If you don’t have a living trust, a married couple should not hold their property titled as “community property.” Huh? If your house or brokerage account is titled as “community property,” a surviving spouse will pay a probate tax when they receive their deceased spouse’s share.
Example: Assume the combined value of a couple’s house and brokerage account is $2 million. Currently, when the first spouse dies the surviving spouse will not be subject to federal estate tax, and California imposes no death taxes. However, there will be about a $33,000 probate tax just to prove that the deceased spouse wanted his/her assets to go their surviving spouse.
If you don’t have a living trust but add four simple words to the title of your property or your brokerage accounts, you can avoid the $33,000 probate tax. Adding to Joe and Mary Smith Community Property “With Rights of Survivorship,” or the abbreviation “WROS,” will eliminate the probate tax.
If your house or brokerage account is titled as “community property,” a surviving spouse will pay a probate tax when they receive their deceased spouse’s share.”
Adding “With Rights of Survivorship” will not trigger any capital gains, transfer taxes, or an increase in property taxes. Nor should “With Rights of Survivorship” be considered a substitute for a will or how you want to be treated if you become ill.
Think about it: Both death and taxes are the only 100% certainties in life. By adding four simple words to the title of your property or brokerage account, you can avoid a 100% certain probate tax. (This doesn’t apply to titling 401k or IRA accounts.)
Lou Barberini, CPA has an MBA in Taxation and the American Institute of CPA’s financial planning designation. Lou acts as a fiduciary and conducts financial planning and investment guidance through NICH Capital Partners. All assets are held at Charles Schwab Lou@nichcapitalpartners.com
February 2020
December and the end of the year may have you thinking about getting your finances in order. My thoughts, however, drift to…the annual airing of The Sound of Music. I can’t help it; I love that movie. I still hold my breath when the von Trapps are hiding in the convent cemetery. And I still feel a pang of betrayal when Rolf literally blows the whistle on them. How could someone so handsome be so cruel?
Before I go too far down lederhosen lane, let’s get back to putting your finances in order. Financial planning can be somewhat intimidating. Especially if your wealth doesn’t justify a full-service financial advisor. Luckily, there are other options. Lots of companies are democratizing financial planning and how advice is delivered.
Start by figuring out the money that moves through your hands each month. How much is coming in, how much is going out and how much—if any—do you have left over?”
And every one of these options has the same starting point. So in the words of Julie Andrews as she’s teaching the Captain’s children to sing, “Let’s start at the very beginning. A very good place to start.”
Cash Flow Is Where It All Begins
If you don’t know where you are, how can you move forward? Start by figuring out the money that moves through your hands each month. How much is coming in, how much is going out and how much—if any—do you have left over? Cash flow is so basic that many people overlook it. But being in the dark means you have no idea how much you have to invest or how deep a hole you’re digging.
If you’re racking up debt faster than savings, you’ll obviously need to make changes in your spending habits, get a second or better-paying job, or find a sugar daddy or mama. That also applies if you’re saving, but at a rate that will require three lifetimes before you have enough.
There are lots of online tools that can help you figure out your cash flow and take control of your budget. Perhaps start your quest at your current bank, where they may have online cash-flow tools. A budgeting tool I like is Mvelopes, an updated strategy from our great-grandparents, that uses digital envelopes and automatic transaction tracking to help you plan for and see where your money goes.
Ready to invest? Move to Step 2.
Create a Plan with Automated and/or Human Help
As I mentioned, this is a new era of democracy in financial planning. You can be as hands on—or off—as you want or your financial situation dictates.
Your options now include:
• Online tools and resources—Educating yourself about financial strategies is easier than every with the Internet at your fingertips. I particularly like Dinkytown.net, which has a gazillion calculators that let you easily perform what-if situations.
• Robo-advisors—These focus on the numbers, not your life goals, but they can work fine for basic investment plans.
• Hybrid solutions—Even established organizations are embracing some benefits of automated planning, and offer a robo-advice solution with the option for human oversight and input.
• Advice by the hour—If you just want a one-time or sometimes relationship with a human advisor, paying only when you want advice may be a good option.
• Full-service advisors—Yes, you’ll pay more. But you’ll also get help understanding the nuances of your goals, creating a plan customized to those goals, adapting to life’s changes, and keeping you disciplined and accountable.
Implement Your Plan and Stay on Track
Once you have your financial roadmap, don’t neglect to actually follow it! Invest the amount you planned when and where you planned. Make it automatic so you don’t have to remember each month.
Two incredibly easy ways to start investing are:
• Acorns—rounds up your transactions to an even amount, harvests that change and invests it for you.
• Stash—offers fractional shares so you can invest as little as $5 at a time in stocks, ETFs and bonds.
Now that you know some new options, I hope you don’t let another year end without getting your financial act together. Just follow the advice of the future Mrs. Von Trapp (sorry, I should have given you a spoiler alert). Start at the very beginning. A very good place to start.
