The signing of the Coronavirus Aid, Relief, and Economic Security (CARES) Act on March 27,2020, not only provided aid to many Americans and small businesses affected by the Coronavirus pandemic, but also made significant changes to the charitable giving rules to encourage individuals and corporations to donate during these unprecedented times. The Weatherly team has outlined the key provisions that may impact your 2020 giving and ways to support during the COVID-19 pandemic.
Some of the most notable changes to giving due to the CARES act include:
- Above- the-line Charitable Deduction
- Taxpayers who claim the standard deduction in 2020 can deduct up to $300 above- the-line, or against their gross income, for cash contributions to charity.
- AGI Limitation for Cash Donations
- Historically, individuals could deduct up to 60% of adjusted gross income (AGI) for cash contributions to eligible charities. Under the CARES Act, taxpayers can deduct up to 100% of their AGI for the 2020 tax year.
- Corporations can now deduct up to 25% of AGI this year, up from 10% in prior years.
- Any donations above the new 2020 limitations can be carried over for up to five years.
- To take this deduction, taxpayers must:
- Itemize their deductions
- Donate in cash direct to a public charity.
- The new increased limits do not apply to cash contributions to supporting organizations or Donor Advised Funds (DAFs). The old limit of 60% AGI will remain for such cash contributions.
- The new limits do not apply to contributions of publicly traded appreciated securities. The 30% of AGI limitation will remain the same for 2020 stock donations.
- Qualified Charitable Distributions (QCDs) – and Required Minimum Distributions (RMDs)
- In prior years, clients over age 70.5 who were taking RMDs from their IRA accounts may have completed a Qualified Charitable Deduction (QCD). Tax law allows donors to give up to $100,000 of their RMD direct to a qualifying charity of their choosing. The amount sent to charity counted towards the donor’s RMD for the year but is excluded from taxable income. Additional information about QCDs in our charitable blog post.
- As highlighted in our CARES Act Write Up, one of the most significant changes under the Act is the waiving of Required Minimum Distributions (RMDs) from certain eligible retirement accounts in 2020.
- Like prior years, a 2020 QCD direct to charity will not show up as taxable income to the individual. However, the distribution will not offset any RMDs as they are not required in 2020 tax year.
- Given these changes, it may be more beneficial to utilize a different charitable strategy for 2020 tax year. Weatherly is here to help explore the most impactful philanthropic giving approach for you this year.
The Role Philanthropy Can Play
Philanthropy and private sector support can play a key role in getting emergency funding and resources to those in need during times of crisis. Since the beginning of the global pandemic through 4/28/2020, more than $8.7 billion has been donated to the COVID-19 outbreak and various relief efforts according to the Center for Disaster Philanthropy (CDP) and its partner, Candid. To encourage further philanthropic activity, the GivingTuesday nonprofit organization has arranged a GivingTuesdayNow emergency event on 5/5/2020. This event is meant to unify, raise awareness, and support each other, our communities and global nonprofits during these unprecedented times.
Ways to Support COVID-19
During this global pandemic, philanthropic support can make the greatest difference in a several different areas, including, but not limited to: hunger; food and shelter, basic health services for vulnerable populations; Personal Protective Equipment (PPE) and medical needs for healthcare workers; Research and Development initiatives for vaccines, treatments, diagnostics, and antibody testing; ventilators; social service organizations; community foundations; and sustaining current nonprofits with funding gaps that may exist in these tough times. We have complied a list of ideas and resources on how to support in these areas via monetary or nonmonetary means during GivingTuesdayNow and beyond:
- The GivingTueday nonprofit organization has six ways to show generosity during these difficult times, including: Give/Donate, Thank those on the front lines, Volunteer virtually, Support your local community and small businesses, Show Kindness to your neighbors and friends, and Respond. These are all relevant to GivingTuesdayNow and throughout the pandemic.
- If you would like to give via monetary means, we recommend looking to organizations in your community that you may already support. Many nonprofits are struggling to stay afloat as they are not holding events or galas that typically provide much of the funding needed to carry out their philanthropic missions.
