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.

Is Your Concentrated Stock Holding Worth the Risk?

concentrated stock holding

 

Earlier this month, stock of Facebook’s parent company Meta dropped a whopping 26%, its biggest one-day decline ever. Mark Zuckerberg, Meta’s chief executive, saw his personal “paper wealth” decline by a staggering $31 billion, more than the entire market capitalization of companies like Twitter ($30 billion) and Delta Airlines ($26 billion). 

Even after this precipitous drop in wealth, he’s still the tenth richest person in the world and it’s unlikely he’s had to make any concessions to his lifestyle. Still, he provides a valuable lesson for us all. 

At Uplevel Wealth, we’ve encountered our fair share of clients whose wealth is heavily concentrated in a single company’s stock. If you find yourself in the same position, here are three things you should consider.

 

1. What’s the Risk?

Investing in a one company’s stock is tremendously risky, as you are concentrating your wealth in the future success of a single company or industry. It can be challenging to see this risk, especially when a company’s stock has performed well recently.

The stock market’s past is littered with former “heros” turned “zeros” – Enron and WorldCom being two of the most famous. While these calamitous crashes garner lots of attention, a more common risk of a concentrated holding is poor performance for a prolonged period of time. 

Henrik Bessembinder, a professor at Arizona State University, looked at stock market performance going back to 1926. His research found that only 86 stocks, or 4% of companies were responsible for half the stock market’s wealth creation over 90 years. 

The other 96%? Their performance was no better than 1-month Treasury Bills, a government-backed investment whose return is only slightly higher than cash. 

As seen in the recent Meta example, individual stocks can also be incredibly volatile, losing significant value over a single earnings report, change in government regulation, or company scandal. 

This volatility is especially dangerous for investors who rely on their portfolios for income, expenses like college tuition or a home purchase, or are making future life decisions based on their current net worth. 

High volatility greatly increases the risk that stock will need to be sold at some point in the future when its price is depressed, and that the value is not there when it’s needed most. 

 

2. How Much is Too Much?

Common rules of thumb suggest limiting a single stock position to no more than 10 or 20% of your investable assets, but the “right” amount is very specific to your unique circumstances.

Like many clients we encounter, a concentrated stock position has often been amassed while working as an employee for the company in question. Stock options, RSU grants, and discounted employee stock purchase plans are common compensation vehicles and can quickly grow to a sizable portion of your net worth. 

Employees also have to be mindful of their own “human capital” investment and the degree to which it, too, is tied to your current employer. This may further reduce the stock exposure you should prudently have.

Rather than relying on one-size-fits-all percentages, we instead evaluate the amount of a single stock position, if any, that makes sense for our clients’ unique circumstances. If the future performance of the stock holding in question is sizable enough to sway the success or failure of a client’s future plans and goals, we often advise a significant reduction. 

For someone like Mark Zuckerberg, his astronomical wealth affords him the ability to assume greater stock risk without threatening financial ruin – a position most of us aren’t lucky enough to find ourselves in.

 

3. What’s the Best Way to Start?

Reducing a concentrated stock position can present its challenges, both on a financial and emotional level. 

One of the main hesitations of selling stock, presuming it has appreciated considerably, is the potential tax bill for doing so. Though long term capital gains rates are at historic lows, with the top Federal rate at 23.8% and state rates varying, many investors see taxes as the primary obstacle to diversification. 

In reality, however, reducing the inherent risks of holding a concentrated position should far outweigh the tax implications of selling. Afterall, isn’t it better to pay taxes because of investment gains rather than no taxes because of losses? 

It’s also common for investors to have emotional ties to their stock holding. Perhaps you have been an employee of the company for many years and have great confidence in its future direction. Or, you were gifted the stock by a beloved family member and feel a sense of duty to keep it. 

While both are understandable from an emotional perspective, mixing emotions and investing rarely turns out well. Recognizing this, or working with a competent advisor who can help you work through your hesitation, provides the best probability of financial success.

From a mechanics perspective, the fastest way to reduce the risk and volatility associated with a large stock holding is to sell it all at once. As discussed above, this can often be impractical. 

At Uplevel, we work with our clients to create a plan for diversification. Whether that means spreading gains over several tax years, picking monthly or quarterly dates to sell a specified amount, or setting price targets at which trades will execute, creating a disciplined plan is key.   

 

Protect Your Wealth

While concentrated stock holdings can be a great way to build wealth, diversification is the best way to maintain it. 

