Posts

!!!High income earners with large stock grants reduce your #taxes!!!

ATTN: High income earners with large stock grants.

One strategy to reduce your overall taxes ⏬ and avoid concentration risk is tax loss harvesting.

I did a portfolio review with a client who works at a local tech company who wanted help balancing 🧘‍♂️ his portfolio.

He was in the following position:

1️⃣ Annual income: $250,000
2️⃣ Company stock (from ESPP and grants): $700,000
3️⃣ A “junk drawer” of old 401ks, IRAs: $700,000
4️⃣ Short and long term realized capital gains.

When I looked at his portfolio I noticed he had short term capital losses and long term capital losses in his portfolio.

Unfortunately a lot of his company stock was granted near the company’s all time highs 🎢 . His company then reported less than enthusiastic earnings and took a 10% correction.

By using tax loss harvesting of his unrealized short and long term capital gains we were able to save him $7,000 in income tax and $13,000 in capital gains for the year.

While this is a common practice for high net worth individuals it can apply to anyone to help avoid paying unnecessary taxes 💸

hashtagfinancialadvice hashtagtaxes

No, 9% passive income isn’t “too good to be true…”

Man, when I tell people they can have over 9% passive income with some decent safety, I get my feet held to the fire.

 

I won’t say the words “too good to be true” were thrown around, but they kind of were.

 

I recently was talking with some folks who had their retirement accounts with a big box planner.  They said:

 

“Two grand kids live in California and two grand kids live in Missouri….we gave xxxxxx xxxxx $500,000, and it has turned into $460,000!  We really want to travel but we don’t feel like we can without taking some money out, and now we don’t want to do that!”

 

I built a custom income note (see my email from last week) that generated to many quesitons I thought I would make a quick explainer, check out the YouTube video below 👇to see how this investment works.

 

Market timing is a bad idea, but you can “beat the market.”

If you are 55+ years old and nearing or in #retirement

With the market a blood bath 🔻 🤮 again for this week, I thought it a good time to poke Wall St in the eye by addressing one of the biggest reasons I have seen people lose money.

Unquestionably WORSE: The TIME⌛ AND PEACE OF MIND 😟 people lose.

The reason? TIMING THE MARKET (and why this is always a bad idea.)

The solution: You can actually “beat the market” in 2 distinct ways (mathematical and the feels.).

I have three people currently considering coming aboard my practice.

1️⃣ A great guy managing his own money. “I buy and hold the S&P500, because the market always comes back.” After a little trust was built, he admitted “I currently am in cash, I usually work on gut feeling.”

2️⃣ A couple with a big Wall St firm that said “we’re tired of losing but want to make back some losses before we move.”

3️⃣ A couple who sold their house and turned $500,000 over to a Wall St firm because a friend who “has done very well” gave them a referral…(more on this, which is a timing issue.

Three points on market timing.

1️⃣ It is almost impossible. First you have to be right. Then you have to be right all the time. Just because you successfully buy high, you then have to know when to sell, then when to buy ad infinitum. Consider that, according to Barron’s JUST 7% of professionally managed funds have “beaten the market” in the last decade. These are “experts” who wake up every day, with all the most expensive research and insider knowledge, and they fail 93% of the time.

2️⃣ Its a no win scenario. Let’s say you time it right. “I want to wait till the market comes back”. If you are right and the market rebounds, but then drops (a “bull trap”) you lose everything you just made back. You also lose time. And was it a lot of stress free “fun” waiting for the market to come back? If you are wrong and the market keeps tanking 🔻 how long are you going to wait for it to come back? Consider: The S&P 500 took ❗ 12 YEARS ❗ to “come back” from the peak of the 2002 tech bubble. Do you want to put your plans off 12 years?

3️⃣ Its not worth it. Why would you put your plans, your peace of mind, your time with your family, and your money at risk when you don’t have to? If it were a matter of “sit in cash” and “buy and hold” I get it…maybe there is an argument there. But with #investments that limit or eliminate loss, but can still make double digit returns if the market rebounds available, there is no reason to try and “time the market.”

Below is an example of 2 ways to “beat the market….”

1️⃣  The first way is mathematical.  I was the first DIY investor I know.  I started by buying a single stock (TRMB if you want to know) using paper route money through my great-grandmother when I was 12.  Since then I have day traded, bought and sold options, traded futures, done the “10 stock portfolio”, 60/40, read every blog (I was a Boglehead) and mirrored Warren Buffet.   Then I started managing client’s money using one simple principle.  Reduce unnecessary risk without giving up the reward.  By using these institutionally available investments I started to notice my clients were way outperforming my personally money.  Since I have started doing for myself what I do for my clients I have a far better ROI and lost far less sleep over money.

2️⃣  The REAL way you beat the market is this.

INVEST SO THAT IT DOESN’T MATTER WHAT THE MARKET DOES.

