Over the past few weeks, my son and I have been watching a fun show where part of the plot was to mimic family shows of the past; ones most of us can well remember. This new show made reference to family gatherings with positive memories of job promotions, increased salaries and bigger homes as well as dramatic situations with not-so-nice outcomes such as the loss of a loved one or a hard life lesson of defeat. The dichotomy of lessons in the show made me think about how television shows mimic real-life.
How is this experience similar or different to my own family’s story if it were a show? Did I learn from the experience in my life? Did I teach my children how to cope with something difficult? What did I teach them about finances, planning, investing, inheritance? Will my story include these experiences? What about the stories of my client’s families? How are their experiences teaching them lessons? Let’s explore ways we can create some harmony within our own families in relation to our story and multi-generational planning. What can you do to make sure your loved ones understand your financial story? Certain conversational queues will help cultivate a harmonious family discussion that spans generations.
A happy family is but an earlier heaven. – George Bernard Shaw, Nobel Prize Writer
The First Step is Talking About Money
What is money? What does it produce? How does it help the family? From there, the family can sit down and transition from money to wealth and who’s wealth you’re discussing. This is where estate planning comes into context. I’m simplifying the process greatly, but this is the stage when a trusted group of professionals can help guide these conversations in the right direction and how much information needs to be provided to those involved.
Be Transparent in Your Intentions
Be intentional about family conversations, but make it a point to have them on a reoccurring basis. Have open dialogue with your family. Start with how your story is being woven over time, and what sort of wealth you want to leave behind. With family knowing your story, those chosen to take care of your affairs will understand your wishes better. You don’t want an executor that isn’t objective and fair. Neglecting specific people may be part of your legacy (family dynamics happen that way), but if your wishes are properly carried out, people are told only what they need to know.
Similarly, gifting money to certain family members such as minors without the parent’s involvement could create problems without proper tools such as trusts, choosing the right trustees, and instructions on when those children should receive those assets.
Create a Safe Space
Make these experiences fun and inviting for those involved such as meeting for dinner at a neutral place where speech can be free from criticism. Everyone can tell their story in the right place, the right time, and in the right way. By working with the right financial professional or team of professionals, they can assist in that happening.
In the right setting, these discussions don’t have to just be about money. You can leave the door open for honest communication about any life event within the family. When it comes to planning, it all counts. It all matters in some way. Knowing that, and allowing your family to know that specific idea may just be the key to unlock true harmony between you and your loved ones.
Do you want to be the family that argues in court over a decision made by a passed loved one? Do you have a friend or family member that you can unequivocally say is not financially savvy or comfortable making big decisions? What about someone that doesn’t have the same ideals as you? These people are a part of your life one way or another. You would be surprised to know that most of these people still think they will be involved in your estate somehow. Why not fill them in on your plans? You can slowly teach them to be a part of it, or you can let them know they need to step aside.
We live in a world of immediate gratification and feedback. Unfortunately, financial planning and to a greater extent, multi-generational planning doesn’t show results for many years. It must be educated, cultivated, and continuously discussed. Being open with your family about finances doesn’t have to be a taboo subject. For those involved in the decision making process of other’s lives, including them in the estate process is essential to the plan being enforced properly.
Derek M Oxford | CFP®️, AEP®️
Last year was a year of turmoil for most of us. The pandemic and the election were just a few of the events that impacted our nation in 2020. Fortunately, 2021 has started on a brighter note, with the arrival of vaccines that promise to bring life closer to normal. If you are looking for a fresh start this year, your personal finances are a great place to begin.
Examine Your Budget
The first step in refreshing your finances is to examine how much you spend, and how much you save. Identify your income and expenses, and then compare them to make sure you are spending less than you earn. Hopefully, you were able to stay the course during the pandemic. If not, you may need to cut back on some spending, or look for way to lower your monthly bills.