Do you need help creating a plan for your concentrated stock position? Reach out to us at Upevel. We’re here to help. 

 

What to Do if Your Identity is Compromised

According to Consumer Affairs, the U.S. experienced a 311% increase in identity theft victims from 2019 to 2020. This is partly due to the number of people working from home. Working on your own devices and away from corporate networks can provide an easier and more lucrative path for attackers. 

To minimize the damage, here are 7 steps to take if you find yourself a victim of identity theft. 

  1. Freeze your credit 

Initiate a credit freeze at all three credit bureaus, including Experian, TransUnion and Equifax as soon as possible. It’s free to do so and you can lift the freeze at any time or for just a specific time period, which is helpful if you are applying for new credit. 

It’s also a good idea to add a credit freeze for your children, as minor identity theft can go undetected for years. A good overview and steps to do so can be found here, as the process is a bit more involved and can’t be done online.   

  1. Place a fraud alert on your credit reports 

In addition to a credit freeze, you can also place a fraud alert on your credit report by contacting any one of the three credit bureaus above. The credit bureau you contact has to inform the other two and place an alert on your credit report. This alert is active for one year. It will require creditors to verify identity before opening new credit, whereas a credit freeze is meant to keep new credit from being opened. 

  1. Report your identity theft to the Federal Trade Commission (FTC)

Identifytheft.gov is a free resource for reporting and recovering from identity theft. You input your information and type of theft and they create a personalized plan for you, including pre-filled letters and forms. Your Identity Theft Report also acts as proof that your identity was stolen. 

  1. Review your credit report for suspicious activity 

Once your personal information has been compromised, it can easily be circulated and sold on the dark web. This means identity theft often isn’t a one time occurrence, and could easily happen again, so it’s important to remain vigilant. 

By law, you are entitled to at least one free credit report from each of the three agencies annually. During the pandemic you can request a free weekly credit report. An easy way to do so is by utilizing annualcreditreport.com

Once obtained, look for any accounts you may not recognize. If you find any fraudulent information, reach out to the three credit bureaus to have it removed. The FTC has a sample letter you can reference to draft your request. Make sure to include a copy of your Identity Theft Report from step three.   

  1. Review all your accounts for unauthorized charges and notify companies of your stolen identity 

Early detection is key to lessening the headaches of identity theft, so it’s important to act fast. 

In addition to the Fair Credit Billing Act, which limits the liability for unauthorized credit card charges to $50, most credit cards have policies and protections in place for cardholders who are victims of identity theft.

ATM or debit cards fall under a different act which isn’t as forgiving, giving consumers as little as two business days to report unauthorized charges before the max loss limit increases. 

Moving forward, you can set an approval limit for all credit card charges. You would then be notified of any charges beyond the amount you set, requiring you to approve them via email or text. The notifications will tell you the retailer, address and the dollar amount, which can prove helpful in the event of future fraudulent charges.  

It also wouldn’t hurt to be proactive and reach out to other accounts, like your health insurance company, to make sure they are aware of the fraud in case someone attempts to use your policy. 

At Uplevel, we monitor our clients’ Charles Schwab accounts daily for any unusual activity. Schwab also doesn’t provide account information or allow any funds to be sent to third parties without client signatures and verbal confirmations. 

  1. Tighten security on your accounts 

Change your passwords and consider using a password manager like LastPass or 1Password that auto generates strong passwords for you. At the very least, refrain from using easy to guess passwords like your birthday. Don’t use the same password for multiple sites.   

It’s also a good idea to set up two-factor authentication across all your various accounts, including your email. This will require a password and another method of verification via a code sent to you by email or text in order to access an account. 

  1. Make sure your software is always kept up to date 

According to an Apple specialist, the first few days after a software update is released can be the most critical. This is when a vulnerability has been identified and most people haven’t updated their software yet, hence providing an opportunity to hackers.

Recovering from identity theft is possible, it just takes time, a good amount of legwork, and patience. We’re here to help.  

Five Ways to Uplevel Your End-of-Year Finances

End of Year To-Do's

Visit any Costco or Target (two of our favorites!) and you’ll see that fall is officially over and the holiday season is upon us. Not to despair, however. With a solid nine weeks left in 2021, now’s a great time to run through some important “to-do’s” and finish the year with your finances in good order.

