Live in a High Tax State Like Oregon? Here Are 9 Ways to Lower Your Tax Burden

Lower Your Tax Burden

I can’t wait to do my taxes, said no one ever. This especially rings true if you live in Portland, Oregon. 

According to a report from Ernst & Young, Multnomah County now has the second-highest total state and local income tax rate in the nation of 14.69%. New York City has the highest in the nation at 14.78%. 

That’s not all. The top tax rate kicks in for single taxpayers with incomes above $125k and joint filers at $250k. By comparison, New York City’s top tax rate doesn’t kick in until $25 million. 

This means some Uplevel clients could pay approximately the same state and local tax rates as New York City residents and celebrities Jay-Z and Jerry Seinfeld.   

Ouch. 

Wondering how this is possible? Here’s how it adds up: 

  • Oregon income tax is 9.9% on income over $125k for single filers and $250k for married filing jointly. Note: Oregon does not tax Social Security benefits. 
  • The Oregon transit tax is a statewide 0.10% payroll tax that employers withhold from employee wages.
  • The Portland Metro area, including Multnomah, Washington,and Clackamas Counties, assess a homeless service tax of 1% for single filers with income over $125k and married filing joint filers with income above $200k. 
  • In addition to the above, Multnomah County residents pay a Preschool for All Personal Income Tax. Joint filers with incomes above $200k pay 1.5%, and an additional 1.5% on taxable income above $400k. 
    • Note: Not a resident of Multnomah County? You may not be in the clear. If your income is sourced within the county, you are subject to the tax thresholds. Also, the rate will increase by 0.8% in 2026. 
Looking to lower your tax burden? Here are 9 things to consider. 
 

1.  Understand how the numbers work

Taxes are complicated. We’ve simplified things by creating a single place to review contribution limits, tax brackets, and deductions.

 

2.  Max out retirement plan contributions 

High inflation put pressure on the IRS to give healthy bumps to annual contribution limits for 2023. For 401(k)s, 403(b)s, most 457 plans, and Thrift Savings Plans, the limit is now $22,500. If you’re 50 or older, you are eligible for an additional “catch-up” contribution of $7,500, raising your total contribution eligibility to $30,000. 

Stashing more money away in retirement accounts via pre-tax dollars helps lower your adjusted gross income (AGI), which also reduces your taxes. While a lot of folks intuitively understand this, a recent Vanguard report found that only 14% of people with Vanguard 401(k) accounts were contributing the maximum amount allowed. The majority of these people made more than $150,000. 

 

3.  Take advantage of employer benefits

Participating in benefits your employer offers like Flexible Spending Accounts (FSAs), Dependent Care FSA, and Health Savings Accounts (HSAs) are ways to save money and lower taxes.

There are also situations where it can be advantageous to combine benefits in order to maximize tax savings. Here are two examples:

  • If you qualify for your employer’s deferred compensation plan, it may make sense to accelerate your contributions in a given year while also exercising some of your stock options in order to stay within a certain tax bracket. 
  • If you have stock options that are subject to vesting, filing an 83(b) election could be advantageous for your tax situation. 

 

4.  Review your paycheck, particularly if you’ve changed jobs

If you worked for more than one employer last year, it’s possible you had too much Social Security tax withheld from your pay. In 2022, wages up to $147,000 were subject to Social Security tax, or $9,114 at the 6.2% Social Security contribution rate.

New employers don’t take into account wages from a previous position in calculating these taxes, so it’s up to you to monitor. If you had more than the maximum withheld, you may be eligible for a credit on your tax return for the excess amount. 

Bonus tip: it’s also prudent to review the total amount deducted from your final paycheck for  FSAs and HSAs. We’ve encountered situations where deductions were made from a client’s last paycheck but were never deposited into their accounts. 

   

5.  Consider Roth conversions  

A Roth IRA conversion takes all or part of your existing traditional IRA balance and moves it into a Roth IRA. The money in a traditional IRA hasn’t been taxed yet, so in converting you will owe tax on the amount you convert.

Why would anyone pay taxes early? There are a few good reasons:

  • Providing you meet certain requirements, Roth IRA withdrawals are tax-free in retirement.
  • Unlike Traditional IRAs, Roth IRAs do not have required minimum distributions (RMDs) once you reach age 72 or during your lifetime. So, your money continues to grow tax-free. 
  • Roth IRAs are some of the best types of accounts to pass on to beneficiaries. While your heirs will have to take RMDs, they won’t have to pay any federal income tax on the withdrawals. Given recent legislation changes, inheriting Roth assets is even more favorable.  

A Roth conversion can be a great option for some and a costly mistake for others. Here are 4 important considerations to make before converting your traditional IRA into a Roth IRA.

   

6.  Be strategic with charitable contributions

Donating appreciated holdings, such as stocks, mutual funds or exchange traded funds (ETFs) held more than one year directly to charity can reduce your tax liability. The benefit of this type of donation is twofold:

  • Rather than having to sell appreciated investments to generate cash to donate, and incurring capital gains that are taxed up to 23.8% each year, the shares can be directly transferred to a charity
  • You receive the market value of the shares as a tax deduction and the charity can subsequently sell the investments tax-free because of its non-profit status. 

If you’re looking to turbocharge your tax deductions, consider a Donor Advised Fund (DAF) “bunching” strategy. A DAF is an account established specifically for charitable giving and can be funded with appreciated holdings, among other things. Several years of charitable contributions are then “bunched” into a single tax year–enough to exceed the standard tax deduction–and charitable donations are spread out over several years. 

   

7.  Be mindful of the types of investments you hold

There’s an endless sea of investment options to choose from. If you have a taxable brokerage account and it aligns with your financial plan, it may make sense to utilize municipal bonds and/or exchange traded funds (ETFs). 

