDs) you would otherwise have to receive from your IRA. Individuals age 70½ and older can make up to $100,000 in QCDs per year.

Registered Representative offering securities and advisory services through Independent Financial Group, LLC (IFG), a registered broker-dealer and investment advisor. Member FINRA/SIPC. Financial 1 Wealth Management Group and IFG are unaffiliated entities.

The post Income Tax Key Numbers 2021-2022 appeared first on Financial 1 Tax.

At Financial 1, we offer practical strategies to help grow your assets and build wealth. We believe in thinking “out of the box” and we are not afraid to challenge conventional wisdom in our approach to accounting, tax planning and preserving wealth. Below are useful strategies to help you get started.

Watch These Videos:

Each one is less than 3 minutes!

The post Videos: Tax Tips and Strategies appeared first on Financial 1 Tax.

Click to enlarge

After a sharp waterfall drop in March, major equity markets advanced strong in the second quarter. Following the Dow Jones Industrial Average’s (DJIA) worst first quarter ever the index posted its best second quarter performance since 1938 rising over 17%. The S&P 500 ended the quarter up 20%, achieving its largest quarterly gain since 1998 and the best second quarter for blue-chip equities since the S&P 500 was created in 1957. While those indexes did not reach their earlier year highs, the Nasdaq Composite recorded all-time highs this quarter as technology stocks have largely emerged strong following their March fall. (Sources: Yahoo Finance 6/30/20, Barron’s 6/30/2020)

Although the equity markets posted gains this quarter, efforts to contain the coronavirus have had a major impact on the global economy. Most of the second quarter’s stock-market advances took place in April and May. During June, the major indexes stayed in a relatively narrow range as investors evaluated increasing coronavirus cases against positive economic data.

As equity indexes soared from their late-March lows, there was an incredible amount of data to digest including:

• bond yields remaining very low;
• gold prices rising to an eight-year high;
• unemployment skyrocketing to ultra-high levels;
• oil prices rebounding from Q1 lows (still down YTD);
• a Chinese survey showing factory activity rose to a three-month high in June; and,
• disease experts warning about losing control of the COVID-19 outbreak.

(Source: Market Watch 6/30/20)

It has been the best of times and the worst of times for U.S. equity benchmarks over the past two quarters. This could be why headlines are sharing that stock-market strategists have never been more confused in June about the year-end outlook for equities.

Investors this quarter enjoyed a nice rise in equity prices. However, with markets being heavily volatile, some analysts feel that the market may have moved too far, too fast and based on historical numbers, like price earnings, that equities are highly overvalued and overpriced. The other camp insists that we are still in a “TINA” market, meaning, There Is No Alternative to stocks. This group feels that with interest rates still near historic lows, that equities need to be an investor’s main position. Equities are not cheap and even the savviest of investors need to be considerate of risk.

We could devote many pages to all of the issues that need to be watched, but for the sake of brevity this quarterly update will focus on a few of the central themes for investors. As financial professionals, we assist clients by providing ideas and suggestions based on their risk tolerances and objectives. Our goal is to focus on each client’s timeframes and goals.

Interest Rates Are Still in the Spotlight

Changes in interest rates are important for investors to note because they can have both positive and negative effects on the markets. Central banks historically have raised rates when the economy is overly strong and lowered rates when the economy is sluggish. The Federal Reserve (Fed) determines the United States rates at which banks borrow money. At their June meeting, the Fed kept interest rates near zero and indicated that’s where they’ll stay as the economy recovers from the coronavirus pandemic.

“We’re not thinking about raising rates,” Fed Chairman Jerome Powell said. “What we’re thinking about is providing support for the economy. We think this is going to take some time.” Central bankers also projected at the June session that the economy will shrink 6.5% in 2020. Then in 2021 they forecast a 5% gain, followed by 3.5% in 2022, both well above the economy’s longer-term trend.

Click to enlarge

At the June session, the central bank repeated its commitment from the April meeting that it, “expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.” Chairman Powell also said the Fed’s economic projections are based on “general expectation of an economic recovery beginning in the second half of this year and lasting over the next couple of years, supported by interest rates that remain at their current level near zero.” (Source: CNBC 6/10/2020)

Low interest rates can make the yields on bonds less attractive to investors that need and seek returns. With the Fed committed to keeping interest rates low for the foreseeable future, investors need to reexamine their portfolios and return expectations. Interest rates will continue to be towards the top of our “watch” list.

Unemployment

After several quarters of strong employment numbers, COVID-19 decimated the U.S. work scene. The COVID-19 outbreak and the economic downturn it caused increased the ranks of unemployed Americans by more than 14 million, from a historically low number of 6.2 million in February (a 3.8% rate) to 20.5 million in May 2020 (a 13% rate). The May numbers were the second highest since the 1940s, trailing only the level reached in April of this year (14.4%). The rise in the number of unemployed workers due to COVID-19 is substantially greater than the increase experienced from the Great Recession. (Source: Pew Research)

Although the government, through programs like the Payment Protection Plan (PPP) have tried to save jobs, with many businesses closed or operating with restrictions, unemployment will continue to be an area that should be monitored by investors.

Economic and Political Concerns

Equity markets typically lead the economy and one big unanswered question moving forward continues to be, how will the economy recover? The answer depends on who you ask. “The economy’s turnaround from coronavirus-addled lows will arrive in the form of a steep V-shaped rebound”, according to Blackstone CEO Stephen Schwarzman. He feels that we will see a two-stage recovery, with economic reopening sparking a rapid rebound from the bottom set in the second quarter. He also shares that, “Where the Federal Reserve’s liquidity-boosting measures drove a sharp run-up for risk assets, easing of nationwide lockdowns will prompt a similar pattern for economic activity.” His advice to investors is, “You’ll see a big V in terms of the economy going up for the next few months because it’s been closed. As people are allowed to go back, the economy will really respond a lot.” (Source: BusinessInsider.com 6/10/20)

JPMorgan strategists in their June message were less optimistic. They feel, “Investors should be more selective over the next six months as some assets will outperform others.” Their advice is that, “Investors should be more discerning over the next six months as markets are showing a ‘slight fatigue’.” (Source: BusinessInsider.com 6/10/20)

American Funds/Capital Group’s Vice Chairman and portfolio manager Rob Lovelace shares, “it’s hard to predict the exact path of the recovery.” In their June mid-year outlook, he said, “It’s hard to know how wide the valley is, but I believe we will end up in a better place two years from now.” (Source: Capital Group 2020 Market Outlook 6/2020)

When sharing his economic outlook for the remainder of 2020, David Solomon, the CEO of Goldman Sachs said that, “uncertainty still remains 6-12 months out, and what additional negative impacts will result on the economy, including on the healthcare situation”. He expects the recovery to get more challenging and flatten out toward the end of the year and as we get into 2021. He noted it will take “quite a while” to get the economy back to where it started before the crisis. (Source: SeekingAlpha.com 6/20/20)

As if the economy did not create enough concerns, political uncertainty (including the upcoming 2020 elections), continuing health concerns and social unrest are all additional areas we need to be aware of. From a financial standpoint, we try to understand how the political landscape affects investment markets. We will be keeping an eye on these activities and how it may affect your investments.

