Taxes Archives - Three Points Financial - Serving Clients from Colorado Springs to Denver

Temporary Reality – Mary R Alpers

April 4, 2020 By Mary Alpers

It’s a challenge adjusting to this temporary reality. Most are heeding instructions to slow the spread of the CoVID-19 virus: social distancing for two weeks, now for another month, and possibly longer. We encourage parents, relatives, friends, children, and co-workers to take precautions. Precious lives have been lost, the broad economy and personal jobs are affected and at this point most of us know someone or know someone who knows someone affected by the CoVID-19 virus. Our emotional health is strained. Thank goodness for facetime, zoom and other apps that bring loved ones nearer.

Although Alpers Financial Planning is deemed “essential” our office is practicing social distancing. One employee is in the office at a time and the others work from home. We have offered virtual meetings for years and can remote in to continue to serve clients.

Medical professionals are “all hands-on deck.” My niece was pulled from her regular nursing position to the front lines. Nursing students were assigned early to medical facilities. Some residents are sewing masks. Entertainment shows featuring MDs and Nurses donated masks and gowns from costume departments. Many churches accept food and cash donations for those in need. Counselors are available to listen, pray and comfort. Some homeowner associations including my own have opportunities for neighbors to help and seek help, or just to communicate, creating avenues of virtual contact. My sister in law is teaching her kindergarten class online. My daughter became an overnight homeschooler. Our financial planning support organization (ACP) offers a daily virtual meeting to share anything on our hearts as we serve our clients and work through tax season.

Comparing to another historic time when our country banded together: During World War II civilians collected rubber (tires) for the military. Women’s fashion statement included nylons, and they went without for needed parachute material. Diets were restricted for military rations. Civilians sewed uniforms, packed rations and cared for children and their home. They took jobs in factories replacing men. My maternal grandmother became a Red Cross nurse. My paternal grandmother worked in Iceland as a riveter.

Both then and now people wonder(ed) how long this would last and how soon will/would we recover. Constant media coverage heightens emotions and can move us to make emotionally weighted financial decisions. That is where we come in. We are here to discuss any concerns about your financial situation. Fortunately, our clients understand why and how they are invested. For retired or nearly retired clients US Treasury Bonds, Cd’s and highly rated bond funds are comforting, and you understand that the stock portion of your portfolio is for long term growth. Equities (stocks) protect against inflation and create long term wealth. Younger clients have time for recovery while continuing to add to savings. Investors have opportunities for wisely managed growth. We recommend maintaining a comfortable level of cash to offset sudden unemployment or unexpected expenses and avoiding credit card and any other unnecessary debt. This is financial wisdom.

Wise tax planning protects net worth. Clients who attended our appreciation dinner last fall heard more about the value of time, savings, wise investment allocations, and that tax planning enhances overall life planning for each individual or couple.

But it’s been difficult to watch the market’s wild ride. So if you (as our client) were to ask me if you should sell everything now, I would recommend “no” at this time, because we set your target allocation and would instead recommend focusing on tactics such as strategic rebalancing, tax loss harvesting, strategies for IRAs, ROTH conversions, and maintaining a healthy cash balance.

From the March 27, 2020 Cares Act: The tax filing season has been extended to July 15^th, delaying taxes owed and the first quarter 2020 estimated payments. July 15^th is also the deadline for IRA and ROTH contributions for tax year 2019. Ironically, the second quarter estimates are still due June 15^th. This will likely change, so stay tuned.

IRA and Beneficiary IRA Required Minimum Distributions (RMDs) normally taken in 2020 are now suspended. If you took the distribution within the past 60 days, you could deposit the funds back into your IRA provided there were no other indirect rollovers in the past 12 months. If you take your distribution in monthly withdrawals, you can stop those for the balance of the year plus a 60-day lookback. Beneficiary IRA Minimum Required Distributions are also suspended if not already taken for 2020. The last time any Required Distributions were suspended was in 2009 after the 2008 financial crisis.

Suspending these taxable withdrawals and using after tax assets for cash flow allows RMDs calculated based on a higher 12/31/19 balance to remain in the account another year, and this results in less taxable income in 2020. We are discussing this with clients. (UPDATE as of 4/3: The IRS is being pressured to reconsider the 60 days limit and allow any Required Distributions taken in 2020 to be returned to the accounts. So… again stay tuned.

If you are concerned about your cash level or equity balance, please call us to discuss. This is particularly important if you have an unanticipated a life change or are concerned about job security or your health. I don’t have answers as to how long this will last or how quickly the market will recover but I can provide the historical chart below. For the 26 market corrections since World War II it shows the overall average market decline was 13.7% (the max being over 20%). We have topped 23% so far. The average recovery cycle was 4 months down then 4 months up.

For small businesses: As of 4/3 the IRS is on its 4^th draft of the PPP (Paycheck Protection Program) application that allows small businesses a 100% forgivable loan up to $10,000 to cover payroll costs to avoid laying employees off. If you apply for this, read the fine print carefully. There are 3 other types of loans for small businesses to sustain them through this period.

https://www.sba.gov/funding-programs/loans/coronavirus-relief-options

Above all, stay healthy, rested, hydrated and while practicing social distancing, communicate with those in your life. Find someone to talk with when this temporary reality starts wearing on you. Last week I called a friend because on a personal note, my father was at “end of life” in a local nursing home and I was allowed in to say “goodbyes.” We’ve been unable to see him for weeks for the residents’ and staff protection. It was surreal to have my temperature taken, complete a health form, don a mask and receive orders of where I could go. I left I worried I might not be allowed back in, and he would pass away without family near him. My father peacefully passed away two days later, and they allowed me to be by his side. They were sensitive and gracious and it meant a lot.