The opinions expressed in this article are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security. Brio Financial Group is a registered investment adviser. Advisory services are only offered to clients or prospective clients. No advice may be rendered by Brio Financial Group unless a client service agreement is in place.
December 2019
Even if you’re not a soccer fan, you’ve probably heard the iconic “GOOOOOOOOOOAL!” call of Telemundo announcer Andres Cantor. The joy in his voice as he stretches out the word over a massive breath is infectious. That 20-second call seems to pay tribute to everything that went into placing the ball at the back of the net—from coaching and practice, to encouragement, teamwork and overcoming obstacles.
I think Mr. Cantor has the right idea. Goals are meant to be celebrated. Of course, you have to set them before you can accomplish them.
And that’s particularly true for financial planning. Investing just to make more money is not nearly as motivating or rewarding as investing in a dream. At my company, we spend a lot of time talking to clients about what they want to accomplish so we can create a financial plan that helps them live that life. Here are some things I’ve found work well in helping people articulate their ambitions:
Discover Why You Want What You Want
Goal setting is hard because it’s abstract. It forces you to think of possibilities while also facing reality. And it can be hard for some people to separate their own dreams from family or societal expectations.
So be as detailed about your money goals as possible. Ask yourself probing questions —or better yet, have someone else ask them. When I play this role, I’m like a pesky three-year-old constantly asking “Why?” of my clients. Digging deeper into a vague goal may reveal the real dream, and open up new possibilities, such as turning a hobby envisioned for retirement into a side business now. It’s not unusual to refine—or redefine—your goals in the process of setting them.
Being specific about what you want is the first step in setting SMART goals, with the MART being Measurable, Actionable, Realistic and Time-bound (meaning a target date).
Write It Down
I’m a big proponent of creating a vision board, a collage of your dreams that you can refer to when you need a reminder of what you’re working so hard for. It’s sounds dorky, but it’s amazingly effective.
Vision board or no, you should definitely immortalize what you want on paper. Your brain will find it easier to store the thought and you’ll have a handy visual cue. Plus, a 2016 study showed that the simple act of writing down your goals makes you 42% likelier to achieve them. ‘Nuff said.
Prioritize Competing Interests
So you want to save a couple mil for retirement, travel to every world capital, remodel your kitchen and send your mom a little extra every month to supplement her Social Security. Which one is most important? Do you have a partner (or two) with different priorities?
One useful exercise is to imagine you have $100 to invest. How much would you put toward each goal? Giving your goals a priority ranking can help you decide things like should you alter your timelines or shed lesser dreams.
Break Your Goals Into Manageable Bits
That old saying about eating an elephant one bite at a time applies to your major goals, too. Don’t look at how much you have to save for a downpayment on a house. Look at what you can put away each month to reach that amount. Keep the focus on what you can do today, not how far you have to go.
Track Your Progress Regularly
Hold yourself accountable, whether that’s an app that monitors your advancement or someone who can nudge you along and keep you focused. You can keep it interesting by doing things like betting a friend that you can save a thousand a month for a year or you’ll have to do their laundry for two months.
Celebrate Your Wins
Don’t forget to pat yourself on the back as you go along. Milestone celebrations help keep you motivated and reward you for your planning and discipline. And they remind you of how much fun it will be to actually achieve that dream.
As for when you do finally cross the goal line? Well, I suggest taking a deep breath and proclaiming to the world, “GOOOOOOOOOOAL!”
The opinions expressed in this article are not intended to provide specific advice or recommendations for any individual or on any specific security.
Brio Financial Group is a registered investment adviser. Advisory services are only offered to clients or prospective clients where Brio Financial Group and its representatives are properly licensed. No advice may be rendered by Brio Financial Group unless a client service agreement is in place.
November 2019
I’ll let you in on a little secret. The financial industry has an extremely traditional focus—even though many people don’t fit the conventional mom, dad and 1.9 kids mold.
The problem with the industry being out of step with reality is that real regular people may have to work harder to find money solutions and strategies that apply to them. Many financial professionals, and even robo-tools, may not be geared to use out-of-the-box thinking for less-than-conventional clients.
Such a pity, as that’s one of the really fun parts of financial planning. After 20 years of helping the LGBTQ+ community manage their money, I’ve seen more variety in the human condition than most anthropologists. My feeling is that you don’t hire me to judge you; you hire me for my judgment about how to optimize your finances so you can live the life you want. In other words, I don’t care if you have a penchant for the ponies and Texas hold ‘em. I just need to know how much you spend on them so we can figure that into your financial plan.
...you don’t hire me to judge you; you hire me for my judgment about how to optimize your finances so you can live the life you want. In other words, I don’t care if you have a penchant for the ponies and Texas hold ‘em. I just need to know how much you spend on them so we can figure that into your financial plan.”