Strategies for Investors During Market Volatility

Click to enlarge

Bear markets like the one we experienced this March can be confusing and painful. When investors suffer a sharp decline, it could feel like it’s never going to end. Any investor that panicked and sold their investments could have missed out on this quarter’s rebound. While prior equity market performance is no assurance of present performance, something to remember is that post-World War II, bull markets have been far more robust than bear markets, and they’ve lasted considerably longer. While every market decline is unique, over the past 70 years the average bear market has lasted 14 months and resulted in an average loss of 33%. By contrast, the average bull market has run for 72 months — or more than five times longer — and the average gain has been 279%. (Source: Capital Group 6/2020)

As investors learned in the last severe downturn, equity market returns have often been strongest right after the market bottoms. After the carnage of 2008, U.S. stocks finished 2009 with a 23% gain. Missing a bounce back can put an investor behind, which is why it’s important to consider staying invested through even the most difficult periods. Now is a good time to:

Revisit your financial goals and objectives.

Investors should always put their primary focus on their personal goals and objectives. When equity markets become volatile sometimes even the savviest of investors become not just concerned, but unnerved. It’s important to keep perspective when markets are volatile. It is very important that you understand your situation and your financial plan. Letting your emotions drive your decisions can be costly. A wise strategy is to proceed with caution and always allocate your investments to match your risk tolerance.

We focus on YOUR goals and strategy.

Investor Outlook

Click to enlarge

The market responded well in the short-term to what looked like a successful reopening of the economy. Many analysts were amazed by the quick bounce-back in the market despite the enormous unemployment rate and the continuing bear market in the economy. While the fears of another downturn are real, investors need to understand that there is a major difference between a sharp selloff of 5%-10% and an over 30% decline like we suffered in March. Analysts feel that the public health situation and the economic landscape have significantly improved since then, so pullbacks in equity markets might even bring for some investors buying opportunities and not reasons to sell. Moving forward, an investor has to keep in mind that the fate of COVID-19 is still a gigantic unknown. It is impossible to predict if the first wave of impact is now calmed or if a second wave will emerge. Economic data will continue to be hard to forecast and equity markets are not always tied to economic data. During confusing and volatile times, it is always wise to have realistic time horizons and return expectations for your own personal situation and to adjust your investments accordingly.

Three questions to ask are still:

Are you confident in your strategy?

Are you comfortable with your strategy?

Are you consistent with your strategy?

If you have carefully created a strategy with realistic financial goals, then try to not allow emotions or media magnification to influence you to shift from it. Remember the words of legendary investor Benjamin Graham, Warren Buffett’s mentor:

“A financial strategy is only as good as your ability to consistently follow it.”

We are here for you!

Our goal is to understand our clients’ needs and then try to create a plan to address those needs.

1. Has your current financial advisor reviewed the tax consequences of your investments?
2. Has your current financial advisor discussed tax planning and your investments?
3. Would you like a COMPLIMENTARY opinion of your situation?

If you answered NO to questions 1 or 2 and/or YES to question 3, call us at 410-908-9293 to schedule a complimentary financial check-up.

What you don’t know could hurt!

“The best way to measure your investing success is not by whether you’re beating the market, but by whether you’ve put in place a financial plan and a behavioral discipline that are likely to get you where you want to go.”

Note: The views stated in this letter are not necessarily the opinion of Independent Financial Group, LLC (IFG), and should not be construed, directly or indirectly, as an offer to buy or sell any securities mentioned herein. Investors should be aware that there are risks inherent in all investments, such as fluctuations in investment principal. With any investment vehicle, past performance is not a guarantee of future results. Material discussed herewith is meant for general illustration and/or informational purposes only, please note that individual situations can vary. Therefore, the information should be relied upon when coordinated with individual professional advice. This material contains forward looking statements and projections. There are no guarantees that these results will be achieved. All indices referenced are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. The S&P 500 is an unmanaged index of 500 widely held stocks that is general considered representative of the U.S. Stock market. Dow Jones Industrial Average (DJIA), commonly known as “The Dow” is an index representing 30 stock of companies maintained and reviewed by the editors of the Wall Street Journal. Past performance is no guarantee of future results. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Sources: CNBC.com, marketwatch.com, Yahoo Finance, Barron’s, Pew Research, Seeking Alpha, BusinessInsider.com, Capital Group. Contents provided by the Academy of Preferred Financial Advisors, 2020©

The post Economic Update: Second Quarter 2020 appeared first on Financial 1 Tax.

Click to enlarge

No one expected the longest bull market in history to see its demise brought on by a virus. While U.S. equity markets were able to withstand a trade war with China, a presidential impeachment, the potential for a global recession and global uncertainty including Brexit and civil wars in the Middle East, the U.S. economy was ambushed by a silent and highly contagious virus.

The first three months of 2020 were filled with Covid-19 fears and economic responses. The world is experiencing a pandemic and a financial crisis that caused many investors to feel a level of anxiety that they have not had for over a decade. It’s almost impossible to remember that in Mid-February, equity markets were experiencing all-time, record highs. Now, we are in an unprecedented, event-driven bear market.

In the first quarter of 2020, more specifically, on March 12, the longest bull market in the history of the S&P 500 ended. This was the worst quarter for the Dow Jones Industrial Average (DJIA) since 1987 and its poorest first three-month start to the year ever.

The Dow Jones Industrial Average’s decline of 23.2% for the quarter was its biggest since the 25.3% drop seen during the fourth quarter of 1987. The S&P 500 posted a 20% decline. Prior to this waterfall downturn, the stock market seemed unstoppable, with both the 122-year-old DJIA and the S&P 500 quadrupling earlier this year from their March 2009 lows. Many investors who remained vigilant and held their positions during that time were generously rewarded. In just a few weeks, the stock market experienced several firsts in its history including:

• In less than three weeks, the S&P 500 fell from a 52-week high to a 52-week low.
• The Bloomberg Barclays U.S. Corporate Bond Index lost more than 7% in a week.
• The New York Stock Exchange (NYSE) experienced its worst set of down days where 90% or more of NYSE-traded stocks closed lower for the day.
• The S&P 500 hit the circuit breaker and triggered a trading halt four times.
• The Nasdaq Composite Index suffered its largest one-day percentage decline ever.
• The Dow Jones Industrial Average posted its biggest weekly gain since 1938.

(Sources: marketwatch.com 3/16/20, WSJ 3/27/2020)

An 11-year bull market has changed into one of the quickest bear markets of all-times. Not only is the world trying to stop the spread of a highly contagious virus, but it is also scrambling to fix the disruption of global supply chains and the decline of consumer demand.