To keep things easy, we broke it into our top five categories:

 

Be Mindful of Deadlines Ahead

With only a few pay periods remaining in 2021, make sure you’re on track to maximize your retirement plan contributions, especially if your employer offers a match. You can contribute up to $19,500 this calendar year to a 401(k) or 403(b), plus an additional $6,500 if you’re over age 50. 

If you want to increase contributions before the December 31st deadline, reach out to your HR department or payroll provider ASAP. It’s also a great opportunity to get next year’s contributions set up, as the maximum contribution amount jumps to $20,500 in 2022, for a total of $27,000 if you’re over 50. 

 

Use It or Lose It

A Flexible Spending Account (FSA) or Dependent Care FSA allows you to save pre-tax dollars throughout the year and use those funds to reimburse yourself for out-of-pocket expenses like copays, prescriptions, or child care expenses. While these accounts are a great way to save on taxes, typical FSA accounts have a “use it or lose it” provision whereby the balance in the account needs to be depleted by the end of the year. 

Employers do have the discretion to offer wiggle room and allow for some money to be carried over, usually $550. Due to the pandemic, the government is giving employers even more leeway, allowing for deadline extensions and larger balance carryforwards, including up to the total balance in an FSA. 

Be sure to find out what deadlines and limits apply to your plan, as you may want to contribute less money next year if you can carry-over an existing balance. If not, now’s the time to use up remaining funds and schedule doctor visits or stock up on FSA-eligible items, a handy list of which can be found here

 

Tax Planning Isn’t Just for April

While impending tax changes have been rumored since President Biden took office (check out our past blog posts on proposed tax changes) nothing has officially passed as of this post. Despite the uncertainty, it’s still a good idea to take a look at your income and deductions in 2021 and how they might compare to 2022 and beyond. 

If you were part of 2021’s Great Resignation and left your job, a Roth conversion in a lower-income year could be of great benefit. Conversely, if you were fortunate enough to receive a significant windfall, such as Restricted Stock Units (RSUs) vesting, other stock options, or a large bonus, make sure you are paying enough in estimated tax payments to avoid penalties come tax time. 

 

Double Check Your Portfolio

Though stocks have been on a winning streak for the last year or more, it’s worth taking a peek at your portfolio to see if any holdings are currently at a loss. Those investments can be sold and their losses used to offset capital gains realized this tax year or carried forward to a future tax year until depleted. 

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.

 

Make a Difference

Helping friends and family or supporting beloved charitable organizations can happen any time during the year, but there are some timing considerations if you’re looking to maximize your giving. 

This year, you can give up to $15,000 to another individual without making a dent in your lifetime estate and gift exclusion. If you are married and file jointly, that amount doubles to $30,000. Limits for 2022 have yet to be announced, but there is speculation that this amount will increase to $16,000 for single tax filers and $32,000 for married couples. 

Giving to charities has its own set of financial benefits and strategies vary depending on your circumstances. If you find a bit of excess cash in your bank account, here are a few options to consider:

  • Cash donations – Congress extended a provision of the CARES Act that gives single taxpayers a deduction of up to $300 for cash donations to some charities and $600 for married filing jointly. This applies even if you claim the standard deduction.
  • Strategic Donations – In addition to outright cash contributions, there are other options available such as donating appreciated stock, funding a donor advised fund, or a qualified charitable distribution (for those ages 70.5 or older). We can help determine which option is best for you. 

 

Reach Out

In the coming weeks, as you trade Pumpkin Spice Lattes for Peppermint Mochas, don’t forget to take a few moments to check-in on your financial position to make sure you’re taking full advantage of all the options available to you. We’re here to help.

 

Biden’s Tax Proposal: What Does It Mean For You?  

On September 13th, Democrats on the House Ways and Means Committee released their highly anticipated, and speculated, proposed tax changes. It’s unclear how they will ultimately shake out, as Democrats need almost every vote they have to advance the changes. Regardless, the proposed measures are quite different from what many anticipated.  

It’s also not out of the question for additional provisions to make their way in, like an expanded deduction for state and local taxes (SALT). While the current version of the bill may not be in final form, many of its features are likely to become law, set to go into effect in the new year. 

While the proposed changes are vast, we’ve narrowed the focus here to four main areas, which are most applicable to Uplevel clients. 

 

Higher Ordinary Income Tax & Capital Gains Rate

The highest tax brackets are changing… again. In 2018, the top federal rate income tax rate was reduced to 37%. Rates are  now potentially reverting back to former top rates of 39.6%, which would be ‘permanently’ reinstated beginning in 2022. 