- For any new organization you would like to give to, it is important to do your research prior to donating. Giving Compass and the National Center for Family Philanthropy have created a list of funds across the United States providing immediate and long-term relief to COVID-19.
- Fidelity Charitable had “A Conversion with the CDC Foundation” webinar with various ways to help with COVID-19 at the Local, National, and Global needs.
- As many of us are social distancing and sheltering in place, virtual volunteer opportunities to aid those impacted by COVID-19 can be found here.
How Weatherly Can Help
Given the charitable giving changes under the CARES Act, the Weatherly team is here to collaborate with your CPA and team of professionals on a 2020 giving strategy that fits with your financial plan and philanthropic goals. We are also here to help facilitate any grants from or contributions to your Donor Advised Fund (DAF)2 for GivingTuesdayNow or future 2020 giving. As always, our team welcomes a dialog on how we can accomplish your charitable giving goals and positively impact our community and world.
Resources:
- https://disasterphilanthropy.org/disaster/2019-ncov-coronavirus/
- Link to Charitable Blog: https://www.weatherlyassetmgt.com/blog/39tis-the-season-of-charitable-giving-and-tax-planning/
- https://www.wealthmanagement.com/philanthropy/cares-act-sweetens-pot-charitable-giving
- https://3b4nu03zhqkr21euttbrqaxm-wpengine.netdna-ssl.com/wp-content/uploads/2020/04/20200409_CARES_RESOURCE.pdf
- https://now.givingtuesday.org/about/
- https://www.fidelitycharitable.org/guidance/disaster-relief/how-to-help-novel-coronavirus.html
** The information provided should not be interpreted as a recommendation, no aspects of your individual financial situation were considered. Always consult a financial professional before implementing any strategies derived from the information above.
Carolyn Taylor was included in Barron’s 2020 Top 1200 Advisor Rankings by State list. The full list can be viewed on Barron’s website. View the list here our inclusion in the list here, and the methodology at the following link https://www.barrons.com/report/top-financial-advisors/1000/2020
The criteria for ranking reflects assets under management as of 12/31/2019, revenue that the advisors generate for their Firms, regulatory record, quality of the advisor’s practices, and philanthropic work. Investment performance is not an explicit criterion because the advisors’ clients pursue a wide range of goals. In many instances, the primary goal is asset preservation. The scoring system assigns a top score of 100 and rates the rest by comparing them with the top-ranked advisor.
Carolyn Taylor was nominated for inclusion in the list. Survey data was submitted by over 4000 advisors, but only 1200 were published in the ranking. Barron’s uses a proprietary method to rank advisors based on the criteria above. Weatherly provides this data to Barron’s in the form of a survey response. Initial ranking is done by Barron’s; publicly available data is verified by Barron’s against SEC and FINRA reports. Barron’s then conducts the next level of ranking. Data that is not independently verified by Barron’s is then sent back to the Firm for verification. Barron’s then incorporates any required changes into the ranking, and finalizes the list for editorial use and publishing. The Top 1,200 are drawn from all 50 states, plus the District of Columbia. This ranking is the largest and most comprehensive of the annual Barron’s advisor listings. It includes a cross section of private-wealth advisors, from independents who own and operate their own practices to advisors from the large Wall Street firms. This special report lists the top advisors in each state, with the number of ranking spots determined by each state’s population and wealth. Carolyn Taylor ranked 86th in the state of California.
No payment was required for nomination or inclusion in the ranking. *After notice of inclusion in the top 1200 list, Weatherly paid Dow Jones Reprints and Licensing for custom hard copy reprints and digital access after the list was published. Wealth Managers do not pay a fee to be considered or placed on the final list. No organizational memberships were required of the Firm or individuals. Ranking on this list is not representative of any one client’s experience and is not indicative of Weatherly’s future performance. Weatherly is not aware of any facts that would call into question the validity of the ranking or the appropriateness of advertising inclusion in this list. *updated 3/27/2020
About Weatherly Asset Management, L.P.