Municipal bonds are like loans you provide for a set timeframe to your local, state or federal government. You can likely find quality and generally safe muni bonds that provide tax-free interest payments. 

ETFs tend to be more tax-efficient than most mutual funds and usually incur less taxable distributions. 

   

8.  Tax-loss harvesting

Strategic tax-loss harvesting involves selling some of your investment holdings that are currently at a loss, using the proceeds to invest in something substantially equivalent for 31 days or longer, and utilizing the tax loss to offset capital gains taxes from other investment sales. 

If you don’t already have capital gains, you can offset up to $3,000 in ordinary income with realized capital losses. A word of caution however–be sure to familiarize yourself with wash sale rules before repurchasing a security sold at a loss, or you may find yourself in a bit of hot water with the IRS. 

   

9.  Improve your home’s energy efficiency 

If you’re looking to make improvements to your home, consider energy-efficient upgrades. Thanks to the recent Inflation Reduction Act, improvements like solar panels, energy-efficient windows and doors, heat pumps, and more offer tax rebates and financial incentives. 

 

Adding It All Up 

Whatever your tax situation, being strategic with your planning can save thousands of dollars in a given year. If you’re ready to create a plan, or just unclear where to go next, please reach out. We’re here to help.

 

Uplevel Wealth is a fee-only, fiduciary wealth management firm serving clients in Portland, OR and virtually throughout the U.S. 

What The Secure Act 2.0 Means For You

Secure Act 2.0

At the end of 2022, the Consolidated Appropriations Act was passed, which included a retirement bill known as SECURE Act 2.0. This law was built upon the original SECURE Act legislation passed in 2019. 

The SECURE Act 2.0 expands and changes the rules on saving for retirement, withdrawals from retirement plans, increases the savings thresholds and tax benefits for Roth IRAs, 401(k) plans and more. 

Ultimately, most people just want to know what parts of the Secure 2.0 Act apply to them. Here’s a summary of key provisions to pay attention to. 

 

High Wage Earners & Catch-Up Contributions 

Catch-up contributions allow folks 50 and older to save even more in workplace retirement plans.. For 2023, the catch-up contribution was raised to $7,500. This is in addition to the regular annual contribution limit of $22,500, meaning those  50 and above eligible to save $30,000 in total for 2023. 

Effective in 2024, people with wages (like w2 income) above $145k (which will be indexed for inflation) are only eligible for Roth catch-up contributions. Regular contributions may still be made with pretax dollars. The new rules apply to 401(k), 403(b) and 457(b) plans, not to catch-up contributions for IRAs. The IRA catch-up contribution limit will finally adjust automatically for inflation from its stagnant $1k cap in 2024 as well. 

Planning opportunities: You may be able to avoid mandatory Roth 401(k) catch-up contributions with income above $145k if you are self employed. Also, if you change jobs in the middle of the year, you may still be able to do pretax catch-up contributions even if you’re a high wage earner. 

 

Roth-Related Changes

If you’re an employee with an employer-sponsored retirement plan, you’ve only been able to receive matching contributions on a pre-tax basis. Employers may now offer the option to match and make non-elective contributions via Roth 401(k) accounts. Heads up: You’ll also pay taxes on these employer contributions. 

Beginning in 2024, employer retirement plan based Roth accounts like Roth 401(k) and Roth 403(b) will no longer require RMDs, similar to individual Roth IRAs. SEP and SIMPLE IRAs will now allow Roth contributions. 

Good news: One component that was not restricted or eliminated was existing Roth strategies, like backdoor conversions or mega-back-door Roth contributions. 

 

Additional Flexibility for 529 College Savings Accounts 

Beginning in 2024, it’s possible to move money from a 529 plan directly into a Roth IRA, and the transfers are not subject to income limitations. This comes as great news for savers who had concerns about potentially overfunding their child’s 529 plan. There are, however, certain conditions that must be met:

  • The Roth IRA receiving the money must be in the same name of the beneficiary of the 529 plan; 
  • The 529 plan must have been maintained for at least 15 years;
  • The annual limit is the IRA contribution limit for the year, reduced by any regular IRA or Roth IRA contributions made that year;
  • Lifetime transfer limit of $35k

Planning opportunity: If a parent contributed to a 529 account for their child, maintained ownership, and the child no longer needed the 529 money, it appears the parent may be able to change the beneficiary to themselves and then transfer the money to their own Roth IRA, subject to the conditions above. Note: Before doing so, please seek expert guidance. Some legislation interpretation still needs to be confirmed or rejected.  

 

Changes to Qualified Charitable Distributions (QCDs)

QCDs have been one of the best ways for people who are charitably inclined to give money directly from an IRA in a tax-efficient manner. The annual limit of $100k will now be indexed for inflation starting in 2024. 

It’s also now possible to use a QCD to fund certain types of charitable trusts. However, the maximum amount that can be moved is $50k. Given the time, expense and complexity that comes along with these types of trusts, this modest dollar limit may preclude most people from doing so. 

 

Changes to Required Minimum Distributions (RMDs)

RMDs are when you must take withdrawals from your retirement accounts, regardless if you want or need the money. The original SECURE Act raised the age for RMDs from 70.5 to 72. SECURE 2.0 pushes this out further:

  • Age 73 for folks born between 1951–1959 
  • Age 75 for folks born in 1960 or later
  • Turned 72 in 2022 or earlier? You must still keep taking RMDs.

The bill also decreases the penalty for missed RMDs from 50% to 25% of the shortfall, and providing the mistake is corrected in a timely manner, the penalty is now only 10%. 

