Consulting on Another Advisor's Financial Plan (Forbes Article)

Consulting on Another Advisor's Financial Plan (Forbes Article)

We work with clients of all kinds – from young entrepreneurs to retirees, we have a diverse workload. However, this spring we received a unique request: consulting on another financial planner’s financial plan! The request came from Roger Ma, a well-respected independent advisor in New York City. We feel honored that the Mas trusted us to review their finances, and I think it’s safe to say that we all enjoyed the experience. Roger shared why he chose to work with us in his article on Forbes.com about “Why I Hired A Financial Planner – Even Though I’m A Financial Planner Myself.” Thanks for the kind words, Roger! We think we’re pretty great too… here’s why.

We build financial plans to support our clients’ goals and values. We have a fiduciary responsibility to provide clients with the best advice at all times. But what’s best for one person isn’t necessarily best for another. During the onboarding process, we take clients through a series of life planning exercises to learn what’s truly important to them, and from there we build a financial plan that supports and inspires them to live the life they truly want.

We’re at the top of our game technically. We work hard to make sure we’re always learning about the latest financial planning topics and coming up with creative strategies to maximize the bottom line. We’ve earned some of the top credentials the industry offers, attend multiple professional conferences each year, constantly read blogs, books, and journals, and network with other professionals in formal and informal settings. We are truly passionate about financial planning.

Like many professions, financial planning is an art and a science. We deeply care about our clients, and we’re honored to use our expertise to help others lead richer lives.

What's New at Laminar Wealth

What's New at Laminar Wealth

Hey there! It’s us, your friends at Laminar Wealth. Haven’t seen a blog post from us in a while? Yeah, we know. We’ve been a little busy. Here’s what we’ve been up to:

  1. Keeping two little humans alive. For those of you who don’t know, we had our second daughter Jane in March. She’s been a wonderful addition to our family, but (not so) surprisingly has been quite a bit of work. Ellie is a natural at taking on the role of bossy big sister, Mary has learned an entirely new meaning of multitasking, and David is… surviving :) In all seriousness, we never realized how much love and joy children could bring to our lives!

  2. Taking care of our clients. We believe that part of what makes us great at what we do is how much we truly care about our clients. When life gets busy, we focus on the items most important to us, and from a professional standpoint that means making sure our clients never miss a beat.

  3. Keeping current on the latest financial planning trends. We want to make sure we’re always at the top of our game, and David lent his expertise to a journalist for the Journal of Accountancy on the FIRE (Financially Independent/Retire Early) movement. Look for an upcoming blog post about the insights David shared in the August issue.

  4. New business development. What keeps us going from day to day is knowing how much we help people. We were lucky enough to help another financial planner and his wife feel more confident with their own plan. He was kind enough to give us a shout-out in an article on Forbes.com; be on the lookout for a post with additional bragging.

Enough about us - We know it’s been a bumpy ride in the market these last few weeks. While we always try to educate clients to expect market volatility, that doesn’t mean it’s fun when it occurs. Please know that when we build financial plans and investment portfolios we plan for market downturns. However if you’re feeling at all uneasy or your financial or life situation has changed, please reach out to us.

All the best,
Mary & David

Beyond Year-End Tax Planning (Quoted in The Washington Post)

Beyond Year-End Tax Planning (Quoted in The Washington Post)

David recently had the opportunity to share his thoughts on the new tax law with Michelle Singletary of The Washington Post and was quoted in her article titled, "Start 2018 with a new strategy for your taxes." What follows is our expanded perspective on tax planning as we close out 2017 and prepare for 2018 and beyond.

The new tax law is bringing about significant changes in how we engage in strategic planning. Many opportunities are going away for good (e.g. recharacterization of Roth conversions) while some have popped up with only a brief window and need to be implemented before 12/31/17. In the past week and a half, there has been a lot of media attention on these strategies, and if you haven't already, you should consider doing the following right now.

  • Pay your Q4 estimated state income tax before 12/31/17 (if you will itemize for 2017 and will not be subject to AMT)
  • Prepay your property taxes to the extent currently assessed by your local jurisdiction (if you will itemize for 2017 and will not be subject to AMT)
  • Accelerate charitable gifts into 2017 (If you will itemize for 2017)

Thankfully, however, most of the changes in the tax law won't require you to make frantic moves. We are currently in the process of carefully reviewing the new legislation and discussing it with fellow tax professionals to make sure we understand the financial planning implications going forward. We will then contemplate each client's unique situation, evaluate the new opportunities created, and consider what changes should be made in our approach.

With so much current focus on taxes, it’s also important to step back and look at the big picture. While taxes can have a significant impact on financial decisions, the goal is not necessarily to minimize taxes, but rather to maximize after-tax return. Even more, tax planning, like all financial planning, should be done within the context of a broader life plan, so we not only seek to maximize wealth but also our return on life!