If you’re hiring a financial professional to advise you, they typically should think about all the angles that need covering to make your money work for you—no matter how unique your goals. Let me give you a few examples:
• Unmarried couple. Gay or straight, couples have many reasons for not wanting to get married. Laws most often protect only state-sanctioned “I do’s.” So you have to workaround things such as cash flow (you can’t “give” an unmarried partner more than $14k per year), the loss of the double step-up in cost basis for real estate that married couples get, or having children from a previous marriage kick your lover out of the home after you’re gone.
• Long-term mistress—or mister. Maybe you’re married, but have been spicing up your love life with a side dish for years. Do you pay for their apartment? Is that impacting your retirement savings? Do you want to want to make special provisions for your lover after you’re gone?
• Throuples, quintouples and other ‘ouples. U.S. laws don’t allow bigamy, so if you’re in a committed relationship with more than one person, it’s up to you to protect yourself and your partners. The more people involved, the more complicated it gets. Some things to think about include how to handle cash flow and shared expenses, will you keep one or multiple households and long-term impacts of things like different retirement ages.
• Blended families. We’re not talking the Brady Bunch here (though Carol and Greg’s real-life affair shows even they weren’t traditional). These days, families can include stepkids, half-siblings, adoptees, surrogacies, even uncles/aunties/de facto parents that may not have blood ties or legal rights, but lots of emotional ties. Inheritance can get ugly easily. Make sure you work with someone who can save your loved ones from that fate.
• Special-needs dependents. Some financial products expect that you’ll have kids—just not ones who may need lifelong care because of physical or mental challenges. Special-needs trusts, 529 plans and government assistance can help. But you also have to think about your own retirement and how to keep from burdening other kids.
• Start-up winner. Talk about not normal. Who earns millions in their twenties? But hey, if you’re one of those fortunate ones, be smart. Know it won’t last, and plan for your future. Yes, you can afford the house and boat and motorcycle. But did you plan for ongoing maintenance, taxes, insurance and all the other expenses these toys come with? How many friends and family can you really help? Best to work with someone right off the bat to help protect that fortune before it vanishes.
This barely touches on the variety of less-than-traditional lifestyles and the challenges they present. My point is to illustrate that 1) whoever you are should be perfectly fine with whomever is advising you and 2) the industry’s conventional bent won’t hamstring you if your financial advisor takes the time to listen and think in new ways to make your dreams come true. Even if that is miles away from a life with a picket fence and 1.9 kids.
The opinions expressed in this article are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security.
Brio Financial Group is a registered investment adviser. Advisory services are only offered to clients or prospective clients where Brio Financial Group and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Brio Financial Group unless a client service agreement is in place.
October 2019
Suitable has always seemed to me like one of those neutral words that you use when you don’t want to say anything mean, but can’t think of anything nice. Like when your five-year-old is so proud of himself for picking out his Spiderman costume to wear to a funeral and you sigh and deem it “suitable.”
Suitable is also at the heart of some contentious government and regulatory standards regarding the financial industry. And knowing about these regulations may keep you from getting financial advice that eats into your savings and benefits the advisor more than you.
You’ll be sharing your hopes, fears, and dreams with them, so make sure your financial advisor is someone you like.”
Let me explain.
Financial advisors are required to meet a suitability standard. This means that they are only obligated to provide advice about investments that are suitable for you the investor. It’s perfectly legal for them to recommend one investment over a similar one that’s less expensive. That’s better for them, not for you.
A fiduciary, on the other hand, is legally obligated to always act in your best interest. So you never have to worry about their recommendations benefiting them over you.
Many, but not all, financial advisors are fiduciaries. And this is where the controversy sets in.
Toward the end of his presidency, Obama tried to help protect consumers with the Dodd Frank rule. This required financial professionals who offered retirement advice to act in their clients’ best interest. Since the vast majority of advisors handle IRAs and other retirement vehicles, this rule would have required that most everyone serving in that capacity become a fiduciary. This could be seen as a big win for consumers.
Enter Trump and an administration that believes fewer regulations are better. They challenged the fiduciary rule and had it overturned in court. Instead, the Securities and Exchange Commission (SEC) has produced a Regulation Best Interest rules package that critics say guts consumer protections by potentially weakening fiduciary standards.
Fearing that these changes could erode investors’ belief in financial advisors and the industry as a whole, the Certified Financial Planning Board of Standards decided to step up and issue a rule that all CFP professionals must act as fiduciaries. But they have pushed back enforcement of their own rules until mid-2020 to give everyone time to implement the new standards.
By now, you may be rolling your eyes and thinking, “typical bureaucratic red tape mess.” True, but this particular red tape has big implications for your money and future. Because if no one is protecting you from higher-priced investments, you may be working harder to help your advisor retire than yourself.