Have a younger spouse? If they predecease you, you can now elect to be treated “as your deceased spouse,” which allows you to take RMDs based on their age rather than your own.

Planning opportunities: Pushing out the extra income created by RMDs age could mean additional years before the dreaded spike inMedicare Part B/D premiums and perhaps a few more years of Roth conversions. Please work closely with your advisor to see if this applies to you. 

 

Other Changes Worth Noting 

At over 400 pages, the legislation is long and cumbersome. While it’s impossible to include every component, we’ve focused on the items that are most likely to impact our clients. A few other items worth noting:

  • In 2028, some S Corp owners who sell shares to an Employee Stock Ownership Program (ESOP) may be eligible to defer up to 10% of their gain by taking advantage of a like-kind exchange; 
  • SECURE 2.0 expanded the list of 10% penalty exceptions for accessing retirement funds during times of need;
  • Beginning in 2024, employers can “match” an employee’s student loan payments by contributing an equal amount to a retirement account on their behalf. 

 

We’re Here to Help 

As we digest these latest changes and wait for important clarification on items that still remain ambiguous, we are already thinking proactively about which of our clients might be able to benefit. 

If you are wondering how these changes pertain to your situation and would like some professional guidance, please reach out, we’re here to help. 

 

Uplevel Wealth is a fee-only, fiduciary wealth management firm serving clients in Portland, OR and virtually throughout the U.S. 

How To Create a Charitable Giving Strategy

Charitable Giving

These days, requests for charitable donations are a year-round occurrence. Whether it’s giving money after a natural disaster, a request from your alma mater, or simply being asked whether you want to “round up” at the checkout line, there are endless opportunities to give. 

The end of the year is an especially good time to think about your charitable giving strategy to ensure your donations make the biggest impact, both to the organization and to yourself. 

Whether you’re a regular giver or just beginning to think about integrating charitable giving into your finances, having an informed plan will ensure, as Benjamin Franklin said, that you can “do well by doing good.”

An effective charitable giving strategy has three main components, which we’ll cover today. 

 

#1 – Types of Assets to Donate

Cash

For small charitable gifts, writing a check or donating via credit card is certainly a popular and easy option. Documentation for cash gifts, no matter how small, is key. Make sure you keep donation receipts, canceled checks, or credit card statements as proof of your gift.

It’s also important to remember that you may not receive a dollar-for-dollar tax deduction for your cash gifts in a given year. Deductions for cash donations are limited to 60% of your adjusted gross income (AGI) in a single tax year, with any contributions above these limits carried forward for up to five years.  

In 2020 and 2021, the CARES Act encouraged donations to charitable organizations by giving all taxpayers a $300 (single filer) or $600 (married filing jointly) deduction for cash gifts. It’s important to be aware that this deduction was not extended to 2022.

 

Appreciated Investments

Despite the stock market’s volatility in 2022, many people still have appreciated holdings, such as stocks, mutual funds or exchange traded funds, in their portfolio. Shares that have been held more than one year can be donated directly to a charity. 

The benefit of this type of donation is twofold: 

  • Rather than having to sell appreciated investments to generate cash to donate, which would result in paying tax on capital gains, the shares can be directly transferred to a charity. 
  • The organization receives the market value of the shares as a donation and can subsequently sell the investments tax-free because of its non-profit status. 

Donations of investments are generally deductible up to fair market value, but it’s important to remember that current deductions are capped at 30% of AGI, with a 5-year carryforward. 

 

Tangible Personal Property

Many organizations gladly accept used items such as clothing, furniture, or even vehicles, as long as they are considered to be in “good” condition under IRS rules. Most used household items, such as those donated to Goodwill or Salvation Army, should be valued at “thrift store prices” when determining an appropriate deduction amount. 

Items donated over the course of a year worth more than $250 but less than $500 should be documented and include the name and address of the organization, a description of the items donated, the original cost, and current fair market value of the items donated. 

Donations exceeding $500 fair market value up to $5,000 need to be documented on IRS Form 8283, which asks for more detailed information on the item’s condition, acquisition cost, and methodology for calculating the fair market value. Donations exceeding $5,000 in value require all the items listed above, in addition to an appraisal by a qualified appraiser. 

 

#2 – Tax Benefits of Giving

For some, the tax benefit received from making charitable contributions is secondary to supporting organizations doing meaningful work. For others, reducing tax liability in a given year is the primary motivating factor. 

Regardless of where you fall, being aware of current laws and adjusting your charitable giving strategy appropriately can lead to some meaningful tax savings. 

 

Standard Deduction Versus Itemizing 

One of the biggest tax considerations when it comes to charitable giving is whether you take the standard deduction or itemize. The Tax Cuts & Jobs Act of 2017 nearly doubled the standard deduction and reduced or eliminated a lot of tax deduction items. 

The standard deduction for single or head of household taxpayers in 2022 is $12,950. A married couple needs over $25,900 in deductions in order to itemize in 2022.

How does this relate to your charitable giving? Think of the standard deduction as the “hurdle” your deductions must overcome to realize any additional tax savings specifically from charitable giving. If your charitable giving plus other deductions don’t exceed the standard deduction, you are receiving the same tax benefit as if you had not donated anything to charity for the year.

 

Donor Advised Funds

Because of the high standard deduction, the popularity of Donor Advised Funds has skyrocketed in recent years. A Donor Advised Fund (DAF) is an account established specifically for charitable giving and can be opened with big brokerage firms like Schwab and Fidelity at very low annual costs. 

Contributions to DAFs can be made with cash.  A more beneficial strategy from a tax perspective, however, is funding a DAF with appreciated securities like stocks or mutual funds, real estate, crypto currencies, or even privately held businesses. 

