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. 

3 Ways to Uplevel Your College Planning

THERE’S NO SINGLE, right way to legally crack the college admissions and financial aid systems. It’s up to teenagers and their parents to do the necessary work.

Still, it helps to have a tour guide—which is what you get with The Price You Pay for College, the new book from New York Times financial journalist Ron Lieber. Lieber’s book discusses why college costs so much, digs into the allure of elite schools, uncovers hacks that may not really be hacks, and talks about how to plan and pay for college. Here are three key ideas that I took away from the book:

1. Families need to talk. Teenagers and their parents should discuss money, core values and priorities. That’ll help students identify what they want from their college experience.

Sprinkled throughout Lieber’s book are thought-provoking questions. For example, what’s your definition of success? What is college for? Is it about learning? Building connections? A means to a job? If a college education is a means to a job, at what price? What can the family afford? Where will the necessary money come from?

If the value of a college education to your family is a job, you might wonder just how important an elite school is for obtaining a more coveted position. Lieber’s research suggests it’s not as critical as you may imagine, with alumni from top schools obtaining between 13% and 58% of prestigious jobs, depending on the occupation. What’s apparent is the benefit of the doubt accorded to applicants who have the most selective schools on their resume. Certain gatekeepers have a vested interest in continually building and promoting their own networks, which can often start with their alma mater.

Lieber doesn’t pretend to have a formula that calculates the actual value of any given college experience. Instead, he encourages us to reflect on how our feelings influence such an important and expensive decision. In his decades of reporting, Lieber “has never come across a consumer decision that inspires more confusion and emotion than this one.”

2. The devil is in the details. Once you outline what you’re looking for from the college experience, start digging for data. Lieber’s book offers resources to help uncover the data that does exist. One problem: The numbers aren’t standardized across schools and aren’t always easy to come by or interpret. For example, mental health is becoming more top of mind for many families, with nearly a quarter of new undergraduates now classified as disabled, largely due to a mental health diagnosis such as depression or anxiety. Campus resources may be very important to these families, so it’s worth determining how long it takes to schedule an appointment for counseling, who the providers are and what type of support organizations are available.

The clearer you are on what success means for your child and family, and what value a college offers, the more you can cut through the clutter and eliminate details that aren’t a priority. In a decision that’s anything but easy, the more noise you can eliminate, the better.

3. The game has changed. It’s probably not that surprising—and yet still alarming—to learn that consultants play a big role behind the scenes. They help colleges to find students, to determine what to charge them and to prod families to follow through. Discounts to attract students are often offered in the form of merit aid.

It’s tough to understand the financial aid system, let alone predict how much merit aid you’ll receive—assuming, of course, you get in. Merit aid doesn’t consider your financial situation, like need-based financial aid does, so it’s entirely possible for wealthier families to be offered discounts, provided the student has what the college is looking for. Colleges use algorithms to predict what kind of discount is needed to get a particular student to say “yes.” This is all guided by consultants, who “help schools leverage information about your family to optimize your discount,” Lieber writes.

He gives us valuable hints about how to uncover more about merit aid than the basic information listed on a school’s website, and it starts with a school’s Common Data Set. The easiest way to find this information is by Googling “common data set” and a college’s name. Among other items, look for the number of people who received merit aid, despite no financial need, and the range of test scores for admitted students. If your student’s scores rank high for a particular college, there’s a greater chance of merit aid. Schools claim their award-giving process is based on more than test scores and other data, and it likely is. Still, checking the numbers gives families a shot at determining how a college’s algorithm is likely to rank their prospective student.

Want to talk more about your specific situation? Reach out to us today.

This article first appeared in HumbleDollar.

 

 

Did You Receive a Child Tax Credit in July? Here’s What You Need to Know

You may have noticed an unexpected deposit in your bank account (or check in your mailbox) last month from the Federal Government — the first installment of six advance Child Tax Credit payments to come. Congress increased the credit from its previous level of $2,000 per child to a maximum of $3,600 per child. 

Key takeaways of the Child Tax Credit:

  • The increased Child Tax Credit amount is only for 2021 and advance payments will only be made through December, so be prepared for deposits to stop January 2022.
  • The amount of Child Tax Credit your family receives is based on the number of children you have, their ages, and your income.
  • Be aware that the Child Tax Credit may impact your taxes when you file in 2022, potentially reducing your refund or increasing the amount of tax you owe. 

Tax credits for families with children are nothing new, but this year’s advance payments have some unique nuances. 

Families can expect to receive five more payments before the end of the year, which represent half of the estimated total credit owed. Any remaining credit will be determined once taxes are officially filed for 2021. Payments are being sent to the bank account on record with the IRS (where your refunds have been sent) or mailed if an account is not on file. 

 

How was my Child Tax Credit calculated?

The first consideration is a child’s age, with each child 5 and under eligible to receive a maximum tax credit of $3,600, and children ages 6-17 receiving up to $3,000. 

Here is how this breaks down:

  • A monthly payment could be as much as $300 for a child 5 and under ($3,600/2 = $1,800, split into 6 equal payments of $300) and/or
  • $250 for children ages 6-17 (same calculation using a $3,000 maximum credit).  

 

Why was the Child Tax Credit I received so much smaller?

The Child Tax Credit is subject to income phase outs, meaning higher income households could receive reduced payments or none at all. The estimated payments are based on household income reported on the most recently filed tax return. 