Weatherly Asset Management, L.P. is a Registered Investment Advisor, located in Del Mar, California, dedicated to providing high quality, holistic and innovative wealth management services to high net worth individuals, small businesses and institutional clients since inception of the Firm in 1994.
Our comprehensive approach to all aspects of a client’s financial life, the extensive experience of our principals, and the accessibility of experts, set us apart from other firms.
Our primary business focus is money management, with each account individually managed to maximize wealth preservation and growth over time. We also provide advice related to retirement planning, tax planning, philanthropic planning, financial planning and college planning, as well as estate planning and wealth transfer guidance. Our goal is to provide clients with as much information as necessary to effectively manage portfolios and help achieve their financial goals.
Weatherly Asset Management, L.P. is the investment advisory division of Weatherly Asset Management, Inc. As an independent partnership, the Firm is wholly owned and operated by the partnership.
In September 2019, Five Star Professional completed an interview process to determine 2020 Five Star Wealth Managers. Weatherly’s senior team, including Carolyn Taylor, Brent Armstrong, and Kelli Ruby all received this inclusion to participate. Upon completion, all three advisors were named 2020 Five Star Wealth Managers.
The Five Star Wealth Manager award, administered by Crescendo Business Services, LLC (dba Five Star Professional), is based on 10 objective criteria. Eligibility criteria – required: 1. Credentialed as a registered investment adviser or a registered investment adviser representative; 2. Actively employed as a registered investment adviser or as a principal of a registered investment adviser firm for a minimum of 5 years; 3. Favorable regulatory and complaint history review (As defined by Five Star Professional, the wealth manager has not; A. Been subject to a regulatory action that resulted in a license being suspended or revoked, or payment of a fine; B. Had more than a total of three settled or pending complaints led against them and/or a total of five settled, pending, dismissed or denied complaints with any regulatory authority or Five Star Professional’s consumer complaint process. Unfavorable feedback may have been discovered through a check of complaints registered with a regulatory authority or complaints registered through Five Star Professional’s consumer complaint process; feedback may not be representative of any one client’s experience; C. Individually contributed to a financial settlement of a customer complaint; D. Filed for personal bankruptcy within the past 11 years; E. Been terminated from a financial services firm within the past 11 years; F. Been convicted of a felony); 4. Fulfilled their firm review based on internal standards; 5. Accepting new clients. Evaluation criteria – considered: 6. One-year client retention rate; 7. Five-year client retention rate; 8. Non-institutional discretionary and/or non-discretionary client assets administered; 9. Number of client households served; 10. Education and professional designations
The Five Star Wealth Manager award program recognizes and promotes wealth managers. Five Star Wealth Manager candidates were identified by one of three sources; firm nomination, peer nomination or pre-qualification based on industry standing. Five Star Professional notified advisors of their candidacy for the award via an email solicitation. Weatherly provided data in the form of an online survey submission and each advisor participated in a phone interview to confirm personal information. Neither Weatherly nor its employees were required to be a member of an organization to be eligible to receive the award. No payment was required of Weatherly to be considered for the award or to be named a Five Star Wealth Manager. Once awarded, wealth managers may opt to purchase additional profile ad space or related award promotional products. Weatherly purchased additional profile ad space in the Wall Street Journal and digital and hard-copy reprints.
Wealth managers do not pay a fee to be considered or placed on the final list of Five Star Wealth Managers. The award does not evaluate quality of services provided to clients. The Five Star award is not indicative of the wealth manager’s future performance. Wealth managers may or may not use discretion in their practice and therefore may not manage their client’s assets. The inclusion of a wealth manager on the Five Star Wealth Manager list should not be construed as an endorsement of the wealth manager by Five Star Professional. Working with a Five Star Wealth Manager or any wealth manager is no guarantee as to future investment success, nor is there any guarantee that the selected wealth managers will be awarded this accomplishment by Five Star Professional in the future. Five Star Professional is not an advisory firm, and the contents of the advertisement should not be construed as financial advice. For more information on the Five Star award and the research/selection methodology, go to www.fivestarprofessional.com. Five Star considered 2,018 San Diego wealth managers for the award; 219 (11 percent of candidates) were named 2020 Five Star Wealth Managers.