The tax deduction for the contribution to the DAF is received in the year the contribution is made, and gifts to charitable organizations can then be spread out over subsequent years. 

For those looking to turbocharge their tax deductions, consider  a “bunching” strategy.   Several years of charitable contributions are made in a single tax year–enough to exceed the standard deduction–and charitable gifts are spread out over several years. 

 

Qualified Charitable Distributions

Qualified Charitable Distributions, or QCDs, are a great option for individuals with Individual Retirement Accounts (IRAs) who are 70.5 or older to give to charity and save on taxes.

Donations can be made directly from IRA accounts and the amount withdrawn is not subject to tax, as with regular IRA withdrawals. For those who have reached age 72 and are subject to annual required minimum distributions, a QCD will count towards the RMD, again reducing the tax that would be paid otherwise.

The maximum amount that can be given to charity in a year via a QCD is $100,000 and it’s important to still keep detailed records for tax purposes. 

 

#3 -Values Behind Your Giving

Beyond the technical aspects of giving, one of the most important considerations to any charitable giving plan is a thorough understanding of your personal values and goals. 

Start by taking a step back and contemplating what motivates you to give – is it the “warm-glow” you feel when making a donation, concerns for the benefit of others or causes, or some combination of the two?

Thinking through these factors can help you make rational giving decisions, make impactful gifts, and have a thought-out response when solicited for support. 

 

We’re Here to Help

If you are ready to start thinking about a charitable giving plan, or need guidance on adjusting your current plan, please reach out. We’re here to help. 

Uplevel Wealth is a fee-only, fiduciary wealth management firm serving clients in Portland, OR and virtually throughout the U.S. 

Does a Roth Conversion Make Sense for Me?

Roth Conversion planning

As fall ends and winter begins, many people wonder what end of the year financial tasks and tax planning strategies they should be thinking about. 

One planning opportunity we review for clients is a Roth IRA conversion. 

A Roth IRA conversion takes all or part of your existing balance in a traditional IRA and moves it into a Roth IRA. The money in a traditional IRA hasn’t been taxed yet, so in converting you pay taxes on the money your investments earned and on any contributions you originally deducted on your taxes.

Why would anyone pay taxes early? There are a few good reasons:

  • Providing you meet certain requirements, Roth IRA withdrawals are tax-free in retirement.
  • Unlike Traditional IRAs, Roth IRAs do not have required minimum distributions (RMDs) once you reach age 72 or during your lifetime. So, your money continues to grow tax-free. 
  • Roth IRAs are some of the best types of accounts to pass on to beneficiaries. While your heirs will have to take RMDs, they won’t have to pay any federal income tax on the withdrawals. Given recent legislation changes, inheriting Roth assets is even more favorable.  

A Roth conversion can be a great option for some and a costly mistake for others. Here are 4 important considerations to make before converting your traditional IRA into a Roth IRA. 

 

  1. Do you expect your income to increase in the future? 

A big appeal of Roth accounts is tax-free withdrawals in retirement. If you believe you will be in a higher tax bracket in the future, it may make sense to pay taxes now at a lower rate. It may also make sense if your income is temporarily lower (i.e. between jobs for an extended period, missed a bonus, etc.) 

If offered by your employer’s plan, also consider making Roth 401(k) and after-tax 401(k) contributions, which you may be able to convert to a Roth IRA through a mega-backdoor conversion. Note: this can be tricky, so be sure to talk to a qualified professional for help. 

On the other hand, if you expect your income to decrease in the future, a Roth conversion may not make sense for you. Instead, consider strategies to minimize your tax liability now, such as deductible traditional IRA and 401(k) contributions. 

 

    2.  Do you have cash outside your retirement accounts to pay the taxes due upon conversion? 

While it’s possible to use some of your IRA to pay the tax bill, it’s typically not advised. Money withdrawn from your IRA to pay conversion taxes is considered a distribution, which could push you  into a higher tax bracket. It could also result in a 10 percent penalty.  

Additionally, using retirement funds to pay tax erodes the value of a Roth conversion. There’s less money compounding and growing tax-free. 

 

    3.  Will you need distributions from the Roth IRA within 5 years? 

The money you convert into a Roth IRA must stay there for a 5-year holding period. If withdrawals are made before the 5 years are up, you could be looking at a 10 percent penalty and/or additional income taxes. 

If you’re retiring soon and will need to take distributions from your Roth, a conversion may not make sense for you. 

 

    4.  Will a conversion bump you into a higher tax bracket? 

If you’re on the cusp of the next tax bracket, it’s possible to still do a Roth conversion by only converting a portion of your traditional IRA. Spreading the conversion across several years, as opposed to one, can lower your yearly tax obligation. 

 

Other Considerations

As we write this, the stock market is down 15% for the year. When account values are temporarily lower, the tax cost to convert is also lower – you pay tax on a smaller portfolio balance. When the market rebounds, you then have a larger portion of your total portfolio in a tax-free account.

You may also have expiring tax carryforwards or credits to use that could provide additional incentives to do a Roth conversion. 

Heads up: if you currently or will soon participate in income-based benefits like Medicare or Affordable Care Act subsidies, a Roth conversion could impact the amount you pay or receive. 

Before making any moves, know that a conversion is permanent–you can’t revert the money back to a traditional IRA. 

 

We’re Here to Help

Wondering if a Roth IRA conversion is right for you? The decision hinges on many personal and unique circumstances, so it’s best to speak with a financial professional first. Reach out, we’re here to help.

 

Uplevel Wealth is a fee-only, fiduciary wealth management firm serving clients in Portland, OR and virtually throughout the U.S. 