There are two levels of phase outs based on income–the first can reduce 2021’s “special” one-time Child Tax Credit and the second can reduce the regular $2,000 Child Tax Credit. The phase outs can be confusing, so here’s a breakdown:

 

Filing Status MAGI Subject to Phase Out 1 (additional 2021 credit) MAGI Subject to Phase Out 2 (regular $2k credit)
Single $75,000 $200,000
Married $150,000 $400,000
Head of Household $112,500 $200,000

 

Each phase out level reduces the Child Tax Credit by $50 for each $1,000 by which income exceeds the threshold for a given tax filing status. For example, a married couple earning $250,000 would probably not receive any additional Child Tax Credit for 2021 but would still qualify for the regular $2,000 credit, receiving a portion of it through upfront payments.

 

Is the Child Tax Credit going to impact my taxes?

Because the Child Tax Credit is an estimated upfront payment, you may be in for a surprise when it comes time to actually file your 2021 tax return. 

If this year’s income ends up higher than 2020’s, you could end up paying back some or all of the credit when it comes time to file, resulting in a smaller refund than expected or even owing money to the IRS. 

The converse also holds true. If you experience a drop in income this year but receive a smaller Child Tax Credit based on 2020’s higher income, you’ll receive a larger credit amount when tax time rolls around.

For many families, income levels for the remainder of the year may still be unclear. If you’re concerned about potentially exceeding last year’s levels and want to minimize the risk of a surprise at tax time, we recommend opting out of Child Tax Credit prepayments. 

To opt out, use the IRS’s Child Tax Credit Portal, which involves setting up an online account with the IRS and verifying your identity. Be prepared — the process requires uploading a copy of your driver’s license or passport and can be rather glitchy. Also, if you are married, both you and your spouse will need to unenroll from advance payments to shut off the tap completely. 

 

Help for Families

With nearly 1 in 7 children in the U.S. living in poverty, this year’s increased Child Tax Credit will be a lifeline for many struggling families. For those in a more fortunate position, having an understanding of how you might be impacted and the steps you can take to avoid a surprise at tax time is valuable. 

Want to talk more about your specific situation? Reach out to us today.

 

Three Tips for Anyone Thinking of Quitting Their Job

Before the pandemic, many professionals believed working remotely would help them find more balance. They craved increased autonomy, believing it would help provide renewed zest for their professions and lives.

Then came the pandemic and the realities of remote work. For some people, it wasn’t as glamorous as it sounded. They’re hardly alone. In fact, many professionals are now quitting their stable — but stressful — jobs in favor of pursuing other opportunities, self-employment, starting businesses, or even early retirement and travel.

If you’re among them, consider three things before making your next move, found in Anika’s full Business Insider article.

Possible Tax Changes Ahead – Make a Move or Sit Tight?

During last year’s Presidential campaign, then-candidate Joe Biden ran on a platform of expanded social programs paid for, in part, by proposed tax increases on wealthy Americans. The American Family Plan announced at the end of April would expand paid family leave, increase access to childcare and prekindergarten education, and make community college tuition-free.

Funding for these programs would be met by sweeping reforms to current tax law, including an increase in top capital gains and income tax rates plus adjustments to rules surrounding inherited assets. Given these potential changes on the horizon, how might you and your family be impacted and should you take action today? Let’s first take a look at some of the proposed changes:

 

Capital Gains Rates
Under current tax rules, the sale of an asset, such as a stock or mutual fund, real estate, and even collectables like coins or jewelry are subject to tax on the gain (less exemptions for certain real estate transactions). Federal long term capital gains rates range from 0% for those in the lowest income tiers to a maximum of 20% plus a 3.8% Medicare surtax for the highest earners. Under the proposed plan, households with incomes greater than $1 million in a given year would pay an increased capital gain rate of 39.6% plus the 3.8% Medicare surtax for a total rate of 43.4%. Taxpayers would also be on the hook for any state or local taxes, depending on the rules of their resident state.


Marginal Income Tax Rates
The Tax Cuts and Jobs Act (TCJA) passed by former President Trump in 2017 reduced the top Federal tax rate for earned income to 37%. President Biden’s plan would restore the top rate to its previous level of 39.6%, in addition to levying payroll taxes on individuals with incomes over $400,000 per year. It would also cap deductions for high income earners, limiting what can be written off on tax returns.


Step-Up in Basis
Individuals who inherit assets currently receive a “step-up” in basis to the fair market value of the asset as of the date of death of the original owner, meaning heirs only pay tax on any appreciation enjoyed between when the assets were inherited and later sold. To discourage people from hanging on to appreciated assets until they die and escaping taxation on the appreciation, President Biden’s proposal would eliminate the step-up in basis and tax inherited assets as if they were sold at the original owner’s death, after applying a $1 million exemption per individual.


What does this mean for you?
Though the vast majority of Americans will not be impacted by these proposed changes, individuals with appreciated investments or real estate may face a much larger tax bill than expected when it comes time to sell or pass down assets. As tempting as it may be to get ahead of potential tax increases in an attempt to “lock in” today’s lower rates, it’s important to remember there are many unknowns that lie ahead as the American Family Plan works its way through Congress.

Instead of making drastic moves today based on what might happen in the future, now is a great time to revisit your plan for appreciated investments, the timing of income, and intentions for passing assets to heirs.

Want to talk more about your specific situation? Reach out to us today.

Women Have What It Takes to Buy a Home in Today’s Hot Market

In today’s competitive real estate market, it takes more than just money to claim the keys to the hot property everyone wants.

“From understanding purchaser responsibilities to realistically assessing risk tolerance, savvy buyers best navigate fast-paced bidding wars,” says Carey Hughes, principal broker with Keller Williams Realty Professionals in Portland, Oregon.

This holds true for would-be homeowners across the board.

But as more women take the lead in purchasing homes, they face an uphill battle getting there.

To read more, check out Anika’s full Business Insider article.