So just who is looking out for you the investor? Right now, only you. (And me through this article.) Which is why I suggest you take the following steps before trusting anyone to provide you with financial advice:
1) Do your research. Ask prospective advisors if they are a fiduciary. If they aren’t, ask what kind of protections you get with their advice. Also, find out how much experience and what types of expertise they have, as well as how they are rated by financial professional organizations.
2) Follow the money. Commission-based advisors earn their money by, you guessed it, commissions. The more investments they buy and sell for you, the better the advisor does. This can make their advice less objective. Fee-based advisors don’t have this same incentive since they charge a predetermined, mutually agreed-upon fee for their services.
3) Trust your gut. When speaking with anyone you are considering, do you get a good feeling about the person? Do they speak in plain enough language that you can honestly understand the advice they’re providing and the rationale behind it? Do they seem trustworthy, like someone you can confide in? You’ll be sharing your hopes, fears, and dreams with them, so make sure your financial advisor is someone you like.
As with many other things in life, you have to be your own best advocate when it comes to hiring a financial professional. While there may be many non-fiduciaries who provide good, honest advice, remember that they are not legally obligated to do what is best for you. If you don’t find that suitable, look for advisors who are also fiduciaries.
The opinions expressed in this article are not intended to provide specific advice or recommendations for any individual or on any specific security. No advice may be rendered by Brio Financial Group unless a client service agreement is in place.
September 2019
Every year on the Fourth of July, the Tahoe neighborhood where my vacation rental is located has a little parade. Kids decorate their bikes, pull pets in wagons, and try to twirl a baton and walk at the same time while adults sit on lawn chairs and clap as they go by. It’s straight out of a Norman Rockwell painting—just with a few more tattoos.
I’m all for continuing traditions like these that are good fun for children. But I hate seeing harmful things passed on just because “that’s how we’ve always done it.”
As a financial advisor—and a father—it upsets me to see so many parents unwilling (or is it unable?) to talk to their kids about money. After all, it’s something that’s going to be a major factor in their lives, whether they have it or not.
Buying a few shares of a company or brand they care about encourages them to track the market’s ups and downs, understand how good or bad news impacts the share’s price and introduces your teen to the world of investing.”
Let’s set our children up for success by teaching them money lessons early and often. Here’s what I suggest for kids of all ages…
Make It Tangible for Little Ones I give my twins an allowance—$1 for every year of age—to help them get used to handling their own money. I mix it up each month and give them six $1 bills, 24 quarters, 60 dimes, 120 nickels or any combination to start teaching basic math skills. Each child has three buckets that they decorated, one for “me today” money, one for “me tomorrow” and the third for “charity/other people.”
Today funds can be spent whenever on whatever. The tomorrow bucket teaches them how to save for bigger items. If they want a deluxe Lego set, for example, they have to save up for it. This instills the idea of delayed gratification and working toward a “long-term” goal. The third bucket is about teaching compassion and the pleasure of doing something nice for others. I let them decide where this money goes, whether that’s adopting a whale, tithing at church or giving the money to a homeless person.
The boys also get to decide how much of their allowance to put into each bucket, which changes depending on their goals. The idea is to give them real, understandable lessons about how to divvy up a finite amount of money to get what they want.
Teach Pre-Teens the Value of Time Once kids are capable of doing more to help around the house, it’s time to encourage good work habits. In addition to allowance chores, you can offer the opportunity to earn more from additional work. For “extras” such as washing the car or doing yard work or laundry, pay your child an hourly wage. Have them keep track of the hours they work and their earnings for a quick math lesson. This also teaches them the value of their time and what it takes to earn spending money.
Show Teens How to Make Money Work for Them As your kids age, get them to:
• Take charge of money spent on them. Giving your teen access to all the money you give them on top of their allowance for clothing, entertainment, eating out and more helps them learn about responsibility and budgeting. They’ll inevitably make some mistakes and poor choices, but at this stage they should be small and easy to correct, while the memory of the error can keep them from making costly mistakes in the future.
• Open bank accounts. Having your teen deal with a financial institution (vs. a decorated bucket) makes them feel more grown up and gets them used to the banking world. If they open a checking account, have them keep the register to get used to funds in/funds out. Once they are 18, a credit card or car loan can help establish credit in their name. And if they are gainfully employed, have them open a Roth IRA and show them how saving even a little early on can have an enormous impact on the money they have later in life.
• Buy stock in something of interest. Buying a few shares of a company or brand they care about encourages them to track the market’s ups and downs, understand how good or bad news impacts the share’s price and introduces your teen to the world of investing. The goal here isn’t necessarily the smartest investment, it’s getting your kids excited and engaged.
Teaching your kids how to handle money responsibly is a great way to prepare them for adulting. Plus, it might just prevent them from boomeranging back into your house after college!