3 Reasons for Optimism Among Market & Economic Uncertainty

Optimism Among Uncertainty

It’s no secret that this year has been full of market and economic uncertainty. Inflation, the Fed, geopolitics and more continue to be on most of our radars. 

Perhaps the most important way to stay grounded amongst the uncertainty is by being familiar with the facts and figures that drive markets in the long run, rather than the speculation and opinions that occupy headlines for a day or two. 

As a result, we see three reasons to remain optimistic. 

 

Corporate Earnings 

Corporate Earnings are the link between the economy and markets. Although markets can fluctuate in the short run, rising earnings are what allow stocks to create wealth for investors over full business cycles.

While it is still early in the current earnings season, with about a quarter of S&P 500 companies having reported, overall earnings are exceeding beaten-down expectations. Despite inflation and slower growth, which have directly impacted corporate earnings reports, the numbers remain positive. A commonly used metric is Earnings Per Share (EPS), which is how much money a company makes for each share of its stock. Consensus estimates are that S&P 500 EPS will grow 6.9% over the next twelve months, which is still healthy despite being below the average of 7.9% since the mid 1980s. 

Not only do growing earnings continue to support market valuations, which are the most attractive in years, they are a reason to stick to appropriate asset class allocations in portfolios. Since not all sectors can be expected to perform well at all times, staying diversified remains important.

 

Markets Have Done Well Across Political Parties 

With upcoming midterm elections on November 8th, it seems natural to assume that politics could impact stock market returns. After all, elections do affect economic policies which directly impact specific industries and companies. However, how this impacts broader financial markets is often not as straightforward.

History shows that markets have done well in a variety of political configurations under both Democrats and Republicans and, conversely, that poor market conditions often have little to do with politics. 

The chart below shows that although there are variations between party configurations, they are all quite positive. It is not the case that one party’s leadership always results in poor economic growth or market returns, and vice versa.



The full economic cycle is what matters for investment returns, and this often has less to do with who’s in office than other factors that drive growth. For instance, in the 1990s, it’s unlikely that the Clinton administration and the Republican controlled Congress at the time were the main drivers of the tech boom of that era. Similarly, it’s hard to argue that the George W. Bush White House or the split Congress at that time were the reasons for the subsequent bear market of the early 2000’s or the later housing crisis. These were driven by technological and economic trends that were larger than politics.

Perhaps most importantly, economic policies are difficult to evaluate and often work with a lag. There are always pundits – on both sides of the aisle – predicting doom and gloom based on the other party’s proposals. While there are policies that can promote long-run investment spending and labor force growth, the record shows that it’s incredibly difficult to predict the economic impact of any particular proposal. 

For instance, while historical corporate tax cuts may have resulted in short-term jumps in the stock market, the true economic benefits occurred over years and decades across political cycles – and far beyond the attention span of short-term traders and media coverage.

 

IRS Updates for 2023 May Help Many Households

While marginal tax rates still remain at historic lows, the recently announced IRS adjustments to income tax brackets and the standard deduction could also help many of us. Each year, the IRS makes adjustments to match the average year-over-year increase in what is known as the “Chained Consumer Price Index,” so that taxpayers don’t “creep” into higher tax brackets due to inflation. The IRS has announced 7% increases to these ranges and deductions for the 2023 tax year. As a result, many workers could see higher take-home pay starting January as payroll deductions decrease. These excess savings will be a welcome change even if they don’t fully offset higher prices.

In addition to income tax brackets and the standard deduction, the IRS also made inflation adjustments to many employee benefits, including 401(k) contribution limits. 

For employees who participate in 401(k), 403(b) and most 457 plans the limit for 2023 is increasing to $22,500. Employees 50 and older are eligible for a $7,500 catch up contribution, bringing the total contribution amount to $30,000. IRA contribution limits didn’t see as much of a lift, with a $500 bump from 2022 to a total of $6,500. IRA catch-up contributions for those 50 and older remains unchanged at an additional $1,000. 

For those who can swing it, maxing out these contributions can help you save more in taxes. 

 

We’re Here to Help

If you have questions about how the IRS updates may impact you, or are ready to put a plan for your future in place, reach out… we’re here to help. 

 

Uplevel Wealth is a fee-only, fiduciary wealth management firm serving clients in Portland, OR and virtually throughout the U.S. 

How To Take Advantage of New Energy-Efficient Tax Rebates and Incentives

Save money with these green initiatives

As part of President Biden’s recently passed Inflation Reduction Act, homeowners have a great opportunity to make energy-efficient upgrades to their home while saving money in the process. 

 

Some Background

It’s estimated that residential homes consume 21% of U.S. energy consumption, with poor insulation, leaky windows, and inefficient heating and cooling systems contributing to excess energy use and waste. 

The Inflation Reduction Act aims to stem this waste, in the process lowering demand on electrical grids and ultimately reducing carbon emissions, by providing homeowners with financial incentives to make energy-saving upgrades.  

Here’s what you should know about the new programs and how much you could potentially save.

 

What Home Improvements Are Covered?

Whether you’ve been contemplating a full remodel or just a few upgrades to your current home, it’s likely you’ll have the opportunity to make some energy-efficient improvements covered under the new programs.

Solar Panels – The installation of rooftop solar panels has been a popular upgrade among homeowners in recent years, especially in sunny states such as Hawaii, California, and Nevada. But making the switch to solar comes at a high price, with upfront installation ranging between $15,000 to $25,000.  

The Residential Clean Energy Credit provides homeowners who install solar panels 30% of the installation cost back in the form of a tax credit, meaning a $15,000 installation would result in a $4,500 reduction in Federal taxes owed when it comes time to file. The credit applies to systems installed after December 31, 2021 and remains in effect through 2032. 