Five Star Professional conducts a regulatory review of each nominated wealth manager using the Investment Advisor Public Disclosure (IAPD) website. Five Star Professional also uses multiple supporting processes to help ensure that a favorable regulatory and complaint history exists. Data submitted through these processes was applied per the above criteria: 1) each wealth manager who passes the Five Star Professional regulatory review must attest that they meet the definition of a favorable regulatory history, based on the criteria listed above; 2) Five Star Professional promotes via local advertising the opportunity for consumers to confidentially submit complaints regarding a wealth manager; and 3) Five Star Professional contacted approximately 1 in 12 households identified as having a high propensity to use the services of wealth managers in order to provide consumers the opportunity to submit complaints regarding a wealth manager.
Receipt of this award is not representative of any one client’s experience and is not indicative of Weatherly’s future performance. Weatherly is not aware of any facts that would call into question the validity of the award or the appropriateness of advertising the award.
About Weatherly Asset Management, L.P.
Weatherly Asset Management, L.P. is a Registered Investment Advisor, located in Del Mar, California, dedicated to providing high quality, holistic and innovative wealth management services to high net worth individuals, small businesses and institutional clients since inception of the Firm in 1994. Our comprehensive approach to all aspects of a client’s financial life, the extensive experience of our principals, and the accessibility of experts, set us apart from other firms.
Our primary business focus is money management, with each account individually managed to maximize wealth preservation and growth over time. We also provide advice related to retirement planning, tax planning, philanthropic planning, financial planning and college planning, as well as estate planning and wealth transfer guidance. Our goal is to provide clients with as much information as necessary to effectively manage portfolios and help achieve their financial goals.
Weatherly Asset Management, L.P. is the investment advisory division of Weatherly Asset Management, Inc. As an independent partnership, the Firm is wholly owned and operated by the partnership.
There seems to be a new pattern emerging, another year and another tax overhaul. On December 20, 2019 President Donald Trump signed into law the Setting Every Community Up for Retirement Enhancement Act, better known as the SECURE Act, as part of the government’s new spending bill which will inevitably affect most retirement savers for better or worse. While the Act is quite extensive, we plan to focus on the key provisions most likely to affect you and your loved ones effective January 1, 2020:
- Changes effecting retirement plan beneficiaries
- RMD pushed to age 72
- Traditional IRA Contributions
- Qualified Charitable Contributions (QCD)
Removal of the “Stretch” Provision
Perhaps the most impactful change resulting from the SECURE Act is the elimination of the “stretch” provision for most non-spouse beneficiaries of inherited IRAs and other retirement accounts. Under the prior law, for those account owners who passed away prior to December 31, 2019, their non-spouse beneficiaries were able to “stretch” Required Minimum Distributions over their life expectancy, or in the case of a qualifying trust, over the oldest applicable trust beneficiary’s life expectancy.
Moving forward, for most non-spouse beneficiaries who inherit a retirement account in 2020 and beyond, the “10 Year Rule” applies. This new rules states that the entire inherited retirement account must be emptied by the end of the 10th year following the year of inheritance. Beneficiaries do have flexibility as to the timing and quantities of the distributions to help with the tax impact as long as the account has been depleted by the end of the 10th year.
While the elimination of the “stretch” provision will affect a significant portion of beneficiaries, there are a few groups deemed “Eligible Designated Beneficiaries” that will not be subject to the new legislation:
- Spousal Beneficiaries
- Disabled Beneficiaries
- Chronically Ill Beneficiaries
- Individuals who are not more than 10 years younger than the decedent
- Certain minor children of the original account owner, but only until they reach the age of majority. Age of majority follows state rules and thus will vary.
For these “Eligible Designated Beneficiaries”, the same rules that applied prior to the SECURE Act will continue.