The opinions expressed in this article are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security. Brio does not provide tax or legal advice, and nothing contained in these materials should be taken as such. To determine which investments may be appropriate for you, consult your financial advisor prior to investing. As always please remember investing involves risk and possible loss of principal capital; please seek advice from a licensed professional.
Brio Financial Group is a registered investment adviser.
JULY 2019
It’s Gay Pride month again, the time when our wonderful City is festooned with lovely rainbow flags. This always makes me happy—and not just because I get to use the fun word festooned. Gay Pride reminds me of how far we have come as a community.
As a financial advisor who has specialized in serving LGBTQ clients for nearly 20 years, I’ve been privileged to have a front-row seat for the way changing laws and greater acceptance benefit same-sex couples. But one thing that hasn’t changed is how hard it is for couples (or throuples) to talk about money.
... view yourselves as a threesome—a “you,” a “me” and an “us.” Acknowledging that you’re an individual and part of a unit at the same time can help you manage your money to the benefit of everyone.”
For some reason, money is a bit of a taboo subject. People will share every detail of their love life with friends, but not what they earn, spend, save or, heaven forbid, what they owe. So I guess it’s not all that surprising that years of being closeted about finances makes people reluctant to open up even to their partners.
But remember, when it comes to handling money together, you are sharing something with someone you love. You should be able to be open about what you want, hear what they want and prioritize your relationship over money.
It also might be helpful to view yourselves as a threesome—a “you,” a “me” and an “us.” Acknowledging that you’re an individual and part of a unit at the same time can help you manage your money to the benefit of everyone. Say only one of you enjoys traveling. If your money plans only cover joint goals, obviously that won’t be one of them. But if your plans take into account what all three of you want, you’ll likely be much happier.
Here are a few other suggestions on how to get you and your partner(s) on the same page about money.
Be Honest With Each Other
This might seem glaringly obvious, but hiding purchases and debts from your partner is not only bad for your relationship, it also makes it difficult to get a true picture of your finances.
Let each other know about any baggage or bad habits you have, as well as how you feel about money and why. For example, one partner may save every cent because they were raised by a single mom who constantly struggled to make ends meet. The other partner may have lost a close friend in high school, so spending like there’s no tomorrow is their financial philosophy. Understanding each other’s point of view can help you develop a solution that works for the two of you.
Pool Your Money Together Into Joint and Individual Accounts
This builds off my 1+1=3 philosophy and is one of the most successful strategies I get my clients to use. The idea is to take all the money you earn as a couple, deduct what you need each month for living expenses, then split the leftover amount between partners to spend however they wish. For example, if you bring in $10k a month and need $8k to live on, you deposit the $8k into a joint account and $1k each in your individual accounts.
I can’t tell you how many issues this helps solve. First off, it allows for some autonomy as your partner gets no say in how you choose to use your “individual” money. Spenders can go to town with theirs, while savers can squirrel away their portion. It also gets rid of power dynamics when one partner makes significantly more than the other.
Develop Financial Goals Together
If you both agree on how much you should spend and how much to save, you’re more likely to stick with the plan. You can each write down what you want your money to accomplish, then compare the two lists and see where you agree and where you need to make compromises.
Make a Monthly Date to Review Your Finances
Who says a candlelit dinner and credit card bill don’t go together? Make it fun to review your previous month’s expenses. Celebrate if you stayed on budget. And if you went over budget, well, someone might need to get spanked.
The more honestly and often you and your partner talk about money, the fewer fights you’ll likely have caused by misunderstandings or resentment. And having a happier, healthier relationship seems like a perfect way to celebrate Gay Pride.
Brio Financial Group is a registered investment adviser. SEC Registration does not constitute an endorsement of Brio by the SEC nor that Brio has attained a particular level of ability. Services are only offered to clients where Brio Financial Group and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Brio Financial Group unless a client service agreement is in place.
JUNE 2019
Cartoonists often depict unpleasant shock by drawing the character with their eyes comically popping out of their face. That image keeps coming to mind when I hear many people’s reaction to their tax bill this year.
Well, at least now you know what you’re dealing with. And some of the new laws can actually work in your favor.
So let’s look at some ways to keep steam from blowing out of your ears over 2019’s taxes.
Put Your Money in the Right Savings Bucket Where your assets are located can have a big impact on your taxes. Whenever possible, consider maxing out contributions to retirement accounts, including employer-provided plans—such as 401(k), 403(b), 457(b) and other deferred compensations plans—as well as personal retirement accounts, such as IRAs. These can help reduce your taxable income.
Investing in municipal bonds is another great tax reducer. “Munis” are issued by state and local governments to fund public works projects. Considered a safe investment, their rate of return is relatively low.
But what if … you spend $9,000, but only earn $5,000? Good news: Losses can be written off too!”