How the Proposed Tax Framework Would Affect You

How the Proposed Tax Framework Would Affect You

On September 27th, 2017, the President, along with House and Senate Republicans, released their framework for tax reform. The proposal aims to lower taxes, simply the federal tax code, and create a more competitive business environment. It’s important to note that the nine-page document provides only a broad outline, leaving many of the details to be determined by Congress when writing the potential bill. Here is what we’ve learned so far that we think could impact our clients:

Fewer Tax Brackets

Ordinary income is currently taxed at seven different tax brackets, ranging from 10% to 39.6%. Under the proposed framework, there would be only three—12%, 25%, and 35%. In addition, the framework allows for the possibility of a fourth tax rate that would apply to the highest-income taxpayers. It’s unclear whether this would be a fourth bracket like the current 39.6% rate or might instead resemble something like the Buffet Rule. While the details will have to be worked out by the tax-writing committees in Congress, the stated intention is for the tax system to maintain its progressive nature and not shift the burden from the wealthy to low- and middle-income households. Our initial thought is that while fewer tax brackets give the impression of simplicity, the number of tax brackets isn’t what makes our current tax code so onerous. In fact, having only three brackets means the transition between brackets would be less gradual, which would make hitting the next bracket potentially more painful! Until we know where the cut-offs for each bracket would be and what the potential “fourth-rate” looks like, it’s difficult to evaluate how this would impact specific taxpayers, so nothing to get to excited about yet.

Reduced Top Tax Rate for Small Business

Sole proprietors, partnerships, and S corporations would see business income taxed at a maximum rate of 25%. This is notably lower than the proposed 35% top tax bracket for normal wages, so the framework also discusses the need for measures to prevent wealthy taxpayers from inappropriately recharacterizing personal income into business income in order to take advantage of lower rates. This is potentially exciting news for small businesses, family-owned operations, and entrepreneurs; however until further details emerge regarding what would be classified as personal income versus business income (some have speculated that service professions could be excluded), it’s unclear whether all small business owners would benefit.

Doubling of the Standard Deduction

The standard deduction would roughly double to $24,000 for married couples and $12,000 for single individuals. This is good news for many low to mid-income taxpayers as it creates an effective 0% tax bracket on the first $24,000 of income for married couples. For many, if not most, this would more than offset the increase in the lowest bracket from 10% to 12%. It also means that many taxpayers who currently itemize deductions would instead use the new higher standard deduction, simplifying their tax preparation and record-keeping responsibilities.

Elimination of Most Itemized Deductions

Most itemized deductions would be eliminated, other than mortgage interest and charitable deductions. Therefore, unless one’s annual mortgage interest plus charitable gifts exceed $24,000, a married couple would be better off with the new higher standard deduction. This would mean more taxpayers would take the standard deduction, and therefore simplify the preparation and record-keeping. Perhaps the most significant deduction that would likely be eliminated is itemizing state and local taxes (e.g. state income tax and property taxes). This would most negatively impact those with high incomes living in states with high income taxes, such as California and New York, along with those who own expensive personal real estate.

Expanded Family Tax Credits

Personal exemptions for dependents would be replaced with an increased Child Tax Credit. The amount and details of the New Child Tax Credit were not specified, but would be higher than the current credit of $1,000 with higher income limits on the phaseout. In addition, there would be a new $500 credit for non-child dependents (e.g. aging parents).

Retention of Tax Benefits that Encourage Work, Higher Education, and Retirement Security

While details were not provided, it likely means keeping the earned income tax credit (for low- to moderate-income workers), the American opportunity tax credit (for college expenses), and tax deductions for contributions to retirement plans (such as 401k plans and IRAs).

Repeal of the Alternative Minimum Tax (AMT)

The AMT is a supplemental income tax system that was initially designed to ensure high-income taxpayers weren't able to reduce their effective tax rate “too much” by taking advantage of all the deductions and incentives available under the standard tax system. Under the new proposal where most of these deductions would be eliminated, the AMT arguably becomes unnecessary. Given that the AMT is considered one of the most complex areas of the tax code, this would certainly simplify tax planning and preparation.

Elimination of the Estate and Generation-Skipping Taxes (but likely only for 10 years!)

We currently have an estate and gift tax exemption of $5.49 Million per individual. Estates larger than this are taxed at a rate of up to 40%. Under the proposed framework the estate and generation-skipping transfer tax would disappear. The gift tax (for transfers during one’s life) was not mentioned in the framework so it’s unclear whether it would remain intact or disappear also. However, assuming that the resulting tax bill is unable to receive 60 votes in the Senate and is passed through budget reconciliation instead (requiring only 51 vote, thus subject to the Byrd Rule), it’s likely to come back within 10 years. As a result, unless one is nearly certain they will die within that time frame, wealthy families should likely continue to plan as though there will be an estate tax.


How Should You Plan in the Interim?

Until the details are hammered out and we actually have a bill to review, it’s difficult to assess the impact the proposed changes would have on any specific taxpayer and thus what actions should be taken to minimize one’s tax liabilities. Until we have greater clarity, the almost timeless strategy of deferring income and accelerating deductions likely continues to make sense. For example, it's likely better to pay property taxes at the end of 2017 rather than the beginning of 2018, as they may not be an eligible deduction by then.