Energy-Efficient Windows and Doors – Beginning in January 2023, the installation of new exterior doors and windows also comes with a 30% tax credit. The maximum allowable credit per year for windows and skylights is $600, $250 for a single door, and $500 towards exterior doors in a single year. 

While these amounts are relatively small, the credits can be claimed in multiple years if the upgrades are done in a staged approach.

Heat Pumps and Heat Pump Water Heaters – Also starting in January 2023, the installation of a heat pump or heat pump water heater can result in both a tax credit and a rebate.

The tax credit is available to all taxpayers, regardless of income, up to 30% of the cost, with a maximum credit of $2,000. Rebates of up to $1,750 towards a heat pump water heater and $8,000 towards a heat pump are also available.

The catch, however, is that rebates are only available for taxpayers making no more than 150% of the “area median income” as determined by the Department of Housing and Urban Development. This online tool can help you determine income in your local area and whether you qualify.

Insulation, Ventilation, and Air Sealing – While not the most exciting of home improvements, the EPA estimates that the average homeowner can save 15% on heating and cooling costs by air sealing their homes and installing better insulation.

Rebates of up to $1,600 for these types of improvements will be available in the new year, with “area median income” limitations also applying.

Electric Appliance Upgrade Rebates – Whether your old appliance kicks the bucket or you’re just ready for an energy-efficient upgrade, the purchase of a new electric appliance may also result in a rebate.

The purchase of an electric stove, range, oven, or clothes dryer is eligible for a rebate of $840, and up to $1,750 towards an electric water heater. 

Though income limits once again apply, these rebates are intended to be given immediately at the point of purchase, meaning that retailers like Home Depot or Lowes will be processing the rebates with guidance from the state.

Tax Credits for Electric Vehicles – While not home related, the Inflation Reduction Act adds a new credit for the purchase of a used electric vehicle up to 30% of the vehicle’s price, up to $4,000, starting in 2023.

This credit can also be combined with the Clean Vehicle Credit of up to $7,500 on the purchase of a new all-electric or hybrid plug-in vehicle, which has been extended to 2032. 

Qualifying for the credits depends on income and certain criteria the new or used vehicles must meet:

New Electric Vehicle Used Electric Vehicle
Who Qualifies?
 Single tax filers with a modified adjusted gross income under $150,000 Single tax filers with a modified adjusted gross income under $75,000
Married couples filing jointly with income under $300,000 Married couples filing jointly with income under $150,000
Individuals who file as head of household with income under $225,000 Individuals who file as head of household with income under $112,500
What Vehicles Qualify?
 Sedans under $55,000
Vehicles that are at least two years old and under $25,000
SUVs, trucks, and vans under $80,000

 

How Do I Get Started?

If these credits and rebates are just the incentive you need to get started on some home improvement projects, the first step is prioritizing which projects you’d like to get done and the timeframe. 

Because many of these credits can be taken over multiple years, you may want to maximize your tax savings by spacing your projects out over several years. Replace windows in one year and doors the next. 

Since many credits and rebates have maximum income thresholds, it makes sense to get an idea of what you might qualify for. This handy calculator allows you to see which incentives you qualify for based on the type of upgrades and your income. 

Though most incentives start January 1, 2023, each state will determine how the rebate programs are operated. For Oregon residents, sites like the Energy Trust of Oregon and the Oregon Department of Energy’s incentive page will provide the latest information. 

 

We’re Here to Help

Before embarking on any large or costly home improvement, even with the potential to receive some money back, we always encourage a thorough discussion with our clients beforehand to see how these projects will impact their financial plan.

If you have questions about how energy-efficient upgrades might benefit you, or are ready to put a plan for your future in place, reach out… we’re here to help. 

 

Uplevel Wealth is a fee-only, fiduciary wealth management firm serving clients in Portland, OR and virtually throughout the U.S. 

Are We In a Recession? If Not, Is a Recession Coming?

Recession Fears

With high inflation, the Federal Reserve raising interest rates, and the economy contracting for two consecutive quarters, the possibility of a recession doesn’t seem far-fetched. 

Contrast that with a strong dollar, job market, and resilient corporate and personal spending, and there is room for debate. 

What do we know? Economists are notoriously bad at predicting recessions, and typically a recession isn’t technically declared until many months or even years after it actually started. There’s a possibility we are already in one now.

While it’s difficult to say for certain “are we or aren’t we,” here are 4 things you should know. 

 

1. What is a recession? 

For something with as many tentacles and implications, you’d think we’d have a pretty solid definition of “recession” by now. Spoiler alert: we don’t. In fact, there is no precise definition. Instead, it’s up to the National Bureau of Economic Research, a nonprofit academic group, to determine. On its website, NBER defines a recession as “a significant decline in economic activity that is spread across the economy and lasts more than a few months.” 

It sounds straightforward in theory but is much more nuanced in practice. 

Take COVID. NBER declared the start of COVID as a recession even though it lasted only a few months. The NBER academic committee considers a range of economic data and typically makes the determination months or even years after a recession ends. It’s entirely possible that a short recession could be over before it’s officially declared.

While few people are excited about the prospect of entering a recession, they are a normal part of our economic cycle. From a historical perspective, there have been 15 recessions in the last 100 years, and they’ve lasted an average of 17 months. In about 70% of those instances, stock returns were positive two years after the recession began. 

Source: Dimensional Fund Advisors 

 

2. What should people be doing right now to prepare for a recession? Is there a specific list of financial goals to follow?

The saying “cash is queen” bodes true for many during a recession. We customize the amount of liquidity recommended to clients based on their personal circumstances.  