So you may not get rich, but the amount you invest will be exempt from federal taxes. In many cases, such as if you live in the state issuing the bond, your state and local taxes may be exempt too. So a bond paying 1.5% for example, may yield closer to 2% with this tax benefit. Then there’s the cherry on top, which is that interest income is generally tax-exempt. It’s about as close to a tax-free investment as you can get. (My lawyer wants me to remind you that there are exceptions that you should consider before investing.)
Other types of investments that can help reduce your taxable income include annuities, Health Savings Accounts (HSAs) and 529s for education.
And if you are self-employed, you have a lot of acronyms you can choose among to fund your retirement and save on taxes at the same time. Options include Solo 401(k)s, SEP IRAs, Simple IRAs, and Traditional and Roth IRAs.
Turn Your Hobby Into a Side Hustle Speaking of self-employed, some of the new laws make this highly attractive. I’m not talking about quitting your current job and putting everything you have into that thing you’ve always dreamed about. Just something small that you can do to earn extra money. Or not. Let me explain.
Say your hobby is photography. You decide to start a business putting your work on notecards and selling them on Etsy. Think of all the things your new business needs. Perhaps a new camera—that really expensive one you’ve always wanted—a special printer, card stock, ink and more. And promoting your new venture might require business cards and ads. These are now business expenses, which you may be able to write off.
So if you spend $5,000 for supplies and earn $9,000, great. You get to deduct eligible expenses and make a couple of thousand dollars extra. But what if that’s reversed and you spend $9,000, but only earn $5,000? Good news: Losses can be written off too!
But wait, it gets even better. Because Section 199A of the new tax code means you might be able to write off 20% of your qualified income from this new business. Now that’s a tax cut!
Rent Out a Room Here’s more good news: Rental property is one of those businesses that might qualify for Section 199A. So if you have a second home, think about making it a vacation rental. Or lease a spare room in your house to a traveling nurse who wants a short-term rental. Better yet, rent out your whole flat during OracleWorld or Dreamforce.
Give to Charity My last tax-reduction tip is to be smart about your charitable giving. That might mean bunching all your charitable donations into one tax year to get you over the standard deduction. Or reducing your taxable income by setting up a Charitable Remainder Trust—an irrevocable trust that can pay you income and give the assets left after you’re gone to your charity(s). And for anyone over 70½ taking required minimum distributions, if you give part of that away as a qualified charitable distribution, your donation amount won’t count as taxable income.
As always, you should consult with a tax professional when implementing any of these strategies to make sure they work for you. But with a little planning and creativity, next year’s tax return can be less eye-popping and more ear-to-ear grin-inducing.
Brio does not provide tax or legal advice, and nothing contained in these materials should be taken as such. To determine which investments may be appropriate for you, consult your financial advisor prior to investing. Brio Financial Group is a registered investment adviser. No advice may be rendered by Brio Financial Group unless a client service agreement is in place.
MAY 2019
Spring cleaning isn’t just for closets and cobwebs. Your investment portfolio could probably use a little refreshing as well, especially if you haven’t aired it out in some time.
Yeah right, you may be thinking. I’ll fit that in after I schedule a root canal, clean the gutters and give the cat a bath.
Isn’t getting what you really want in life worth an hour or so of your time to do a little portfolio tidying up? ”
May I suggest that you turn that thinking around a bit? You’ve likely worked hard for the money you save and invest, and want to use it to finance your dreams. But investments that don’t align with your goals may not move you closer to them. Or may slow your progress versus what you could achieve with the right mix. Isn’t getting what you really want in life worth an hour or so of your time to do a little portfolio tidying up?
If yes, then ask yourself these questions:
Am I On Track?
Have your goals changed from the last time you reviewed your portfolio? Marriage, divorce, birth and death—not to mention changing careers, moving, health issues or any number of other factors—can have a profound impact on what you want or need your money to do.
Determine the purpose of each investment. Retirement, vacations, household expenses, a condo in the desert. Is what you own still relevant, still moving you toward your goals? Are you putting the right amounts in the right accounts? Remember to also bear in mind your timeframe for achieving each dream.
Also look at if your mix of assets is right for you today. Do you have a diverse choice of investment vehicles, such as bonds that perform well in bear markets and stocks that soar when things turn bullish? You want to be prepared for whatever the market sends your way.
Is My Investment Strategy Tax Efficient?
Being tax smart can keep Uncle Sam from dipping deeper into your pocket. A combination of tax-advantaged investments (e.g., Roth and Traditional 401(k)s and IRAs), tax-efficient investments (e.g., index mutual funds and ETFs), tax-exempt bonds (e.g., municipal and U.S. Savings bonds) and taxable accounts give you great flexibility in when you pay taxes and how much you pay.
There are also strategies—such as tax-loss harvesting which uses gains to offset losses—that can reduce your tax burden. (See next month’s Money Matters for some tax-smart tips.)