Interest Rates Are Still in the Spotlight

After lowering the federal funds rate by a half-point to a range of 1.0% to 1.25% in between its regularly scheduled meetings, as a response to the risks the COVID-19 coronavirus outbreak was creating, the Federal Reserve cut its benchmark interest rate in mid-March by a full 1% to 0%-0.25%. When the Fed first started reducing interest rates, many experts noted that the central bank was “catching up” to where markets had headed. Now, it seems as if they are responding to both the economy and the fact that the 10-year Treasury had fallen to all-time lows.

The all-time low for the Fed Funds Rate is effectively zero. The Fed has only lowered their rate to a range of 0% to 0.25% twice: once during the financial crisis of 2008 and now in March of 2020. (Source: The Balance, 3/30/20)

CNBC reported on April 1st that the, “10-year Treasury yield falls to 0.6% as the coronavirus crisis deepens.” With interest rates at or near all-time lows, many investors cannot generate income or meet their long-term goals with a full portfolio of cash and bonds. (Source: CNBC, 4/1/20)

Oil Prices

Oil prices suffered an extremely rough stretch this quarter. As if things were not bad enough, the oil price war between Saudi Arabia and Russia, which emerged suddenly and dramatically on March 7, compounded the already ultra-bearish demand backdrop. The Saudi Arabia and Russia oil price war resulted in a massive price drop on March 8, 2020, when U.S. oil prices fell by 34% and crude oil fell by 26%. (Source: CNN.com; 3/8/2020)

The Coronavirus’ impact on oil consumption is unlike anything in modern history. Governments continue to impose flight restrictions and other travel bans, enforce lockdowns, and require non-essential businesses to close doors. Numerous school closures also mean many fewer buses and cars will be on the roads. As the quarter closed, there was pressure on the president to step in and assist in resolving the price war. Oil prices saw the worst month and quarter in oil price history down over 50%. With energy companies and oil still being a contributing factor to the overall economy, oil prices are a topic we are keeping a watchful eye on. (Source: Washington Post, 4/2/20)

The CARES Act

The government is trying to help businesses and prevent the threat of a recession through the $2.2 trillion-dollar Coronavirus Aid, Relief, and Economic Security (CARES) Act. This emergency relief package, the largest economic-relief package in U.S. history, included: Extensions of unemployment benefits, $150B for state and local governments, $500B in general corporate aid, $350B in small-business loans that will be facilitated by community banks, $100B for the healthcare system and Direct payments to individuals: Individuals can receive up to a maximum of $1,200 per person ($2,400 per couple) depending upon their income.

The estimates for the total monetary and fiscal output to manage this crisis is $4 trillion, according to Jurrien Timmer, Director of Global Macro for Fidelity Management and Research Company. So far there is a strong response from the U.S. Government, which will need time to see if it produces results. (Source: fidelity.com, 3/23/20)

A Brief Lesson in Some Market Terms

Oftentimes, we hear the wrong words used in the wrong context. For educational purposes, we feel it is important to clarify some stock market words and their definitions.

“Dip” – a short-lived downturn from a sustained longer-term uptrend.

“Correction” – a 10% drop in the market from recent highs. Historically corrections occur an average of about every eight to 12 months and last about 54 days. (Source:thebalance.com 3/9/20)

“Bear Market” – a long, sustained decline in the stock market. If the market declines 20% from the its recent high, this is considered the start of a bear market.

“Crash” – a sudden and dramatic drop in stock prices, often on a single day or week. Crashes are rare, but typically happen after a long-term uptrend in the market.

Bear Market Basics

Bear Market’s Most Basic Principle: Bear markets are a part of the investing experience. Many people believe that a bull market means a steady growth in equities. This is not the case. During this most recent, long-standing bull market, there were 13 corrections and the market moved down intraday into bear market territory (down at least 20%) three times. (Source: www.fidelity.com)

We have now entered into a bear market territory (a close of 20% down) so it might be helpful to review some information about bear markets.

Bear markets can be classified into one of three categories: structural; cyclical; and event-driven.
Goldman Sachs analyzed bear markets back to 1835. They defined these three markets as follows:

1. Structural: bear markets created by imbalances and financial bubbles, very often followed by a price shock such as deflation. The markets have an average drop of 57%.
2. Cyclical: bear markets that are typically a function of the economic cycle, marked by rising interest rates, impending recessions and falls in profits. These markets have an average drop of 31%.
3. Event-driven: bear markets created by events such as war, an oil price shock, an emerging-market crisis, or like most recently, a sudden viral pandemic (Covid-19).
   We are currently in an “event-driven” bear market. These are the bear markets that are hardest if not impossible to forecast or navigate. Covid-19 created a first of its kind bear market, one that was caused by a virus. We have had event-driven bear markets, but none were created by a viral pandemic. According to Goldman Sachs Chief Global Equity Strategist Peter Oppenheimer, “event-driven ” bear markets, on average, result in lower declines than the other two types, and historically have lasted shorter. This unusual downturn is one that offers no easy outcomes. (Source: marketwatch.com 3/11/20)

How should investors think about this downturn and what should they do?

Investors generally hope that equity markets will go up. The volatility and turbulence of this current economic and political environment has caused even some of the most seasoned investors to become skittish. In March, legendary investor Warren Buffett said that he hadn’t seen anything like the coronavirus pandemic. “If you stick around long enough, you’ll see everything in markets,” he told Yahoo Finance. “And it may have taken me to 89 years of age to throw this one into the experience.”

Since that statement, it’s become even more confusing as infections mount around the world and the stock market continues to spin out of control in both directions. Many investors are trying to compare their portfolio’s performance during this difficult period. So how did the Berkshire Hathaway leader perform?

“While Buffett is well known for weathering the worst market downturns and coming out stronger, the last several weeks have been just as painful on his portfolio as it has on the broader market,” Bespoke explained in a post noting that the average stocks in his top holdings on March 24th were down 37% from their February highs. Perhaps the most important thing to think about is that like everybody else, his portfolio obviously hasn’t been immune to all this volatility. (Source: MarketWatch.com, 3/27/20)

The chart in this report shares that the six biggest point declines and the six biggest point increases in the Dow Jones Industrial Average (DJIA) all came in the last five weeks of this quarter. On March 12th, the DJIA fell 2,352 points which was over 9%. Had you sold that day you missed the next day’s (March 13th) rise of 1,985, also a move of over 9%. This level of volatility is unprecedented and therefore even the savviest of investors needs to PROCEED WITH CAUTION!

Helpful Strategies for Investors

Revisit Your Personal Objectives — First and foremost, we continue to urge you to ask yourself four questions:

1. Have my financial timelines changed?
2. Have my financial goals changed?
3. Has my risk tolerance changed?
4. Are there any changes my advisor needs to know about my situation?

Think Long-Term — Investing involves uncertainty and therefore investors should consider using long time horizons.

Look into Rebalancing — Maintaining a properly designed and well-diversified portfolio is important. Now is a good time to take a look at your portfolio and consider any rebalancing that may need to be performed.

Suspend Distributions — If you are comfortable with suspending distributions and looking for a potentially better time to take them, please call us at we can see if this strategy works for your personal situation.