Are you contemplating entrepreneurship? Run some projections on what it could take to make the leap and be proactive. Extra cash and liquidity makes a lot of sense here. 

If you’re in a highly paid specialized position and replacing your income could take longer if you lose your job, consider a backup to your emergency fund. A home equity line of credit could make sense for you, and it’s best to obtain it while still employed.

Also, think about your job and how your role or company might be impacted by a recession. If you feel there is risk you might be laid off, you may need more money set aside than standard rules of thumb like 3-6 months. 

Lastly, don’t panic. The job market has continued to be strong and there are some signs that inflation may be cooling off. What you shouldn’t do is make moves based on recessionary fears, as recessions don’t last forever. 

 

3. Are there smart investments people can be making right now?

It’s important to remember that markets are forward looking, and oftentimes they react before investors even know we are in a recession. This could explain what we saw in roughly the first half of the year when markets were down 20%. They made a nice recovery in July, which could be a signal that the risk of a recession isn’t as great as markets once thought. 

Another way to think about this question is what not to do:

  • Don’t try and time the market; the data just doesn’t back it up and it’s exceptionally difficult to do, even for professionals. 
  • Don’t fall for ‘get rich quick’ fads – while it might be tempting to try to get rich off the next GameStop or Tesla, the best approach to building wealth is to invest in low cost index funds that invest broadly in companies here in the U.S. and around the globe. 

Good investing doesn’t have to be sexy or overly complicated. Downturns and volatility are part of investing–it’s normal for your portfolio to be down every 4 or so years. As a long term investor, it’s a bit easier to shift your view and see this period of time as an opportunity. 

Regardless of what the market is doing, it’s a good idea to pay yourself first via a retirement plan or brokerage account. Investing in yourself by enhancing your health, relationships, personal and professional fulfillment and growth will always be in style and pay some of the highest returns. 

 

4. If someone does get laid off, what are key financial tasks they should take care of right away?

Layoffs are not easy. Some friends and clients in the tech space have experienced this lately, and we certainly feel for them. 

One of the first things to consider is medical coverage. Prior employer coverage can extend via COBRA, switching to a partner or spouse’s plan, or enrolling in the state’s insurance marketplace. Being laid off counts as a “qualifying event,” which means you can enroll in a private health plan outside the normal open enrollment window. Additionally, if you will have lower expected household income for the year you need coverage, it’s worth looking into the premium tax credit.

Evaluate your options with your workplace retirement account. You can usually just keep your money in the same plan, roll it over to a new employer’s plan, or roll it into an IRA or Roth IRA for after-tax contributions. Take a look at your old plan’s investment options to see if low-cost index funds are available. You’ll also want to look at the fees you’d pay to keep your money in the 401k plan — there is no need to pay high fees to get access to quality funds. Also, where is the rest of your money? Is it necessary to have it spread across multiple accounts? How can you simplify? Are you being as tax efficient as you can? 

Assess the benefits you may no longer have and evaluate what your options are now. Do you have a life insurance policy independent of an employer? Do you have unused Flexible Spending Accounts or Health Savings Account funds?  Make sure you find out what happens once you are no longer an employee. Also, double check your last payroll statement with your account balances. Get paid out for vacation, sick time, and file for unemployment. 

 

Keep Calm and Carry On

While the uncertainty surrounding recession, continued inflation, and potential job layoffs can be stressful, the most important thing to do is not panic. Building a solid emergency fund, investing wisely, and creating a plan unique to your personal situation is the best approach to weathering whatever future storms we may face. 

If you’re not sure where to start, or whether the plan you have in place is solid, reach out to us – we’re here to help.

 

Uplevel Wealth is a fee-only, fiduciary wealth management firm serving clients in Portland, OR and virtually throughout the U.S. 

Margin for Error

Anika was humbled when respected financial journalist and veteran Wall Street Journal writer Jonathan Clements asked her to contribute a chapter to his new book, My Money Journey. In it, she details some personal obstacles and financial bloopers, including the money pit above.

Her story can be found on HumbleDollar.

 

An Estate Plan for Your Digital Assets? Yes, You Need One.

Money Pit

We’re all aware of the importance of having legal documents in place, such as a will or trust and advance directive. While your intentions for personal assets like grandma’s engagement ring or your childhood baseball card collection may be clearly spelled out, most people have given little thought to the legacy of their digital assets. 

The good news is that it doesn’t have to be complicated, and there are some easy steps you can take today to get started.

 

Your digital asset footprint is significantly larger than you think. 

Between email and social media accounts, subscription services such as Netflix, Hulu, and Prime, and cloud storage for photos, files, and digital music, most people have a meaningful digital presence. It’s estimated that the average person has over 100 online accounts and that number will only continue to grow. 

With the increasing popularity of online billpay and paperless statements, our finances leave less of a “paper trail” than ever before, meaning that ensuring family members or executors have the ability to access accounts and pay bills is critically important.

 

Writing down your passwords isn’t enough. 

Perhaps you’ve diligently tracked your online presence with a list of accounts and their associated usernames and passwords.

Aside from the obvious safety concerns and challenges keeping up with sites that require frequent password changes, providing someone with this information doesn’t grant them legal authority to access your digital assets.

In fact, they are likely violating most sites’ Terms of Service Agreements, which typically do not allow a transfer of ownership or use once the original user has died. It’s even possible that heirs could be found guilty of “hacking” a loved one’s account, despite the most honest intentions.  

 

Enter RUFADAA…

Adopted by 46 states, the Revised Uniform Fiduciary Access to Digital Assets Act provides guidance on how a person’s digital assets may be accessed upon their passing.