That’s not all. The highest tax brackets will also be substantially compressed – meaning you hit higher tax rates at much lower incomes. Those earning $400,000 to $450,000, depending on filing status,will see the largest average increase in tax liability of 4.6%, as today’s 35% bracket becomes 2022’s 39.6% bracket.  

Those affected by the new rate will also see fewer deductions in the tax code today than previously, making their effective tax rate higher. It also appears that all ordinary income brackets are indexed for inflation, except the top brackets of $400,000 for single filers and $450,000 for married filing joint. 

The top long term capital gains rate is also set to increase 5%, from today’s 20% to a new 25%, again impacting lower income thresholds of $400,000 for single filers and $450,000 for married filing joint. The cherry on top would still be the 3.8% Medicare surcharge that some filers are already accustomed to. 

The proposed long term capital gains rate changes leaves little room for planning, as Congress isn’t waiting until the start of the new year. Rather, increased rates would be retroactive to September 14, 2021. If you sold appreciated securities prior to this date, the top rate would be 20%. A day later, you’ll pay an additional 5%. It’s also likely that year-end capital gains distributions from mutual funds and ETFs will be taxed under the new rates.

You may be thinking what we’re thinking – thank goodness we’re not tax planning software coders right now. 

What strategies, if any, can you employ if these bumps apply to you? High earners may want to accelerate ordinary income in 2021, prior to the rates increasing. The folks that would most likely benefit the most from this strategy fall into the compressed brackets, where they would move from 35% to 39.6% in 2022, instead of 35% to 37% in 2021. 

Additionally, high earners who are charitably inclined could consider postponing charitable donations to next year, when the associated tax deduction would be more beneficial.

 

Elimination of Backdoor Roths

A previously little-known strategy high income earners have used for years is likely on the chopping block, beginning in the new year. 

Earners who exceed income limitations for contributing directly to a Roth IRA have an alternative route: open a traditional IRA, make a $6,000 contribution (if under age 50), and convert it to a Roth IRA shortly thereafter. In doing so, there is likely little tax on the conversion, and it allows the money to grow tax free in a Roth. 

There’s more. In what’s often referred to as a “mega-backdoor” conversion, participants in 401(k) plans that allow after-tax contributions have been able to sock away as much as $58,000 a year into a 401(k) and then convert a good portion to a tax-free Roth account. 

Not anymore. The legislation would prohibit conversions of after-tax dollars in retirement accounts, including IRAs and 401(k)s. 

The upshot? If it’s been a part of your financial plan to date, then do it while you still can. A word of caution: it can get tricky, so it’s best to work with a planner or tax professional.  

 

Estate Tax Exemption 

Roughly four years ago, the estate and gift tax exemption was doubled and indexed for inflation, bumping this year’s exemption to $11.7 million. The proposed bill reduces the exemption back to about $6 million for 2022, again indexed for inflation. The top estate tax rate remains at 40%. 

What hasn’t found its way into the bill yet is an elimination of the step-up in basis at death, benefiting people well below the 1 percent. Think of grandma or grandpa passing away, leaving you with a home they bought for $100,000 that’s now worth $1,000,000. Without a step-up in basis, you could be looking at hundreds of thousands of dollars subject to capital gains tax.  

Estate planners have been busy helping affected clients use this year’s $11.7 million exemption to give money to heirs without fear it will be clawed back, as well as addressing additional proposals to clamp down on various types of grantor trusts

Before rushing to make drastic changes to your estate plan or irrevocable gifts to family members before rules potentially change, it’s important to ask yourself if these moves align with your long term intentions or are worth the increased complexity and cost.

 

Extension of Child Tax Credit 

Under proposed legislation, the current expanded Child Tax Credit is extended through 2025. 

For many families, these prepayments could trigger additional tax owed come next spring. They are based on your most recent tax return, which for many is 2020. If your income has risen this year or you have other applicable changes, you may have to pay back some or all of the prepayments. 

 

Uplevel Can Help

While much still remains unclear, chances are likely lower tax rates, in addition to some popular tax loopholes, are coming to an end. Uplevel can help you navigate the new rules and work with your tax and estate planning professionals to make adjustments to your plans. 

We’ve already gotten to work, proactively contacting clients who are affected. We’re here to help.