Consider Roth IRA Conversions — There are many reasons to consider Roth IRA conversions. For many retirement accounts with equities, account values are down. This can create opportunities, especially for those investors currently in the 12%, 22% and 24% tax brackets. Add in the new SECURE Act’s changes to inherited IRAs and it becomes even more prudent to consider the pros and cons of a Roth IRA conversion. Roth Conversions have some complicated rules and guidelines, therefore, as always, first discuss this option with us and your tax preparer to see if they are a good fit for your financial goals.

Think Rationally, Not Emotionally — One of Sir John Templeton’s “Rule’s for Investment Success” is, “Do not be fearful or negative too often.” Market turbulence should remind us that it is a good idea to re-evaluate instead of panic.

Tune Out Media Magnification and Seek the Help of a Professional — One of our primary goals is to make sure you are comfortable with your investments. We will always consider your feelings about risk and the markets and review your unique financial situation when making recommendations.

We pride ourselves in offering:

• consistent and strong communication,
• a schedule of regular client meetings, and
• continuing education for every member of our team on the issues that affect our clients.

A skilled financial professional can help make your journey easier. We care about our clients and we are here for you. Our goal is to be prepared, not scared! If you feel we need to talk, please call. We are honored that you have chosen us to help with your financial needs.

Registered Representative offering securities and advisory services through Independent Financial Group, LLC (IFG), a registered broker dealer and a registered investment adviser. Member FINRA/SIPC. Financial 1 Wealth Management Group and IFG are unaffiliated entities. Note: The views stated in this letter are not necessarily the opinion of Independent Financial Group, and should not be construed, directly or indirectly, as an offer to buy or sell any securities mentioned herein. Investors should be aware that there are risks inherent in all investments, such as fluctuations in investment principal. With any investment vehicle, past performance is not a guarantee of future results. Material discussed herewith is meant for general illustration and/or informational purposes only, please note that individual situations can vary. Therefore, the information should be relied upon when coordinated with individual professional advice. This material contains forward looking statements and projections. There are no guarantees that these results will be achieved.

All indices referenced are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. Stock market. Dow Jones Industrial Average (DJIA), commonly known as “The Dow” is an index representing 30 stock of companies maintained and reviewed by the editors of the Wall Street Journal.

Diversification is used to help manage investment risk; it does not guarantee a profit or protect against investment loss. Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs and does not assure a profit or protect against a loss.

Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. International investing involves special risks, including currency fluctuations, differing financial accounting standards, and possible political and economic volatility. Investing in emerging markets can be riskier than investing in well-established foreign markets. Investing involves risk and investors may incur a profit or a loss. Sources: Barron’s, marketwatch.com; washingtonpost.com; goldmansachs.com; politio.com; fidelity.com; cnn.com; forbes.com. Contents provided by the Academy of Preferred Financial Advisors, Inc.

The post Economic Update: First Quarter 2020 appeared first on Financial 1 Tax.

Investors have now experienced their first disruption of the year: The Coronavirus. The investing experience is no stranger to unexpected surprises and on Monday, February 24th, all three major equity indexes fell over 3%. The -3.35% return for the S&P 500 was the worst daily performance since February 2018.

While this downdraft was unexpected, it certainly was not unprecedented. If you look back to the beginning of 1928 till Monday February 24th (a period of 23,146 trading sessions), Monday’s change for the S&P 500 and its predecessor indices was the 235th worst performance in percentile terms on record. That means that almost 99% of all days over that time period were better than February 24th. If you broaden this time period slightly to include all trading days where the S&P fell more than 3%, there were 326 occasions. A return of -3% or worse occurred on roughly 1.4% of all trading sessions. If all returns were normally distributed, you should expect a day as bad as Monday (2/24/20) to occur about 3.5 times per year. Historically, some of the worst market performance days tend to cluster in weak economic environments.

Long term investors cannot and should not try to predict if this is the start of a longer trend or an isolated time period. The only other 1,000-point drops for the Dow Jones Industrial Average (DJIA) were on February 5th and 8th of 2018. Since then, the DJIA went on to make many new highs.

The Coronavirus is serious and there is no surprise that its spread is affecting some companies’ potential earnings. If this flu-like virus worsens, some corporate earnings in some specific sectors could be heavily impacted, and the stock market may continue to sell off. If this is like the SARS scare or other epidemics, it could prove to be only temporary. In fact, if the market sells off, behavioral finance teaches us that investors with cash could be looking at good entry points to buy high quality stocks. Economic and stock market crises are frightening when they happen, but they can also provide entry points for investors that actually want to “buy equities at lower prices”.

We are watching this and all other events carefully and want to take a moment to remind you that long term investors will experience volatility and periods of uncertainty. Our goal is to help clients invest and not speculate on their way towards meeting their financial goals. Thank you for having confidence in our firm representing you. We are here if you are concerned and need to talk. For the next few weeks, as always, please try to avoid making any emotional decisions based on media magnification. Remember, investing is a long-term attempt to achieve results that are satisfactory towards your specific goals.

As always, we appreciate your business.

Tatyana Bunich

Questions? Contact us

Learn more about Wealth Management Group

Get updates on the Coronavirus at CDC

Registered Representative offering securities and advisory services through Independent Financial Group, LLC (IFG), a registered broker dealer and a registered investment adviser. Member FINRA/SIPC. Financial 1 Wealth Management Group and IFG are unaffiliated entities. Note: The views stated in this letter are not necessarily the opinion of Independent Financial Group, and should not be construed, directly or indirectly, as an offer to buy or sell any securities mentioned herein. Investors should be aware that there are risks inherent in all investments, such as fluctuations in investment principal. With any investment vehicle, past performance is not a guarantee of future results. All indices referenced are unmanaged and cannot be invested into directly. The S&P 500 is an unmanaged index of 500 widely held stocks that is general considered representative of the U.S. Stock market. Dow Jones Industrial Average (DJIA), commonly known as “The Dow” is an index representing 30 stock of companies maintained and reviewed by the editors of the Wall Street Journal. Past performance is no guarantee of future results. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Sources: Seeking Alpha 2/24/2020, 2/25/2020, © The Academy of Preferred Financial Advisors.

Coronavirus market-sell off in February 2020

The post The Market Sell-Off and Coronavirus: An Investor’s Perspective appeared first on Financial 1 Tax.

Tatyana Bunich CEP.RFC. | Contact us: 410-908-9293

Income tax is a large revenue source for the United States government. While tax rates have changed many times, since the 1860’s, the United States has used a “progressive” tax code. A progressive tax code means that people who make more money are taxed at a higher rate than those who make less money. Our progressive tax system works by placing earners through different brackets according to how much money they make. The dollar amounts define your tax brackets and there are differing tables depending on your filing status (single, married, etc.). This matters in determining your marginal tax rate.

Filing 2019 Income Taxes

Understanding Marginal Tax Rates

Determining your tax bracket is not as simple as just adding up your total income and checking a tax table. Taxpayers need to calculate their taxable income (which can be sometimes referred to as their “adjusted gross income”) and then adjust their income for any deductions, adjustments and exemptions they are allowed to find their final taxable amount.