While this is our temporary reality, it affects real life in ways we might not imagine. I’m optimistic things will get better and I’m grateful for the kindness I see in others.

Alpers Financial Planning is available to discuss your concerns because you chose to work with a firm that is interested in more about you than the singular topic of investment rate of return. We are interested in helping you live life to your fullest with solid financial guidance, comprehensive advice and a long-term outlook. Stay Safe.

4th Quarter 2009 Thoughts

October 3, 2009 By Mary Alpers Leave a Comment

The 4th quarter of 2009 is upon us already. It seems not that long ago that 2008′s 4th quarter brought us financial markets that were reeling – stocks were falling at great speed, and some were wondering daily what to do: Sell, Hold Buy? How far would the market fall? Why was this happening? Would my mattress be too lumpy if I stashed all my money underneath? Many of those especially close to retirement had to regroup and alter their plans. Others were fortunate enough to have time on their side. Some had investments well positioned to weather through this unpleasant season.

It’s a curious thing about ‘risk.’ How much risk some are willing to take often decreases during downturns and increases during growth periods. In reality risk should be determined based on downturns -without the emotional temptation to adjust upwards during growth periods. Understanding life planning realities is an important factor in understanding ‘risk.’

Hopefully 2009′s 4th quarter will bring less drama – at least in the financial world. We can’t know, but what we can do is position ourselves well for potential growth and security. Balancing between growth potential and security is individually determined. It hinges on individual life planning stages, assets, short and long term goals, job security, anticipated future earnings, overall financial health and physical health. Wise financial planning is finding the right balance for your investments as well as your life. Life planning involves living in the present and planning for your future.

4th quarter is good time to review and adjust. For instance:

In the 3rd and 4th quarters, I review most clients’ year to date earnings, taxes and deductions, comparing to the previous year. Our goal is to estimate year end tax liability. Some may want to adjust their withholding or estimated taxes either up or down.

If you anticipate converting some or all IRA holdings to ROTH IRA’s in 2010 (when income limitations go away), and your income prevents contributing to a ROTH IRA, evaluate making a 2009 non-deductible IRA contribution. You can also do this in 2010 and convert to a ROTH IRA (see your tax specialist to understand tax consequences of doing this FIRST). ROTH IRA’s grow tax free. This may be a plan to balance taxable and non-taxable assets during retirement.

Regarding estate planning: it is anticipated (still unknown) that the estate tax limitation will remain at 3.5 million going forward with an unlimited marital deduction. Many assume estate tax is not an issue. Careful review of anticipated estates includes equity in homes, life insurance proceeds, personal assets, and investments. It is a good idea to plan your estate to include not only your wishes, but to protect against unnecessary estate taxation.

4th quarter is a time to review goals – for 2009, and future goals. For me, it is hard to believe we will be approaching 2010, which sounds futuristic or something – like the title of a science fiction novel set in the distant future. But it is nearly present. Keeping up with the march of time means marching faster sometimes….

Finally, enjoy this fall. In Colorado we had an abrupt change of seasons. Colors are here today, and will go quickly. The shot on this blog was taken at Cottonwood Lake near Buena Vista. It is almost time for cider, warm soups, homemade breads, winter squash, sweaters, and dusting off ski equipment. Our family activities include a fall wedding – so we hope snow is not on that day’s forecast! But in Colorado you just never know.

Mid-year Financial Checkups

April 6, 2009 By Mary Alpers Leave a Comment

During the long days of summer, take an afternoon to pour yourself an ice tea or other beverage, sit outside in the shade and review your monthly expenses. I know this may not be the most enjoyable way to spend your time, but it is valuable. Locate first your checkbook, credit card statements, monthly bills and receipts to determine how you have spent your assets.

While we can’t know the monthly direction of the market and it certainly is beyond our personal control, we can determine what is coming in and going out of our households on a monthly basis. On the first page of my website is a CASH FLOW PLANNING WORKSHEET to help determine and categorize your expenses. (www.alpersfinancial.com). I use this in my practice and personally. Expenses are divided between fixed, semi-discretionary and discretionary expenses. This helps separate expenses with little to no “wiggle room” from those with some flexibility. It helps determine where to focus to adjust your situation. I recommend establishing first a monthly average, which the worksheet converts to an annual total. The top portion of the worksheet is used to list monthly and annual income, from paychecks and net self employment. A recent paystub will help you separate taxes and other deductions to leave you with net amounts of spendable income.

Understanding what comes in and goes out of your household provides a “You Are Here” point for your financial lifemap. I recommend a lookback of 6 months or more to get accurate averages. Semi-annual and irregular expenses should be converted to average monthly expenses whenever possible. If it is difficult to track cash expenses or ATM withdrawals, you might consider realistically budgeting a small “miscellaneous” category to track those expenses.

This exercise provides a visual to evaluate and analyze financial reality. It helps you see where changes are needed to bring you closer to short and long term goals, including retirement planning. For instance, if the final number at the bottom of your Cash Flow Planning Worksheet is a negative number, or if a large chunk of your inflow is slotted to pay down debt, developing strategies to reduce expenses or to tackle debt is a good start.

It’s a good idea to update the Cash Flow Planning Worksheet semi-annually. The Cash Flow Planning Worksheet is a great tool to budget for special or one time expenses, for knowing how much you are able to save for the future, and to “see” if you have an income crisis or a spending problem. It brings an awareness to where your money is going. Although our government habitually spends what they don’t have, it’s better if we operate our households more efficiently, don’t you think? Spending an afternoon in the shade on this project is time well spent.