Special note for taxpayers who exercised Incentive Stock Options (ISO) - If you exercised ISOs in a prior year and paid AMT as a result, you likely have an AMT credit that you expected to get back when you eventually sell the shares. If the AMT is eliminated, as proposed in the released framework, it’s unclear how your AMT credit would be treated and there is a chance it could become worthless, significantly increasing your expected tax liability. Depending on the magnitude of this risk to your specific situation, you may want to consider selling enough shares before the end of 2017 to claim as much of the AMT credit as possible. Hopefully, we’ll get more clarity on this issue as we approach the end of the year, but we recommend looking at the scenario now so that you can move quickly toward the end of the year if necessary. If you still work for the company and are subject to black-out periods this is even more important as your opportunities to sell are already limited.

Prevent and Detect Identity Theft

Prevent and Detect Identity Theft

It’s estimated that more than 17 million Americans are affected by identity theft every year. If the concerns over the latest Equifax data breach come to fruition, that number may increase precipitously. The best way to counteract the threat of identity theft is to prevent it. A secondary layer of protection is afforded by early detection. Below are resources for both.

Identity Theft Prevention

  • Credit Freeze (Equifax, Experian, TransUnion, Innovis) - Restricts access to your credit report, making it difficult for identity thieves to open new accounts in your name. This is one of the best ways to avoid fraudulent accounts being opened in your name but comes at a nominal financial cost and inconvenience. Whenever you are opening a new account or applying for something that requires a credit pull, you’ll need to temporarily unfreeze your credit report. Depending on your state, you may be charged up to $15 to freeze and unfreeze your credit. If you’ve already been a victim of identity theft and have filed a police report, the fees will be waived.
  • Opt Out of Prescreened Offers - Lets you opt out of receiving pre-approved and unsolicited credit offers in the mail. Credit card companies sometimes offer new lines of credit without pulling your credit report (making a freeze ineffective). A thief, with access to your mailbox, could easily use one of these offers to open a credit card in your name. By opting out of these offers, you’ll not only reduce your volume of junk mail but also reduce the probability of becoming a victim of identity theft. You can opt out for five years using the online form or permanently using the mail-in form.
  • National Do Not Call Registry - Significantly reduces the number of telemarketing calls you’ll receive, which lowers the probability of getting scammed. The Federal Trade Commission (FTC) requires all telemarketing firms to check this list every three months and purge registrants from their call lists. This is a free service sponsored by the US Government.
  • Call Spam Filter & Blocker - Many of the real scammers illegally ignore the National Do Not Call Registry and often use spoofed phone numbers to make it appear they are calling from a local number. There are a number of apps you can install on your smartphone that use a constantly updating database to alert you when suspicious calls come in and display the information on your Caller ID, so you don’t inadvertently pick it up and fall for the scam. Some popular examples of these apps include Hiya & Truecaller.
  • Unique Online Passwords & Two-Factor Authentication - Using the same password for all your online accounts is easy to remember, but puts your entire digital life at risk if even one of those sites gets hacked. A better approach is to use long unique passwords for each site and then store them in a secure password manager. Some of the most popular password managers are 1Password, LastPass, and Dashlane. Another layer of defense is to use two-factor authentication, whenever available. The idea behind this security measure is that to access your account you'll need both something you know (your password) and something you have (your smartphone). After entering your password, you'll be asked to enter a code, either received via text message or through an app on your phone. This greatly reduces the risk of unauthorized access to your accounts as simply knowing the password isn't enough. At the very least you should enable these security measures on your email accounts as that likely represents your most critical access point. If a hacker gets into your email, they can then go to all of your other accounts and click "forgot my password" at which point the password is reset and emailed to your compromised account.

 

Identity Theft Detection

  • Free Credit Reports - You are entitled to one free credit report per year from each of the three nationwide agencies. We recommend requesting only one of the agency reports at a time on a revolving four-month schedule. This will allow you to monitor your credit report throughout the year. Only use the official annualcreditreport.com website to do this. There are many other look-a-like sites that try trick you into paying for your credit report instead. Just remember that you will not need to submit any credit card information to get your free reports. They may try to sell you an add-on to get your credit score - just click “no thanks” and proceed to your report.
  • Free Credit Monitoring - There are many services that will monitor your credit for a monthly fee. In most cases, they aren’t providing anything you can’t get for free. One of the most popular services is Credit Karma which pulls credit report information and credit scores from TransUnion and Equifax. According to the company, they do not sell your information, but rather use the information obtained to target you with advertisements for credit cards, or other products that it believes are better for you than what you currently have. Occasionally it may propose something you actually want to consider, but in general, you should just ignore the advertisements while taking advantage of the free and easy credit monitoring and score reporting.
  • Free Initial Fraud Alert - If you don’t want to freeze your credit due to the inconvenience or nominal cost, the next best option is to setup a Fraud Alert with one of the three major agencies (they will notify the other two). A fraud alert makes it more difficult for a thief to open an account in your name because it requires the company who is extending credit to first verify your identity by contacting you. However, this is only a temporary measure, as it lasts for only 90 days unless you’ve already been a victim of identity theft or are active duty military.