Once you determine your final taxable income amount, it’s critical to know that not all of your income was taxed at the same rate. So, for example if you are married filing jointly, your first $19,400 is taxed at 10%. If these same tax filers have a final taxable income of $95,000, then these taxpayers are in a “marginal tax bracket” of 22%. The key thing to note is that in this example, the last dollar earned is taxed at that 22% tax rate.

2019 Tax Law Updates

For 2019, Form 1040 has been slightly redesigned. There is time to look into tax planning ideas for your 2020 taxes, but here are some things that 2019 tax filers should review. They include:

• Tax brackets have been slightly adjusted.
• The standard deductions have risen from 2018.
• There are still caps to state and local tax (SALT) deductions.
• There are new deduction rates for medical expenses.
• Capital gains will still impact your income.
• There is still a 3.8% Medicare Investment Tax.
• Charitable donations are still deductible.
• You might still be able to contribute to retirement plans (or take an RMD) if appropriate.

2019 Tax Tables and Tax Rates

There are still seven federal income tax brackets for 2019. The lowest of the seven tax rates is 10% and the top tax rate is still 37%. The income that falls into each is scheduled to be adjusted in 2020 for inflation. For 2019, use the chart in this report to see what bracket your final income falls into.

TAX TIP: If you are not sure how best to file, ask your tax preparer or review IRS Publication 17, Your Federal Income Tax, which is a complete tax resource. It contains helpful information such as whether you need to file a tax return and how to choose your filing status.

2019 Standard Deduction Amounts

Most taxpayers claim the standard deduction. For 2019, the standard deduction has slightly increased. The amounts are now $12,200 for single filers and $24,400 for those filing jointly ($18,350 for head of household filers). If you are filing as a married couple, an additional $1,300 is added to the standard deduction for each person age 65 and older. If you are single and age 65 or older, an additional deduction of $1,650 can be made.

Increased Child Tax Credit

For 2019, the maximum child tax credit is $2,000 per qualifying child. Up to $1,400 of the Child Tax Credit is refundable; that is, it can reduce your tax bill to zero and you might be able to get a refund on anything left over.

There is also a non-refundable credit of $500 for dependents other than children. The modified adjusted gross income threshold at which the credit begins to phase out is $200,000 and $400,000 if married filing jointly.

State and Local Tax (SALT) Deduction

2019 also continues the changes to state and local tax deductions that cap a taxpayer’s state and local tax (SALT) deduction at $10,000. This includes both state income and property taxes. This change affected a large number of taxpayers who live in states with high property taxes and those who pay larger state income tax bills.

Medical Expense Deduction

In late December 2019, legislation retroactively made the 7.5% threshold available to taxpayers in 2019 and 2020. The 10% threshold amount was postponed until 2021.

Investment Income

Long-term capital gains are taxed at more favorable rates compared to ordinary income. For qualified dividends, investors will continue to be taxed at 0, 15 or 20%.

One tax strategy is to review your investments that have unrealized long-term capital gains and sell enough of the appreciated investments in order to generate enough long-term capital gains to push you to the top of your federal income tax bracket. This strategy could be helpful if you are in the 0% capital gains bracket and do not have to pay any federal taxes on this gain. Then, if you want, you can buy back your investment the same day, increasing your cost basis in those investments. If you sell them in the future, the increased cost basis will help reduce long-term capital gains. You do not have to wait 30 days before you buy back this investment—the 30-day rule only applies to losses, not gains.

Note: This non-taxable capital gain for federal income taxes might not apply to your state.

TAX TIP: Remember that marginal tax rates on long-term capital gains and dividends can be higher than expected. The 3.8% surtax can raise the effective rate to 18.8% for single filers with income from $200,000 to $434,550 and 23.8% for single filers with income above $434,550. It can raise the effective rate to 18.8% for married taxpayers filing jointly with income from $250,000 to $488,850 and to 23.8% for married taxpayers filing jointly with income above $488,850.

Calculating Capital Gains and Losses

With all of these different tax rates for different types of gains and losses in your marketable securities portfolio, it’s probably a good idea to familiarize yourself with some of the rules:

• Short-term capital losses must first be used to offset short-term capital gains.
• If there are net short-term losses, they can be used to offset net long-term capital gains.
• Long-term capital losses are similarly first applied against long-term capital gains, with any excess applied against short-term capital gains.
• Net long-term capital losses in any rate category are first applied against the highest tax rate long-term capital gains.
• Capital losses in excess of capital gains can be used to offset up to $3,000 ($1,500 if married filing separately) of ordinary income.
• Any remaining unused capital losses can be carried forward and used in the same manner as described above.

TAX TIP: Please remember to look at your 2018 income tax return Schedule D (page 2) to see if you have any capital loss carryover for 2019. This is often overlooked, especially if you are changing tax preparers.

Please double-check your capital gains or losses. If you sold an asset outside of a qualified account during 2019, you most likely incurred a capital gain or loss. Sales of securities showing the transaction date and sale price are listed on the 1099 generated by the financial institution. However, your 1099 might not show the correct cost basis or realized gain or loss for each sale. You will need to know the full cost basis for each investment sold outside of your qualified accounts, which is usually what you paid for it, but this is not always the case.

3.8% Medicare Investment Tax

The year 2019 is the seventh year of the net investment income tax of 3.8%. It is also known as the Medicare surtax. If you earn more than $200,000 as a single or head of household taxpayer, $125,000 as married taxpayers filing separately or $250,000 as married joint return filers, then this tax applies to either your modified adjusted gross income or net investment income (including interest, dividends, capital gains, rentals, and royalty income), whichever is lower. This 3.8% tax is in addition to capital gains or any other tax you already pay on investment income.

A helpful strategy has been to pay attention to timing, especially if your income fluctuates from year to year or is close to the $200,000 or $250,000 amount. Consider realizing capital gains in years when you are under these limits. The inclusion limits may penalize married couples, so realizing investment gains before you tie the knot may help in some circumstances. This tax makes the use of depreciation, installment sales, and other tax deferment strategies suddenly more attractive.

Medicare Health Insurance Tax on Wages

If you earn more than $200,000 in wages, compensation, and self-employment income ($250,000 if filing jointly, or $125,000 if married and filing separately), the Affordable Care Act levies a special 0.9% tax on your wages and other earned income. You’ll pay this all year as your employer withholds the additional Medicare Tax from your paycheck. If you’re self-employed, plan for this tax when you calculate your estimated taxes.

If you’re employed, there’s little you can do to reduce the bite of this tax. Requesting non-cash benefits in lieu of wages won’t help—they’re included in the taxable amount. If you’re self-employed, you may want to take special care in timing income and expenses (especially depreciation) to avoid the limit.