The SECURE Act has not only changed the rules and requirements of individual beneficiaries but may also lead to significant changes where trusts are named as the beneficiary of a retirement account. In general, there are two different types of trusts that would be set up as a beneficiary of a retirement account, a Conduit “See-Through Trust” or a Discretionary Trust, and both types could have unfavorable outcomes as a result of the Act.
Many Conduit trusts are drafted in a manner that only allows for the RMD to be disbursed from an Inherited IRA, with a subsequent amount passed directly to the trust beneficiaries. With the amendments made by the SECURE Act, for those beneficiaries of trusts who do not fall under this new classification of “Eligible Designated Beneficiaries” and thus subject to the 10-year rule, there is only one year in which there is an RMD, the 10th year. This has the potential to lead to an unfavorable tax situation in which the entire account balance is ultimately distributed to the beneficiaries in the final year.
On the other hand, Discretionary Trusts don’t fare any better than the Conduit Trust. The reason for this is because Discretionary Trusts are typically drafted in such a way as to retain a portion if not all income and distributions within the trust. As such, any income or distributions that are retained in the trust are taxed at the maximum rate of 37% after just $12,950 of income. So, there is the possibility of not only the entire account balance having to be distributed by the 10th year but also the unfavorable trust tax rates if not distributed to the beneficiaries.
Now we intentionally said, possibility , because the IRS has not clearly outlined whether the Conduit or Discretionary Trusts that have an “Eligible Designated Beneficiary” of a spouse, minor child, or beneficiary within 10 years will “See-Through” to these beneficiaries and not be subject to the new SECURE Act rules. The Act does specifically provide guidance that such trusts can be treated as an “Eligible Designated Beneficiary” when the beneficiary of the trust is a disabled or chronically ill person. We will need to await further guidance from the IRS for a final ruling on other groups of “Eligible Designated Beneficiaries”.
Most retirees will not be affected by the change in Required Minimum Distribution (RMD) starting age, however, it is important to mention for those who are about to take their first RMD. The SECURE Act has changed the age an individual must begin taking RMD’s from 70 ½ to 72. So how do you know when you are supposed to begin taking your RMD if you turned 70 ½ in 2019 or will turn 70 ½ in 2020?
2019
For those individuals who turned 70 ½ years old in 2019, you will be required to take your first RMD by April 1, 2020. If you have already begun taking RMD’s in previous years, these changes will have no material effect on your RMD withdrawals.
2020 and beyond
For those individuals who are turning 70 ½ on January 1, 2020 and beyond (i.e. those individuals born after June 30th 1949), will not be required to take their first RMD until April 1 of the year following the year in which they turn 72. This isn’t a huge change but even one or two years of additional growth and contributions can be quite impactful on retirement accounts.
Another major change resulting from the SECURE Act is the elimination of the age limit for traditional IRA contributions. Under current law, Traditional IRA contributions are NOT allowed after 70 ½. However, the new act lifts this age limit and allows contributions past 70 ½ if there is earned income (Roth IRA’s have never had contribution age limits). With the new change, Traditional IRA’s are now aligned with the rules for Roth IRA’s and other retirement accounts.
Married couples filing their taxes jointly, can continue to contribute to their Traditional IRA as well as continue to make spousal IRA contributions for a spouse that is no longer working.
Qualified Charitable Contributions (QCD)
With RMD’s being pushed to age 72 and extension of IRA contributions, it would seem that QCD’s would follow suit, but in fact there were no changes to the rules. Individuals will continue to be able to utilize their IRA or Inherited IRA to make a QCD beginning at age 70 ½ and gift up to $100k per year. This will allow the individual to make the charitable contribution directly on a pre-tax basis. Beginning in the year an individual turns 72, any amounts given to charity via a QCD will reduce the then necessary RMD as well.It is important to note that post 70 ½ contributions will reduce any future QCD’s by an equivalent amount.
Additional Changes
In addition to the changes that we have covered thus far, below are a few other notable changes that have been introduced as part of the SECURE Act.