If you’re at that stage of life where you’re drawing down on your savings, set up a tax-savvy withdrawal strategy. This could mean depleting taxable accounts first, then tax-deferred accounts and finally tax-free investments, such as Roth IRAs.
Do I Have Adequate Protection?
No, this is not about condoms or PrEP. It’s about making sure unforeseen circumstances don’t ruin everything you’ve been working for.
If you still have many years left to work and couldn’t get by without your salary, disability insurance might be very important. Or maybe you’re financially independent and don’t need this coverage any more.
Has your family grown? You might need more (or some) life insurance. Or if you’re older, you may not need any or as much coverage. That money may be better spent on a health or long-term care policy.
Here again, it’s critical to consider your current goals and timeframes when reviewing your safeguards.
Is My Estate In Order?
Tax and estate laws are always changing, as are your assets and the people you want to protect. Make sure your will, healthcare proxy, power of attorney, living trust and other documents still reflect your wishes.
And by all means, update your beneficiaries for all official documents and investment accounts. I can’t tell you how many clients I’ve saved from leaving their retirement accounts, homes and more to an ex they haven’t spoken to in years.
This Spring, make a date with yourself to clean up your portfolio. Toss any investments that no longer suit your goals and find new ones that are a better fit for who you are today and where you want to go tomorrow.
Or just hire a financial professional to do it all for you. Maybe I should have started with that point.
The opinions expressed in this article are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security. Brio does not provide tax or legal advice, and nothing contained in these materials should be taken as such. To determine which investments may be appropriate for you, consult your financial advisor prior to investing. As always please remember investing involves risk and possible loss of principal capital; please seek advice from a licensed professional.
Brio Financial Group is a registered investment adviser. SEC Registration does not constitute an endorsement of Brio by the SEC nor does it indicate that Brio has attained a particular level of skill or ability.>Advisory services are only offered to clients or prospective clients where Brio Financial Group and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Brio Financial Group unless a client service agreement is in place.
April 2019
Remember that scene in Gone With the Wind where Scarlett O’Hara says, “I can’t think about that right now. If I do, I’ll go crazy. I’ll think about that tomorrow.”
That may have been your reaction when the new tax bill passed in late 2017. Why think about all the changes and how they were going to impact your tax bill until you had to?
Well, now you have to. The new laws are kicking in for your 2018 taxes. So fluff up your petticoat, tie your bonnet, and pinch your cheeks while I take you on a quick tour of the most important changes.
The first thing you’ll notice is the 1040 form itself. There is now just one form for everyone. Forms 1040-A and 1040-EZ have been eliminated to get rid of any confusion about which one to use. While not quite the postcard we were promised, the new 1040 is much shorter.
With all of these changes, it’s hard to know whether you’ve been helped or hurt by the new tax bill until you actually file. If you find yourself on the “hurt” side of the spectrum, it may be smart to talk to a financial professional about changes you can make to lower your tax burden for 2019. Because as Scarlett reminds us, tomorrow is another day.”
Unfortunately, everything that was removed from the form itself is now on six schedules. While there are people who will be able to file just the 1040, there are also many who will have to file one or more schedules.
Part of the impetus behind the shorter form is that tax filing will be greatly simplified when fewer people have to itemize. To make that happen, Congress nearly doubled the standard deduction. Married-filing-jointly taxpayers get a $24,000 standard deduction, up from $13,000, and individual filers go from $6,500 to $12,000.
Terrific. Except the personal exemption has been completely eliminated. The personal exemption was over $4,000 in 2017. And you could subtract that amount for yourself and each of your dependents, making this loss painful for large families.
But wait! The Child Tax Credit has doubled to $2,000 per dependent child under age 17. Also starting in 2018 is a new $500 credit for dependents that don’t meet the Child Tax Credit criteria, such as elderly relatives or children older than 17.
Now to the change with significant impact in California—the cap on the State and Local Tax (SALT) deduction. People who itemize used to get an unlimited deduction for their state individual income, sales and property taxes. In fact, the SALT deduction was one of the main reasons for itemizing.
Under the new law, the deduction is limited to $10,000. Here in the Bay Area, that may not even cover the first property tax payment for some homeowners. And if you have multiple properties, sorry, you’re still limited to that 10k. Same story if you’re married. The SALT deduction is $10,000 if you file jointly or $5,000 each if you file individually. Which really amounts to a marriage penalty since two unmarried taxpayers get an aggregate of $20,000 to write off.
At least the source of the most common marriage penalty has now been virtually eliminated. With the new tax rates, Congress essentially doubled the income thresholds for single filers (except for the top two brackets), so married couples don’t face a higher tax bill unless they make over $400,000.