INVEST SO THAT YOUR PEACE OF MIND HAS NOTHING TO DO WITH “THE MARKET COMING BACK”

 

It’s not just your will that needs to be up to date.

How important is it to make sure that you’re investment and insurance documents are up to date?

There are all kinds of things that can happen if you don’t have a designated beneficiary on your accounts. Typically if you pass away and your money is going to pass on, and you don’t designate a beneficiary, that money will be subject to probate.

Probate can involve pain off creditors, contentious battles between airs, taxation, and other unpleasant things that you don’t want your loved ones to deal with when they’re grappling with the loss of a loved one.

But there are other requirements you might be missing that could cost a lot of money or emotional strain.

For instance, i just received a call from a client who was the beneficiary of her long time boyfriend’s life insurance.

He had an extended illness and she had been taking care of him for the last five years.

Even though she’s the beneficiary on the life insurance they never filed an official domestic partnership. I was attempting to help her file the death claim so that she can receive the insurance benefits that he designated for her, but his family is refusing to communicate with her.

The State of Washington will only release the full “long form” death certificate to certain individuals, and she doesn’t qualify. Since they never registered as an official “domestic partnership” the Department of Health will not release the certificate she needs to file the life insurance claim.

Luckily, I called the family of the deceased and smoothed things over, and we were able to get the needed form.

Wills, trusts, and other legal documents besides the beneficiary designation are key to making sure your loved ones don’t have to deal with a big mess at the time they are dealing with a big loss.

Don’t fall for this too-good-to-be-true investment, it almost cost my client big!

When a client tells you they want to take $1,000,000 from your firm for something that is too good to be true, it’s not a time to soft pedal the truth.

After my client sent me a product proposal from another advisor my email back to him was:

“Hey, it’s no BS Friday so I’ll just say this, the other advisor is either lying or has no idea what he’s talking about”.

I joined the Marines and was a police officer to stop bad people from hurting good people. Just because I do money stuff doesn’t mean my mission has changed.

#fiduciary #financialplanning

Update on the WA LTC Tax…IT DID NOT GO AWAY!

Update on the Washington state long term care tax, where it currently stands, and where it is going next.

If you are reading this and thinking to yourself  “no big deal, I don’t live in Washington State”  I have bad news for you..

13  other states are considering similar legislation and I would suspect that over the course of time almost all jurisdictions will impose some sort of tax like this, if it is not done nationally.

First, a brief background.

In 2019 the Washington state legislature passed a .58% tax on all earned income for Washington wage earners. The revenue from this tax was going to fund a long term care benefit of up to $100 per day for every participant in the program subject to certain conditions.  The benefit would last one year, for a total of $36,500 of benefit.

A quick back of the napkin math shows that anybody who makes middle to upper income or more, for any period of time is going to pay far more into the program than they would ever receive. The benefits are also unavailable for people who move out of state, and there is no death benefit.  This means if a high income wage earner paid hundreds of thousands of dollars into the tax over their lifetime, and then retired to another state, they would never even have the chance of recouping their $36,500.

Long story short, the more you make, and the younger you are, the worse this is for you.

In my estimation a greater concern is that that tax rate can change.  .58% could rapidly become 1.58% which could rapidly increase to 2.58% et cetera et cetera. For instance, the WA PFML tax rose from .4% to .6% from 2021 when it started to 2022.  Doesn’t seem like a lot?  That is a 50% increase in one year!

In my opinion this is almost guaranteed given that, when the implementation of the tax crept up on Washington taxpayers, almost every major employer brokered long term care policies for their employees that allowed them to become exempt from the plan.  Every insurance broker did nothing but write long term care exemption policies for a solid year. That means a gigantic portion of the highest earning wage base in the state became exempt from the law. The actuarial numbers are a train wreck.

Every insurer in the state bar a couple also stopped selling the qualifying policies during the pandemonium.  We are in no-mans land.

Here were the exemption rules.

You must have placed in force/paid for a qualifying LTC policy by November 1, 2021.

You then had until December 31, 2022 to file for an exemption.

Many residents believe they have until Dec 2022 to obtain a qualifying policy.  That is incorrect, the window has closed.  Barring any legislation change it will not open again.

Many clients of mine also erroneously believe that the law has been repealed, that they no longer need their exemption policy, and that they can cancel the policy they took out to avoid the tax in the first place.

NOTHING HAS CHANGED in the law itself to date!  The law still exists!

The only action taken by the State of WA so far has been to suspend collecting the tax until July 2023.

I am currently advising all my clients to hang on to their current exemption policies (I am still paying on mine).  If you cancel the policy now, and they do not change the legislation (when was the last time you knew Olympia to reduce or eliminate a tax?) you will be stuck paying the tax.

Even if they do extend the date to obtain a policy, in my opinion, it will be extremely expensive (or impossible) to obtain a policy as insurers absolutely fled the WA market the last time.

The consequences, especially for high income wage earners, of not having an exemption policy are too high to gamble that this just goes away.