- A penalty-free distribution from a retirement plan prior to age 59 ½ for a qualified birth or adoption up to a lifetime limit of $5,000
- Medical expense deduction AGI hurdle rate of 7.5% extended for 2019 and 2020
- A repeal of the TCJA-introduced Kiddie Tax changes (reverting away from a requirement to use trust tax brackets and back to using the parents’ top marginal tax bracket).
- Reintroduction of the qualified higher education tuition deduction. Allows for up to $4,000 of qualified tuition to be used as an above line deduction
- Mortgage Insurance Premium Deduction: May continue to deduct premiums. AGI phaseouts begin when AGI exceeds $100k MFJ or $50k MFS
- 529 plans are now permitted to use up to a $10k lifetime amount for apprenticeship and repayment of student loans
- Employers may adopt plans that are entirely employer funded, such as stock bonus, pension plans, profit sharing plans, and qualified annuity plans, up to the due date (including extensions) of the employers return
How Weatherly can help:
- Review your beneficiaries
- Discuss your RMD distribution schedule
- Estate planning considerations for IRA beneficiaries
Useful links
https://www.irs.gov/pub/irs-drop/n-20-06.pdf
** The information provided should not be interpreted as a recommendation, no aspects of your individual financial situation were considered. Always consult a financial professional before implementing any strategies derived from the information above.
Carolyn Taylor was nominated for Shook Research’s 2020 Best-in-State Wealth Advisors list. She was invited to complete an online survey detailing information about her career, as well as Weatherly as a firm. Carolyn was named 5th out of the 80 named from Southern California. In total, the list showcased over 4,000 wealth managers. The list was published on January 16th, 2020 on Forbes.com at https://www.forbes.com/profile/carolyn-taylor/?list=best-in-state-wealth-advisors/#20c5853043d0
The 2020 Best-In-State ranking is based on firms’ AUM as of 6/30/19 and reflects Weatherly’s AUM of $863,756,581. After a routine internal audit, Weatherly’s corrected AUM as of 6/30/19 was calculated at $853,915,237. Weatherly disclosed this correction to SHOOK but the deadline for incorporating changes to the published list had past.
The 2020 Forbes ranking of Best-In-State Wealth Advisors, developed by SHOOK Research, is based on an algorithm of qualitative criteria, mostly gained through telephone and in-person due diligence interviews, and quantitative data. The ranking algorithm is designed to fairly compare the business practices of a large group of advisors based on quantitative and qualitative elements. Data are weighted to ensure priorities are given to dynamics such as preferred “best practices”, business models, recent business activity, etc. Each variable is graded and represents a certain value for each measured component. These data are fed into an algorithm that measures thousands of advisors against each other. The algorithm weighted factors including revenue trends, assets under management, compliance records, industry experience and those advisors that encompass best practices in their practices and approach to working with clients. Portfolio performance is not a criteria due to varying client objectives and lack of audited data. Neither Forbes nor SHOOK receive a fee in exchange for rankings. In total, 32,000 nominations were received and 7,556 advisors were invited to complete the online survey. Throughout the research process, 11,864 telephone interviews and 2,336 in-person interviews were conducted. The ranking listed over 4,000 advisors, 80 of which were located in Southern California.
Basic Requirements to be considered for the “Forbes Best-in-State Wealth Advisors” included:1) 7 years as an advisor; 2) minimum 1 year at current firm 3)advisor must be recommended, and nominated, by Firm, 4) completion of online survey; 5) over 50% of revenue/production must be with individuals; and 6) an acceptable compliance record. In addition to the above basic requirements, advisors were also judged on the following quantitative figures: 1) revenue/production; weightings assigned for each; 2)assets under management—and quality of those assets—both custodied and a scrutinized look at assets held away (although individual numbers are used for ranking purposes, the ranking publishes the entire team’s assets); 3)client-related data (i.e.retention.) NOTE: Portfolio performance was not considered – audited returns among advisors are rare, and differing client objectives provide varying returns. Qualitative considerations examined included but were not limited to: 1) telephone and in-person meetings with advisors; 2) advisors exhibiting “best practices” within their practices and approach to working with clients and 3)advisors that provide a full client experience (factors examined include service model, investing processes, fee structure (higher % of fee-based assets earns more points,) and breadth of services, including extensive use of Firm’s platform and resources; 4)credentials (years of service can serve as proxy); 5) use of team & team dynamics; 6) community involvement; 7)discussions with management, peers, competing peers, and 8)telephone and in-person meetings. Compliance records and U4s were also reviewed in detail as part of the selection process including: 1) infractions denied or closed with no action; 2) complaints that arose from a product, service or advice initiated by a previous advisor or another member or former member of team; 3) length of time since complaint; 4)complaints related to product failure not related to investment advice; 5) complaints that have been settled to appease a client who remained with the advisor for at least one year following settlement date; 6)complaints that were proven to be meritless; and 6) actions taken as a result of administrative error or failure by firm.