Once you have a workable budget in place, it’s important to stick with it. The temptation to stray from a budget is natural. Here are a few tips to make sticking with your budget easier:
- Make budgeting a part of your daily routine
- Build occasional rewards into your budget
- Evaluate your budget on a regular basis and make changes if needed
- Use budgeting software or an app to help keep track of your finances
Pay Down Your Debt
Reducing debt is part of any healthy financial plan. Paying down “unproductive debt” as quickly as possible is usually a good idea. Student loan debt, high-interest-rate auto loans, and credit card balances are all examples of “unproductive debt”. Start by tracking all of your balances and being mindful of interest rates and hidden fees. Next, optimize your repayments by paying off any high-interest debt first and/or taking advantage of debt consolidation/refinancing programs.
If the financial impact of the pandemic has made it difficult for you to pay down your debt, you may want to contact your lenders to see if they offer financial assistance. Many lenders may be willing to work with you by waiving interest and certain fees or allowing you to delay, adjust, or even skip some payments.
Think About Your Financial Goals
While the pandemic may have sidelined or stalled some of your financial goals, now is a good time to regain your focus. Take a look at the financial goals you set for yourself last year. Perhaps you wanted to increase your emergency fund or save money for a down payment on a home. Maybe you wanted to invest more money towards your retirement. Were you able to accomplish your goals despite any setbacks brought about by the pandemic? Do you have any new goals you would like to achieve in 2021? Finally, if your personal or financial circumstances changed, will you need to reprioritize your goals?
Make Sure Your Investment Portfolio is Still on Track
Despite the pandemic, the U.S. stock market ended 2020 at an all-time high. But that doesn’t necessarily mean your investment portfolio is still targeting your financial goals. When evaluating your investment portfolio, you’ll want to ask yourself the following questions:
- Do I still have the same time horizon for investing as I did last year or prior to the pandemic?
- Has my tolerance for risk changed?
- Do I currently have an increased need for liquidity?
- Does any investment now represent too large (or too small) a part of my portfolio?
Market volatility and current events aren’t usually a good reason to change your long term investment strategy. If your goals have changed, or your finances have changed, a portfolio review can help you keep your investments aligned with your financial plan.
Matthew A Treskovich | CPA/PFS, CITP, CMA, CFP®, AEP®, MBA, CLU, ChFC
Chief Investment Officer
Federal income tax filing season for the 2020 tax year begins on Friday, February 12th! In most years, the IRS begins accepting tax returns in late January. This year, the late December passage of the 2021 Consolidated Appropriations Act created some last-minute tax changes. IRS tax forms and instructions have been updated to reflect the new law.
Before you get started on your 2020 taxes, make sure you gather all of the right documents. You will need Form W-2 from your employer(s), along with Form 1099 for sources of income. Many of these forms are not required to be sent out before the beginning of February, so you may need to wait for them to arrive. While you are waiting, it’s also a good time to organize records of your deductions, such as mortgage interest and charitable contributions.
Federal income tax forms are now available on www.irs.gov. If you were born before January 2nd, 1956, you can use Form 1040-SR. This new tax form was introduced last year and makes it easier for seniors to file their taxes. For the 2020 tax year, everyone under the age of 65 will use Form 1040. To speed up refunds, the IRS recommends electronic filing and direct deposit.
“The hardest thing in the world to understand is the income tax.” – Albert Einstein
The IRS Free File program is now open for filers with less than $72,000 of income who would like to do their own taxes. The IRS will begin accepting individual tax returns on February 12th. The IRS expects to issue most tax refunds within 21 days of the return being accepted if the return is filed electronically with direct deposit information. The deadline for filing 2020 tax returns is April 15th. Unlike last year, no blanket extension is planned. However, an automatic extension to October 15th will be available for those who request an extension.
Although the 2020 tax year is over, there are still some opportunities to save on taxes if your tax bill looks like it will be larger than you expect. Deductible contributions to a traditional IRA for the 2020 tax year can be made until April 15th, 2021, or until you file your return, whichever comes first. The 2020 limit for IRA contributions is $6,000, or $7,000 if you are age 50 or older. Small business owners have additional options including a SEP IRA contribution.