The last big change is the qualified business income deduction. This was added to help small businesses that didn’t benefit from the breaks given to large corporations under the new law. Owners of sole proprietorships, S corporations or partnerships may deduct up to 20% of the income their business earns. There are exceptions and limitations to this deduction (of course!) and the language isn’t crystal clear about certain points. So if you think you may qualify for this fabulous deduction, you may want to consult with a tax professional.
With all of these changes, it’s hard to know whether you’ve been helped or hurt by the new tax bill until you actually file. If you find yourself on the “hurt” side of the spectrum, it may be smart to talk to a financial professional about changes you can make to lower your tax burden for 2019. Because as Scarlett reminds us, tomorrow is another day.
The opinions expressed in this article are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security. The material is presented solely for information purposes and has been gathered from sources believed to be reliable, however Brio cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. Brio does not provide tax or legal advice, and nothing contained in these materials should be taken as such. To determine which investments may be appropriate for you, consult your financial advisor prior to investing. As always please remember investing involves risk and possible loss of principal capital; please seek advice from a licensed professional.
Brio Financial Group is a Registered Investment Adviser. SEC Registration does not constitute an endorsement of Brio by the SEC nor does it indicate that Brio has attained a particular level of skill or ability. Advisory services are only offered to clients or prospective clients where Brio Financial Group and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Brio Financial Group unless a client service agreement is in place.
March 2019
Maybe it was the wild highs and lows of the stock market last year. Or a realization that you don’t have the time—or desire—to research investments and strategies on your own. It could be that you just inherited a boatload of money. (Call me!) Or you’re ready to make that thing that you’ve been talking about for years finally happen.
Whatever your motivation, hiring a professional to manage your money is a good decision. At a minimum, a financial advisor’s job is to help you save, invest and grow your money. But it’s so much more than that. A really good financial advisor is a coach and a cheerleader. The voice of reason. A trusted confidant. And a professional at managing money, of course.
An advisor is there to steer you toward more rational decisions, helping you invest with a purpose and strategy in mind. They offer a wealth of knowledge that you can access as you work towards saving for your goals.”
A financial advisor is there to help you set and prioritize goals, and plan out the steps needed to achieve your dreams. As well as keep you disciplined when a year-end bonus slated for your retirement account threatens to become a spontaneous getaway to Puerto Vallarta.
A financial pro brings objectivity to decision-making that you likely can’t achieve on your own because, well, it’s your money. And your money means your retirement, or your kids’ education, or your own home or any number of other dreams you have. It’s natural to act emotionally about money, but that kind of thinking drives people to do things like sell when the market is tanking and buy when it’s on the upswing—the exact opposite of a sound strategy.
An advisor is there to steer you toward more rational decisions, helping you invest with a purpose and strategy in mind. They offer a wealth of knowledge that you can access as you work towards saving for your goals.
So how do you find an advisor who will become a trusted partner? A person to guide you through your most important decisions? To keep you from making costly mistakes when you’re buying a house, questioning whether you can afford surrogacy (or children at all), navigating a job loss or divorce, starting a business, deciding when to retire or any other major thing that happens in your life?
Start by asking friends, family and co-workers for recommendations—especially people whose stage of life or financial needs are similar to yours. Online searches and financial professional registries are other good sources. And check the background of anyone who makes your shortlist. BrokerCheck is a helpful site for that.
You may find an alphabet soup of designations after the person’s name. An important one is CFP, which stands for Certified Financial Planner. CFPs are licensed and regulated and must take ongoing education and ethics classes to maintain their certification.
Fiduciary is another thing to look for in your research because it means the advisor is legally obligated to act in your best interests.
Once you’re done swiping left or right through potential advisors, it’s time to actually meet. Most professionals offer a complimentary initial consultation to see if the two of you click. Be sure to ask lots of questions, including:
• Background, professional designations and years in business
• Services provided
• Investment philosophy
• Type of clients they specialize in
• How much contact they have with clients and how quickly they respond to them
• Who takes over during vacations or if the advisor is incapacitated
• How they handle complaints
Then there’s the big question: how much they charge. Fee-based advisors may be preferred over those that charge commissions, as the latter may be tempted to recommend investments that benefit them more than you. Fees can be charged hourly, for a specific service (such as creating a financial plan), or as a percentage of the assets the advisor manages for you. Be sure you understand and are comfortable with the cost structure.
In fact, make sure you’re comfortable with everything about the financial professional you decide to settle on. Remember, this is someone you want to be able to trust with intimate details of your life. Take the time to find someone who really gets you, and the two of you can make beautiful money together for years to come.
Brio Financial Group is a registered investment adviser. SEC registration does not constitute an endorsement of Brio Financial Group by the SEC nor does it indicate that Brio Financial Group has attained a particular level of skill or ability. Advisory services are only offered to clients or prospective clients where Brio Financial Group and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Brio Financial Group unless a client service agreement is in place.
February 2019