Charitable Gifts and Donations

When preparing your list of charitable gifts, remember to review your checkbook register so you don’t leave any out. Everyone remembers to count the monetary gifts they make to their favorite charities, but you should count noncash donations as well. Make it a priority to always get a receipt for every gift. Keep your receipts. If your contribution totals more than $250, you’ll also need an acknowledgement from the charity documenting the support you provided. Remember that you’ll have to itemize to claim this deduction, but when filing, the expenses incurred while doing charitable work often is not included on tax returns.
You can’t deduct the value of your time spent volunteering, but if you buy supplies for a group, the cost of that material is deductible as an itemized charitable donation. You can also claim a charitable deduction for the use of your vehicle for charitable purposes, such as delivering meals to the homebound in your community or taking your child’s Scout troop on an outing. For 2019, the IRS will let you deduct that travel at .14 cents per mile.

Child and Dependent Care Credit

Millions of parents claim the child and dependent care credit each year to help cover the costs of after-school daycare while working. Some parents overlook claiming the tax credit for childcare costs during the summer. This tax break can also apply to summer day camp costs. The key is that for deduction purposes, the camp can only be a day camp, not an overnight camp. So, If you paid a daycare center, babysitter, summer camp, or other care provider to care for a qualifying child under age 13 or a disabled dependent of any age, you may qualify for a tax credit of up to 35% of qualifying expenses of $3,000 for one child or dependent, or up to $6,000 for two or more children.

Contribute to Retirement Accounts

If you haven’t already funded your retirement account for 2019, consider doing so by April 15, 2020. That’s the deadline for contributions to a traditional IRA (deductible or not) and a Roth IRA. However, if you have a Keogh or SEP and you get a filing extension to October 15, 2020, you can wait until then to put 2019 contributions into those accounts. To start tax-advantaged growth potential as quickly as possible, however, try not to delay in making contributions. If eligible, a deductible contribution will help you lower your tax bill for 2019 and your contributions can grow tax deferred.

To qualify for the full annual IRA deduction in 2019, you must either: 1) not be eligible to participate in a company retirement plan, or 2) if you are eligible, there is a phase-out from $64,000 to $74,000 for singles and from $103,000 to $123,000 for married taxpayers filing jointly. If you are not eligible for a company plan but your spouse is, your traditional IRA contribution is fully-deductible as long as your combined gross income does not exceed $193,000. For 2019, the maximum IRA contribution you can make is $6,000 ($7,000 if you are age 50 or older by the end of the calendar year). For self-employed persons, the maximum annual addition to SEPs and Keoghs for 2019 is $56,000.

Although contributing to a Roth IRA instead of a traditional IRA will not reduce your 2019 tax bill (Roth contributions are not deductible), it could be the better choice because all qualified withdrawals from a Roth can be tax-free in retirement. Withdrawals from a traditional IRA are fully taxable in retirement. To contribute the full $6,000 ($7,000 if you are age 50 or older by the end of 2019) to a Roth IRA, you must earn $122,000 or less a year if you are single or $193,000 if you’re married and file a joint return.

If you have any questions on retirement contributions, please call us.

Roth IRA Conversions

A Roth IRA conversion is when you convert part or all of your traditional IRA into a Roth IRA. This is a taxable event. The amount you converted is subject to ordinary income tax. It might also cause your income to increase, thereby subjecting you to the Medicare surtax. Roth IRAs grow tax-free and qualified withdrawals are tax-free in the future, a time when tax rates might be higher.

Whether to convert part or all of your traditional IRA to a Roth IRA depends on your particular situation. It is best to prepare a tax projection and calculate the appropriate amount to convert. Remember—you do not have to convert all of your IRA to a Roth. Roth IRA conversions are not subject to the pre-age 59½ penalty of 10%.

Many 401(k) plan participants can convert the pre-tax money in their 401(k) plan to a Roth 401(k) plan without leaving the job or reaching age 59½. There are a number of pros and cons to making this change. Please call us to see if this makes sense for you.

Required Minimum Distributions (RMD)

If you turned age 70½ during 2019, you still have until April 1, 2020, to take out your first RMD. This is a one-time opportunity in case you forgot the first time. The deadline for taking out your RMD in the future will be December 31 of each year. If you do not pay out your RMD by this deadline, you may be subject to a 50% penalty on the amount you were supposed to take out. Starting in 2020 the SECURE Act changed the starting RMD age to 72. If you have any questions on your Required Minimum Distributions please call us.

Other Overlooked Tax Items and Deductions

Reinvested Dividends – This isn’t a tax deduction, but it is an important calculation that can save investors a bundle. Former IRS commissioner Fred Goldberg told Kiplinger magazine for their annual overlooked deduction article that missing this break costs millions of taxpayers a lot in overpaid taxes.

Many investors have mutual fund dividends that are automatically used to buy extra shares. Remember that each reinvestment increases your tax basis in that fund. That will, in turn, reduce the taxable capital gain (or increases the tax-saving loss) when you redeem shares. Please keep good records. Forgetting to include reinvested dividends in your basis results in double taxation of the dividends—once in the year when they were paid out and immediately reinvested and later when they’re included in the proceeds of the sale.

If you’re not sure what your basis is, ask the fund or us for help. Funds often report to investors the tax basis of shares redeemed during the year. Regulators currently require that for the sale of shares purchased, financial institutions must report the basis to investors and to the IRS.

Student-Loan Interest Paid by Parents – Generally, you can deduct interest only if you are legally required to repay the debt. But if parents pay back a child’s student loans, the IRS treats the transactions as if the money were given to the child, who then paid the debt. So as long as the child is no longer claimed as a dependent, the child can deduct up to $2,500 of student-loan interest paid by their parents each year. (The parents can’t claim the interest deduction even though they actually foot the bill because they are not liable for the debt).

Charitable Gift Directly made from IRA – Individuals at least 70½ years of age can still exclude from gross income qualified charitable distributions (QCD) from IRAs of up to $100,000 per year. Please remember to double check on what counts as a qualified charity and distribution before using this tax strategy.

Helpful Tax Time Strategies

Although many deductions were eliminated under the new laws, it might still be helpful to write down or keep all receipts you think are even possibly tax-deductible. Sometimes, taxpayers assume that various expenses are not deductible and do not even mention them to their tax preparer. Don’t assume anything—give your tax preparer the chance to tell you whether something is or is not deductible.

Be careful not to overpay Social Security taxes. If you received a paycheck from two or more employers and earned more than $132,900 in 2019 you may be able to file a claim on your return for the excess Social Security tax withholding.

Don’t forget items carried over from prior years because you exceeded annual limits, such as capital losses, passive losses, charitable contributions and alternative minimum tax credits.

Check your 2018 tax return to see if there was a refund from 2018 applied to 2019 estimated taxes.

Calculate your estimated tax payments for 2020 very carefully. Many computer tax programs will automatically assume that your income tax liability for the current year is the same as the prior year. This is done to avoid paying penalties for underpayment of estimated income taxes. However, in some cases this might not be a correct assumption, especially if 2019 was an unusual income tax year due to the sale of a business, unusual capital gains, the exercise of stock options, or even winning the lottery! A qualified tax preparer could be able to help you with a tax projection for 2020.

Remember that IRS.gov is a valuable online resource for tax information.

Always double check your math where possible and remember it is always wise to consult a tax preparer before filing.