Many other tax-advantaged strategies exist, but most require some planning in advance. Over the course of our lives, income taxes are one of the largest expenses most of us will pay. Although most of us will spend the next few months thinking about last year’s taxes, this is the time to plan ahead and think about what we can do to reduce next year’s taxes as well.
Matthew A Treskovich | CPA/PFS, CITP, CMA, CFP®, AEP®, MBA, CLU, ChFC
Chief Investment Officer
Even though it sounds boring, you can save tax dollars by planning your income and deductions. The general rule is “don’t pay taxes before you have to,” and that’s a good rule to follow. But, let’s look at some situations where it may make sense to pay taxes a little earlier or when it benefits you to do so.
Tax brackets for 2020 for a married couple filing jointly start at 10% and go as high as 37%. There is a steep jump in the tax rate from 12% to 22% when taxable income exceeds $81,050, so how might a taxpayer with income in this range minimize their tax bill? If you expect your income to be well within the 12% bracket in 2021 and expect income to increase in 2022 pushing you into the 22% bracket, using up the lower bracket in 2021 by shifting income recognition can save you money. So, if there was an opportunity to recognize an additional $20,000 of taxable income in 2021 (that would have been recognized in 2022) and stay within the 12% bracket, you could save $2,000 in taxes.
Timing of IRA Distributions
Those reaching age 70-1/2 by December 31, 2019 had to begin taking Required Minimum Distributions (RMD’s) from their retirement accounts and IRAs at that time, and those reaching age 70-1/2 after December 31, 2019 will have to start RMDs at age 72. The IRS has let you defer paying taxes on these earnings to better prepare for retirement, but you have now reached retirement age and they want their tax money. So, whatever the balance of your account was at the end of the prior year, the IRS will estimate how long they expect you to live and require you to take a percentage of your account each year as a taxable distribution. The percentage goes up each year, since you are one year closer to your life expectancy.
As you approach RMD age, we can estimate what your required distributions will be, and considering the tax brackets discussed earlier, it might make sense to take some taxable income before you are forced to take it. Specifically, retired couples in their 60’s who are in a relatively low tax bracket, even considering their combined income from pensions, social security and investment income, may benefit from withdrawing some money from their Qualified Accounts (IRA, 401k, etc.) now to reduce their future RMDs. Each year they can move some funds, net of taxes, to their after-tax account or Roth IRA. Again, great tax savings can be achieved through – you guessed it – Tax Bracket Management!
Converting to Roth IRA/401k
If you are in a lower tax bracket and expect your rates to go higher, this may be the time to convert some of your IRA to a Roth IRA. This can be especially advantageous if you feel that some of your assets are going to increase in value significantly. In that case, convert now at your lower tax rate and the future gains in value will be tax free. The bonus is that you have freedom on when to withdraw because RMD’s are not applicable to Roth accounts.
Qualified Charitable Distributions
Speaking of RMD land, there is an opportunity once you reach this place to avoid the tax on your RMD by donating it directly to a qualified charity via a Qualified Charitable Distribution (QCD). The amount cannot exceed your RMD amount and the contribution must go directly to the charity to avoid taxes. You don’t have to donate the full RMD amount, but whatever portion you choose is tax exempt.
Timing of IRA Contributions
If you are still working or are retired and have earned income from a new job, you want to be sure you make the largest contribution you can to your retirement accounts. If you are in a retirement plan that matches your contributions, go for the max. For your IRA’s you can contribute up to the amount of your earned income, or $6,000 ($7,000 if over 50), whichever is smaller. Depending on your gross income, these contributions may be non-taxable and allow you to save for retirement while reducing your current taxes.
Now Let’s Think About Our Loved Ones
Inescapably as you get older your health starts to deteriorate. If you are caring for a loved one who is in a nursing home, there may be some tax saving opportunities. If your loved one has become dependent on nursing care, he or she may be eligible to deduct the cost of staying in a nursing home. Here’s an opportunity for a person in a nursing home who owns qualified accounts to have the taxable income from withdrawals offset by their qualified medical expenses. So, by choosing to use money from your loved one’s qualified account to pay the bills instead of using cash from their taxable account (i.e. brokerage account), and using the medical expenses as deductions, you can reduce the tax impact of RMDs. The IRS has specific rules for the deductibility of nursing home expenses, but it is an opportunity you should discuss with your financial advisor. This can be especially beneficial when a significant sum is expected to pass to beneficiaries from qualified accounts. Effectively, the loved one is paying the taxes for the beneficiaries.