RUFADAA grants an executor the same access to digital assets as the decedent had during life and is intended to allow an array of privileges, including access to photos, emails, contacts, and the ability to delete or modify social media accounts and pay final expenses. 

RUFADAA establishes a hierarchy of three “tiers” for how a person’s digital assets may be accessed after death.   

 

Tier 1: Online Tools

Some platforms allow users to designate instructions as to how their accounts should be handled in the instance of incapacity or death – essentially a digital “power of attorney” that can be changed or revoked at any time. 

Facebook’s Legacy Contact, Google’s Inactive Account Manager, and Apple’s iOS Legacy Contact take mere minutes to set up.

If you’re an iPhone user, you can set up a Digital Legacy Contact by going to “Settings,” tapping on your Apple ID profile at the top of the page, selecting “Password and Security,” then “Legacy Contact.” From there, select a Legacy Contact who can access your phone in the case of your death.

We’re also big proponents of everyone adopting a secure password manager like LastPass or 1Password. Both enable you to share designated passwords with family members in a secure fashion.  

We encourage you to take these easy steps now and see if similar designations are available on other platforms you use.

 

Tier 2: Legal Documents

If you have not made any designations directly with an online provider, or the option to do so is unavailable, an attorney can help you incorporate digital planning into your will, trust, or power of attorney.

You can provide detailed instructions as to what access should or should not be granted to an executor or surviving family member in the event there are certain accounts, photos, or emails you wish to share or remain private. 

Some people opt to designate a “digital fiduciary,” separate from your executor or personal representative, who will be solely responsible for the management of your digital assets. This person should be provided a copy of the document designating them as such and have the tech savvy necessary to navigate the role. 

It is important to know that designations made through online tools, such as those listed in Tier 1, supersede destinations made in legal documents, so make sure you keep both updated as your desires and life circumstances change. 

 

Tier 3: Terms of Service Agreements

We’ve all become accustomed to scrolling through the “fine print” every online provider inevitably requires and clicking “I agree.”

Unless you’re an attorney or glutton for punishment, most people fail to understand what they are agreeing to in these Terms of Service, especially in the case of death. It’s not uncommon for some providers to stipulate that a user’s account is immediately terminated upon death, meaning it’s especially important to make sure legacy instructions are made directly with the provider (Tier 1) or clearly spelled out in your estate planning documents (Tier 2). 

 

Estate Planning for Modern Times

With so much of our lives spent online these days and important assets moving beyond just the tangible, it’s critical to have a plan in place. The good news is that it doesn’t have to be difficult or expensive to start.

If you have questions about your unique situation or want help getting a plan in place, reach out. We’re here to help.  

 

Should You Buy or Lease Your Next Car? Five Questions to Help You Decide

Buy or lease a new car

The average age of a vehicle on American roads reached a new record of 12.2 years in 2021. Advances in quality and technology may be partly responsible for people hanging on to their vehicles longer than ever before. Shortages in new and used cars, combined with record high prices at the car lot, may also be partly to blame. 

Computer chip shortages and supply chain disruption have caused new car prices to soar 26% from where they were pre-pandemic, leaving dealerships with low inventory on the lot and little reason to offer generous incentives to new car buyers. 

Perhaps your current vehicle is older and you’re worried about future expensive repairs. Or, maybe record prices at the gas pump have you ready to make the switch to electric. Navigating today’s vehicle market takes a bit more thought and planning to make the right decision for your personal circumstances. 

There are advantages and disadvantages to leasing vs. buying, and the variables to consider aren’t just financial. 

Here are five questions to ask yourself before you hit the car lot.

1.  Do you prefer a new car every few years? 

If having the latest and greatest technology, newest safety features, or even that new car smell is important to you, leasing may be your best option. The typical lease lasts two to four years, giving you the opportunity to switch to a newer model at the end of your lease term. Many people like the short-term commitment of leases, the warranty and repair coverage, and the use of a vehicle in its highest stage of depreciation. 

2.  Do you drive a significant number of miles each year? 

The typical lease allows for a limited number of miles for the car to be driven each year, usually in the neighborhood of 8,000 to 10,000. If you have a long commute or your ideal vacation involves long stretches of open road, strict lease mileage limits could lead to expensive per-mile overage and wear-and-tear fees. Purchasing the vehicle is the better option if you have any concerns about how much you might drive.

3.  Are you trying to minimize your monthly payment? 

A common reason for leasing a vehicle is a lower monthly payment than one would typically have if the same vehicle was financed, especially in the case of luxury cars. In our current hot vehicle climate, however, many automakers are no longer offering generous lease incentives. The monthly cost to lease versus finance is now more comparable, if not more expensive in some cases. 

4.  Are you a business owner? 

The financials of leasing versus buying are potentially different if you need a vehicle for business use. You may be able to deduct certain leasing and operating costs, in addition to minimizing upfront purchase costs. Again, it’s important to be mindful of the amount of use a leased vehicle would receive in the course of your business activities and whether you risk exceeding annual mileage limits.

5.  How important is flexibility and control to you? 

Lease terms have strict parameters about what you can and cannot do with your “rented” vehicle. Making any modifications to the vehicle, using the car in a rideshare like Uber or Lyft, or even driving across the border to Mexico are strictly prohibited. Terminating a lease early can also come with high costs and penalties. Buying provides complete control over how long you own the vehicle, discretion on how it’s used and customized, and the value you receive when you ultimately sell or trade-in the car down the road. 

Before heading out to the car dealership, it’s important to give some thought to how you plan on using your new vehicle, your current and future circumstances, and how much control you wish to have. The decision between leasing versus buying is not just one of finances. 

If you need help making an important decision in your life, reach out to us at Uplevel. We’re here to help.