Proactive Tax Planning for 2020

As you know, with the passage of the Tax Cuts and Jobs Act (TCJA), tax brackets, thresholds, and tax rates changed for many filers in 2018. In 2019, taxpayers are still adjusting to some of these changes. For 2020, we will continue to keep our clients updated on any new tax law changes and strategies that could potentially be helpful. For now, please review the 2020 tax tables and it’s never too early to start thinking ahead.

Click tables to view larger

Items Taxpayers Should Consider to Proactively Tax Plan for 2020

1. Prepare a 2020 tax projection – Taxpayers already know the 2020 rates and by reviewing their 2019 situation and all 2020 expectations of income, a qualified tax preparer could be able to help you with a tax projection for 2020.

2. New contribution limits for retirement savings – For 2020, the contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $19,000 to $19,500. The limit on annual contributions to an IRA remains $6,000 ($7,000 for those 50 or older). The catch-up contribution limits for those 50 and over remain unchanged at $1,000.

3. Explore if a potential Roth IRA conversion is helpful for your situation – A Roth IRA can be beneficial in your overall retirement planning. Investments in a Roth IRA have the potential to grow tax-free and they don’t have required minimum distributions during the lifetime of the original owner. Also, Roth IRA assets may pass to your heirs tax-free. Roth conversions include complex details and are not right for everyone, so please call us to see if this makes sense for you.

4. Take advantage of annual exclusion gifts – For 2020, the maximum amount of gift tax exemption is $15,000. This means you can give up to that amount to a family member without having to pay a gift tax. Ideas for gifting can include, contributing to a working child (or grandchild’s) IRA, or gifting to a 529 plan, which is a tax-sheltered plan for college expenses.

5. Consider bunching your charitable donations into a Donor Advised Fund (DAF) – Now is the time to explore if it is helpful for your tax situation to deposit cash, appreciated securities or other assets in a Donor Advised Fund, and then distributing the money to charities over time. Up to 60% of your adjusted gross income can be deductible if given as donations to typical charities.

6. Look into Health Savings Accounts (HSAs) – In general, to qualify to contribute to a health savings account in 2020, you must have a health insurance policy with a deductible of at least $1,350 for single coverage or $2,700 for family coverage. You can contribute up to $3,550 to an HSA if you have single coverage or up to $7,100 for family coverage in 2020, which is slightly more than the 2019 limits. If you’re 55 or older anytime in 2020, you’ll continue to be able to contribute an extra $1,000. HSA’s include complex details and are not right for everyone, so please call us to see if this makes sense for you.

The New SECURE Act and Proactive Tax Planning for 2020

The Setting Every Community Up for Retirement Enhancement (SECURE) Act, was passed by the Senate on December 19, 2019. This bill increased access to retirement plans and also includes some reforms to Defined Contribution (DC) Plans, Defined Benefit (DB) plans, Investment Retirement accounts (IRAs) and 529 plans. Open Multiple Employer Provisions (MEP’s) will be effective January 1, 2021, but many of the other provisions in the law become effective January 1, 2020. The SECURE Act also brought changes for retirement plan holders. We will try to help you with updates as your situation requires this year.

Among the many changes the SECURE Act included, we feel there are three major areas that could affect many client’s retirement planning strategy. These are:

1. One of the most impactful provisions of the SECURE Act is the “death” of the stretch IRA as an estate planning tool for most non-spousal beneficiaries.

If the original owner of an IRA passes away after December 31, 2019, fewer beneficiaries will be able to extend distributions from the inherited IRA over their lifetime. Many will instead need to withdraw all assets from the inherited IRA within 10 years following the death of the original account holder. Exceptions to the 10-year distribution requirement include assets left to a surviving spouse, a minor child, a disabled or chronically ill individual, and beneficiaries who are less than 10 years younger than the decedent. Please note that this new rule will only apply to IRAs inherited after the January 1st, 2020 effective date. All existing inherited IRAs are grandfathered in under the old rules. This NEW change will result in us taking a look at all clients that have accumulated retirement assets to discuss potential strategies that could be best for their situation.

2. Another notable change is the RMD age moved from 70½ to 72.

The Act states that this change applies beginning with IRA account owner who will attain age 70½ on or after January 1, 2020. This was in response to the fact that Americans are currently working and living longer. Congress updated RMD rules to reflect changes in life expectancies.

3. Allowing anyone with earned income the ability to contribute to an IRA after age 70½.

The SECURE Act permanently removes the age limit at which an individual can contribute to a traditional IRA. Previously, an individual could only contribute to ROTH IRAs after age 70½, as they have no age limit. Starting in 2020, the SECURE Act allows anyone that is working and has earned income to contribute to a traditional IRA regardless of age.

Another notable change the SECURE Act will bring is to 529 Plans. These tax-advantaged 529 plans will be allowed to help pay off qualified student loan repayments (up to $10,000 lifetime).

Many provisions of the SECURE Act will be subject to the interpretation of the IRS or other authorities. As always, clients should consider consulting with their personal tax advisor regarding their specific situation.

Determining the most efficient ways to either withdraw or pass to your beneficiaries your accumulated wealth is always an important decision. Our goal is to remain aware of changes that affect our clients and then share those changes with them.

We firmly believe in proactive tax planning and we will review the SECURE Act for proactive tax planning opportunities and share our findings with our clients.

Our goal is to work with clients to explore efficient ways to drawdown retirement savings and transfer wealth. If you would like to discuss your retirement plan and withdrawal strategy, please call us. As always, we appreciate the opportunity to assist you in addressing your financial goals.

Conclusion

Filing your 2019 taxes will continue to include the new tax rates set forth with the Tax Cuts and Jobs Act (TCJA) enacted in 2018 (currently set to expire after 2025). An essential part of maintaining your overall financial health is attempting to keep your tax liability to a minimum.

When filing your 2019 taxes, the rules and laws currently in place did not vary too much from your 2018 taxes. One of our primary goals is to keep you informed of the changes that will be affecting investors like you. We believe that taking a proactive approach is better than a reactive approach — especially regarding income tax strategies!

How long should I keep my records?

This information is not intended to be a substitute for specific individualized tax, legal or investment planning advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

Registered Representative offering securities and advisory services through Independent Financial Group, LLC (IFG), a registered broker dealer and a registered investment adviser. Member FINRA/SIPC. Financial 1 Wealth Management Group and IFG are unaffiliated entities. Note: The views stated in this letter are not necessarily the opinion of through Independent Financial Group, LLC (IFG), and should not be construed, directly or indirectly, as an offer to buy or sell any securities mentioned herein. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Please note that statements made in this newsletter may be subject to change depending on any revisions to the tax code or any additional changes in government policy. Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Past performance is no guarantee of future results. Please note that individual situations can vary. Unless certain criteria are met, Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals are permitted. Additionally, each converted amount is subject to its own five-year holding period. Investors should consult a tax advisor before deciding to do a conversion. Sources: www.IRS.gov, turbotax.com. Contents Provided by The Academy of Preferred Financial Advisors, Inc 2020© All rights reserved. Reviewed by Keebler & Associates

The post Filing 2019 Income Taxes and Planning for 2020 appeared first on Financial 1 Tax.