Weatherly Asset Management did not pay any fees to SHOOK to be nominated or included in the “Forbes Best-In- State Wealth Advisors” list and Weatherly was not required to advertise in, or subscribe to, Forbes. As of the time of this disclosure, Weatherly did not elect to pay for reprints of the list.
Inclusion in this ranking is not representative of any one client’s experience and is not indicative of Weatherly’s future performance. Weatherly is not aware of any facts that would call into question the validity of the ranking or the appropriateness of advertising the award.
SHOOK Disclosures
SHOOK is completely independent and objective and does not receive compensation from the advisors, Firms, the media, or any other source in exchange for placement on a ranking. SHOOK is funded through conferences, publications and research partners. Since every investor has unique needs, investors must carefully choose the right Advisor for their own situation and perform their own due diligence. SHOOK’s research and rankings provide opinions for how to choose the right Financial Advisor.
About Weatherly Asset Management, L.P.
Weatherly Asset Management, L.P. is a Registered Investment Advisor, located in Del Mar, California, dedicated to providing high quality, holistic and innovative wealth management services to high net worth individuals, small businesses and institutional clients since inception of the Firm in 1994.
Our comprehensive approach to all aspects of a client’s financial life, the extensive experience of our principals, and the accessibility of experts, set us apart from other firms.
Our primary business focus is money management, with each account individually managed to maximize wealth preservation and growth over time. We also provide advice related to retirement planning, tax planning, philanthropic planning, financial planning and college planning, as well as estate planning and wealth transfer guidance. Our goal is to provide clients with as much information as necessary to effectively manage portfolios and help achieve their financial goals.
Weatherly Asset Management, L.P. is the investment advisory division of Weatherly Asset Management, Inc. As an independent partnership, the Firm is wholly owned and operated by the partnership.
To close out 2019, Weatherly hosted it’s 2nd annual holiday food drive in partnership with the Jacobs Cushman San Diego Food Bank. This year, Weatherly collected 200 pounds of food which delivered 167 meals to local families in need this holiday season. In its efforts to combat food insecurity, the Jacobs Cushman San Diego Food Bank provides emergency food to 350,000 children and families, active duty military, and fixed income seniors living in poverty each month. Thank you to all our clients that helped make our food drive a success!
In November of 2019, Weatherly continued our annual tradition of setting up a cheering station for the Susan G. Komen 3-Day Walkers! The team dusted off our hot pink gear and handed out licorice treats and water to the walkers as they passed our office. Each year, we look forward to seeing our town turn pink in honor of raising money and awareness for breast cancer research. Since 2003, the Susan G. Komen walk has raised more than $848 million dollars for the cause. With every step, we get closer to the cure and we are proud to show our support for those who take on the challenge! Check out http://the3day.org/ to learn more about the walk!
Carolyn Taylor, Kelli Ruby, and Brooke Boone were listed as finalists for the 2019 San Diego Business Journal Business Woman of the Year award. Each year, the San Diego Business Journal (“Journal”) recognizes dynamic women business leaders who have contributed significantly to San Diego’s workplaces and communities. For the 2019 program, Carolyn, Brooke, and Kelli were listed among 96 finalists! Click here to view the full article. Not all nominees were finalists.