As always, feel free to contact me or your trusted financial advisor if you have any questions.
Bob Eckenroth | CPA
I’m disappointed…at 11:59 on December 31st 2020 I hoped that the arrival of 2021 would bring in the new year and 2020 would be a distant memory. Now that we are here…sadly, I’m disappointed!
I’m disappointed that 2021 has a lot of the same issues as 2020. I’m disappointed that my New Year’s resolution has been broken. (Bye Bye Gym) More importantly, I’m disappointed that the Crimson Tide won the NCAA championship… YET AGAIN! (lol, Go Gators)
So…clearly nothing has changed in 2021. On January 20th a new president will take office at the White House. This makes roughly 50% of us happy, and 50% of us un-happy. The question is…Does. It. Financially. Matter?
As a former White House resident once said:
“Your success as a family, our success as a society, depends not on what happens in the White House, but on what happens inside your house.” – Barbara Bush
I could not agree more. Let me explain…
When managing your personal finances, you can control two things:
- You decide to save money.
- You decide how to invest that money.
You have some control over:
- Your employment.
- How long you will work/live.
You have no control over:
- The Stock Market.
- Taxes, Social Security.
Key Takeaway: Focus on the things that you can control and have a plan for the things you can’t.
When evaluating how well the economy has performed, it depends on who you ask. This chart shows the percentage of Republicans and Democrats who rate the national economic conditions as excellent or good.
It may come as no surprise, but…
- When a Republican holds the presidency, Republicans think the economy is doing well.
- When a Democrat hold the presidency, Democrats think the economy is doing well.
Key Takeaway: Remember that the fundamentals ultimately drive the economy. Opinions are just that…opinions.
At this point, you may be thinking, “But, Sterling! ‘My Team’ has done better for the economy! Correct?” Hmmmm… let’s take a look…
Past Economy Performance
Historically speaking the economy has performed well under both administrations.
This chart, shows different combinations of government control and how the S&P 500 performed under each scenario.
The details are provided for each scenario, but most importantly
ALL of the combinations are POSITIVE.
Key Takeaway: The US Economy has performed well under both administrations.
Does it Matter?
While you may, or may not, be happy with the results of the presidential election, you should remember that:
- The U.S. Economy is dependent on us, the consumer. Not the White House. Policy changes may have a short term impact on individual companies and industries. But, the long-term trends of the U.S economy will continue to drive us through 2021 and forward.
- Remember: 1) Focus on the things that you can control and have a plan for the things you can’t. 2) Fundamentals ultimately drive the economy. 3) Historically, the US Economy has performed well under both administrations.
- Stick to your financial plan. You are in it for the long game. You decide how much to save, and you decide where to put your savings. Finally, if you need some guidance, we are here to help.
Let us help you achieve financial independence!
Please reach out at firstname.lastname@example.org
Two locally-owned CPA firms have joined forces by combining their 85 years of experience to provide professional consulting, tax, accounting, and auditing services to the community and beyond. Baylis & Company PA CPAs merged with CPS Group CPAs, PA as of December 1, 2020 and will continue together, as one family, to serve all their clients with the same high-level personal service that they have come to know.
This future path for Baylis & Company was started by their late founder, Edie Yates Henderson, who had planned for a future transition and provided options for the firm and shareholders after her passing. “My mother was a consummate visionary and planner at heart. Her desire to have a succession plan in place in anticipation of her retirement led her to begin exploring partnership opportunities within the local community,” said Todd Baylis, Edie’s son. “It was extremely important for her, and the existing Baylis and Company shareholders, to continue the local ownership and to build on the culture she, along with my father, the shareholders, and the team, built over the last 40 years: serving clients and employees at the highest level. I know that she would be proud to see the culture and local ownership continue on and provide exceptional services to clients and community.”