Welcome to 2020! We hope that you and your family had an enjoyable holiday season. Each New Year symbolically offers the opportunity to make a fresh start for everyone.

Once again, our primary goal this year is to continue our tradition of helping clients work toward achieving their personal financial goals. To make that process more efficient, we send our clients the attached convenient 2020 CHECKLIST so they can identify any items they anticipate needing our help with this year.

We take pride in our ability to understand and effectively respond to our clients’ needs and concerns and enjoy providing timely information and holistic service to our clients. One of our company’s main objectives is to always offer our clients a first-class experience.

We are always available to provide the proper attention that our clients and their finances deserve by offering a strong and frequent line of service, commitment and communication.

We would like the opportunity to help you in 2020. After reviewing the checklist, if you see any items you’d like to discuss or receive a second opinion, we would like to extend to you a complimentary financial check-up. We would appreciate the opportunity to review your tax plan, estate plan, investment plan, retirement plan and protection plan to make sure they are all coordinated in your best interest.

If you are interested in our services, please call us at (410) 908-9293 to schedule an appointment. You can also easily schedule your appointment online!

Looking Ahead to 2020

2019 was another strong year for investors, but the daily headlines kept investors on the edge of their seats. Trade wars, recession fears, geopolitical unrest, interest rate concerns and U.S political division all kept us wondering how each one would affect equity markets. The year also included its share of volatility in the U.S. equity markets which left many investors nervous. Despite a backdrop of concern, during the year, many indexes continued to set new highs. For 2020, investors should consider the mantra of “proceed with caution.”

In our second year of The Tax Cuts and Jobs Act, taxpayers are still adjusting to new tax forms. The direction of interest rates, stock market volatility, a Presidential election and the continuation of potential trade wars could provide disruption for investors in 2020. Having a solid foundation, design and strategy is critical to the outcome of your financial plans. Keeping your plan up to date is always wise and will be especially integral. We are staying updated on the issues that may affect your personal situation. Our prime mission is to provide our clients with guidance and support on the road to their financial goals.

This is a good time to review and discuss your plans with us. We can help you determine if you’re still on track to meet your long-term objectives, confirm your time horizons and your risk tolerance. If you have any questions or concerns, please call our offices and we’d be happy to assist you.

Specific Areas to Watch in 2020

Interest Rate Changes

In 2019, the Fed lowered interest rates for the first time in a decade. In July, September and October, the Federal Reserve lowered its key interest rate by 0.25% (0.75% total). Fed Chair Powell, said that the October decision to lower rates was intended to, “provide some insurance against ongoing risks.” At the December 2019 meeting, the Fed signaled that it was likely to hold rates steady in 2020. Low interest rates can make equities look attractive for investors seeking returns. For 2020, we will continue to keep a close eye on interest rate changes.

Trade War Fears

In December, China and the U.S. agreed to work towards a trade agreement. The uncertainty around the trade relationship between the U.S. and China has dampened global growth, according to Paul Gruenwald, Chief Economist at S&P Global Ratings. This trade war, which has lasted for almost two years, has weighed heavily on global economic growth, according to the International Monetary Fund. Analysts worry that tariffs could result in higher prices on goods and therefore affect consumer spending, which accounts for about two-thirds of the U.S. economy. In 2020, investors need to stay watchful on U.S. and China trade negotiations.

Stock Market Valuations

Analysts theorize that valuations are one of the key predictors of equity returns. For the last decade, equities have climbed higher. Investors who need access to their money in the next 10 years should understand that current valuations could lead to a period of lower returns and therefore need to plan accordingly. Risk is a part of investing and investors need to balance current conditions with their personal tolerance for risk. Although equity prices can continue to rise, we must understand that its near impossible to accurately predict short term moves and we need to continue to carefully monitor equity markets.

Your Personal Situation

Your personal situation is our highest concern. We make it a priority to keep our clients informed throughout the year. If you’d like to schedule a complimentary consultation, please call our office and we will be glad to schedule time with you. Please keep in mind that each individual or household situation is different and we want to help you with your personal financial goals in 2020.  Contact us

Here is a checklist of events and information that can help us advise you in 2020.

Please help us identify which items you would like us to address with you this year.

  Do you anticipate changes to your investment goals?
  Has your risk tolerance changed?
  Have your 2020 income or savings needs changed?
  Do you plan on retiring or changing jobs?
  Will there be a change in your marital status?
  Do you plan on moving, refinancing or selling/transferring a major asset such as a home or business?
  Did you recently receive or anticipate receiving a gift or inheritance?
  Will you have any changes in your income needs +/- (i.e. vacation, assisted living needs, selling home, child/grandchild assistance)?
  Do you expect any additional family members or dependents?
  Do you anticipate any additional dependents such as an elderly parent or other family member? Will they require assisted living?
  Do you have a child/grandchild you will be assisting with their educational cost needs through a 529 plan?
  Do you anticipate any major transfer of wealth?
  Do you plan on gifting to heirs or donating money to charity?
  Do you need to adjust your estate plan?
  Do you maximize your ability to use retirement plans?
  Do you want to explore converting a traditional IRA to a Roth IRA?
  Do you or a dependent family member have a severe illness?
  Do you anticipate any life, financial, or employment (retiring) changes that may require you to make adjustments to your life and health insurance policies?
  Did you contribute to an IRA? If not, would you like to discuss contributing to an IRA before April’s tax deadline?
  Is there anything else we should know to help you plan for 2020?

Important Birthdays

50 — Allows for catch-up contributions to IRAs and qualified retirements plans.
55 — If you are retired, allows you to take distributions from your 401(k) without the 10% penalty
59½ — Allows you to take distributions from an IRA, annuity, or other retirement plan without penalty
60 — Allows for start of widow/ widower benefits from Social Security
62 — Allows for starting early Social Security benefits
65 — Allows for enrollment in Medicare and the government drug plan
65-67 — Allows for full retirement benefits from Social Security
70 — Start date for enhanced Social Security benefits if you deferred claiming benefits previously.
72 — Mandatory required minimum distribution from retirement accounts must be taken no later than April 1st of the year after the year you turn 72.

If you have an important birthday in 2020, please let us know!

Registered Representative offering securities and advisory services through Independent Financial Group, LLC (IFG), a registered broker dealer and a registered investment adviser. Member FINRA/SIPC. Financial 1 Wealth Management Group and IFG are unaffiliated entities. The views expressed are not necessarily the opinion of Independent Financial Group and should not be construed, directly or indirectly, as an offer to buy or sell securities mentioned herein. All indexes are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. This article is for informational purposes only. Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful. This information is not intended to be a substitute for specific individualized tax, legal or investment planning advice as individual situations will vary. For specific advice about your situation, please consult with a lawyer or financial professional. Past performance is no guarantee of future results. Sources: cnbc.com/2019/11/25. The information in this article provided by The Academy of Preferred Financial Advisors, Inc.

The post Welcome to 2020 appeared first on Financial 1 Tax.