Baylis & Company’s shareholders, Tamara J. Burroughs, Tracy Y. Kimbrough, and Karen P. Lean, along with the entire Baylis team, will continue to serve clients at the 53 Lake Morton Drive office location until relocating in May to their new home at CPS. “We are excited about continuing Edie’s focus of providing service that is best for the client. We look forward to becoming part of the CPS Group team and carrying the torch within a firm that shares our values,” shared Kimbrough.
Both firms have a long history of building lasting relationships with their clients, as well as actively supporting the community through philanthropic and volunteer efforts. Their combined services span a wide range of client needs: tax compliance, auditing, estates & trusts, and all aspects of personal financial planning. “After nearly a year of planning, we are honored to welcome the Baylis team into the CPS Group family. We wish that Edie were here with us to see this become a reality. With her legacy in our hearts and minds, we know the future of our combined teams will lead to success for our clients,” said Peter Golotko, President, Chief Executive Officer, and Partner at CPS Group CPAs.
CPS Group CPAs, PA began in Lakeland, Florida as Chas P. Smith & Associates, PA, CPA’s and for 45 years has been offering traditional tax and accounting services to the greater Lakeland community.
For years, I have listened to my Dad tell just about everyone he meets that he is a financial advisor. For the man sitting in the aisle seat on the airplane, there is no difference between the financial planner that receives commission off security sales and those that are considered a fiduciary. Many people I encounter are unaware of the differences in financial advisors. To be completely honest, I had no idea there was a difference. In the short six months I have worked here at CPS Investment Advisors, I have learned about fiduciaries, broker-dealers and all of those in between. I was born and raised here in Lakeland, Florida and I have come across many advisory firms. What is interesting to me is that these firms are structured differently but they offer similar services. So, what sets them apart?
I have read numerous articles debating the idea of a fiduciary vs. fiduciary- like financial advisors. Sure, I would like to be able to trust my advisor to “do the right thing,” but why shouldn’t it be required? I want to work with an advisor that has a duty to care for my financial needs (and ultimately me as a person), is transparent with any conflicts of interest that may arise, and will continue to provide services with my absolute best interest in mind, no questions asked.
The definition of a fiduciary is “holding in trust.” As a fiduciary, our clients trust us to act in their best interest and choose investments that will benefit the client, not the advisor. A fiduciary will disclose important facts and figures, avoid conflicts of interest, and make decisions that benefit you as the investor, NOT the individual advisor or the firm. Fiduciaries monitor the performance of investments and with the client’s full trust, make financial decisions that they feel are beneficial. The fiduciaries’ services also extend past just investments. They are here to stay and become an important part of your financial future. This is where the ultimate standard of care comes into play: the duty to care. It is a fiduciaries’ responsibility to make decisions in your best interest throughout your financial relationship, not just at the time of the initial transaction.
So how do fiduciaries get paid?
To be defined as a fiduciary, you are required to be fee-only or fee-based. Fee-only means the advisor is compensated based off a flat fee which is always disclosed. An important term, independence, comes into play here. When an advisor does not receive compensation from an investment, they are completely independent from the investments they are purchasing. They are truly acting in the client’s best interest.
Another way a fiduciary is paid is fee-based. This compensation plan means the advisor is compensated based on a percentage of assets. It is important to ask about the compensation structure of the firm you are interviewing. Full transparency on how the advisor and advisory firm are compensated is required if they are a fiduciary. Any advisor for a firm who has trouble disclosing this information may not have your best interest at heart.
If the advisor is commission-based, they are not a fiduciary. Non-fiduciaries receive commissions from certain investments that they purchase or continuously trade. The presence of commissions can remove independence and the investor may not be given advice in their best interest. Commissions are a conflict of interest as advisors may be more likely to purchase an investment where they will receive a higher kickback and compensation.
Finding your best fit is about finding the right pair of pants. Finding the right financial advisor is about finding a fiduciary. Asking the right questions and understanding the different structures of financial advisory firms is important to your financial future! We are here to help!
Erin E Golotko | MBA