The San Diego Business Journal solicited nominations via email invitation to their mailing lists and via the paper journal circulation. Members of the Weatherly team nominated Carolyn Taylor, Kelli Ruby, Brooke Boone and Lindsey Thompson.
Nominees and finalists were as to provide contact information for professional references, and were evaluated based on their business accomplishments and community involvement. Weatherly supplied the information for the nominations by completing the Journal’s questionnaire.
Weatherly was not required to make payments or purchases to nominate, be nominated, be considered or included on the list related to the award. After receiving notice of the award, Weatherly paid the Journal for Brooke and Kelli to attend the awards ceremony program. No organizational memberships were required of the Firm or individuals. The advertisement of nomination for the award is not representative of any one client’s experience and is not indicative of Weatherly’s future performance. Weatherly is not aware of any facts that would call into question the validity of the award, nominations for the award, or the appropriateness of related advertising
About Weatherly Asset Management, L.P.
Weatherly Asset Management, L.P. is a Registered Investment Advisor, located in Del Mar, California, dedicated to providing high quality, holistic and innovative wealth management services to high net worth individuals, small businesses and institutional clients since inception of the Firm in 1994.
Our comprehensive approach to all aspects of a client’s financial life, the extensive experience of our principals, and the accessibility of experts, set us apart from other firms.
Our primary business focus is money management, with each account individually managed to maximize wealth preservation and growth over time. We also provide advice related to retirement planning, tax planning, philanthropic planning, financial planning and college planning, as well as estate planning and wealth transfer guidance. Our goal is to provide clients with as much information as necessary to effectively manage portfolios and help achieve their financial goals.
Weatherly Asset Management, L.P. is the investment advisory division of Weatherly Asset Management, Inc. As an independent partnership, the Firm is wholly owned and operated by the partnership.
For information on our wealth management team, and for a full list of services we provide, please visit: http://www.weatherlyassetmgt.com/team/
For information on our ADV filings and Compliance, please visit: http://www.adviserinfo.sec.gov/IAPD/IAPDFirmSummary.aspx?ORG_PK=106935
http://www.weatherlyassetmgt.com/adv/
If you would like to learn more, please contact:
Carolyn P. Taylor
858-259-4507
Carolyn@weatherlyassetmgt.com
“…In this world nothing can be said to be certain, except death and taxes.” -Benjamin Franklin 1789
What Benjamin Franklin said so many years ago still stands true today. There is no escaping death and taxes. While the individual tax filing extension date just passed on October 15th and as we gear up for our year-end tax planning strategy, we felt it would be a good opportunity to review the history of income taxes and role of the Internal Revenue Service (IRS).
As we all know, it is our civic duty as Americans to pay our fair share of taxes. Although tax is such a broad category including sales tax, state and local tax, property tax, excise tax, estate tax and much more, for purposes of this blog post we decided to focus our attention on federal income taxes. These taxes carry the majority share of the IRS revenue each year.
The IRS recently released data for the 2017 tax year. Although this was before the passage of the major tax reform bill in late 2017, The Tax Cuts and Jobs Act (TCJA), we wanted to analyze the numbers. Most taxpayers played their part as over 143 million tax returns were filed with individual income tax collections totaling $1.6 trillion dollars. Due to the progressive nature of the tax brackets, the average effective tax rate for 2017 was 14.6%. However, certain US citizens carried the bulk of the tax burden. The top wage earners are often scrutinized for utilizing various tax strategies to lower their amount of taxable income. So, let’s examine the top 1% of taxpayers and their impact on the IRS revenue.
To put things in perspective, to be a top 1% taxpayer, you would need income in excess of $515,371 (as of 2017). Although the top tax bracket for the 2017 year was 39.6%, these top 1% of taxpayers had an average individual effective tax rate of 26.76%. This is partially due to portfolio related income taxed at the preferential qualified dividend/long-term capital gains rates of 20% (highest capital gains tax rate). However, the top 1% of taxpayers accounted for 38.47% of the total income tax revenue collected by the IRS. Furthermore, the amount paid by the top 1% is greater than the amount of tax paid by the bottom 90% of tax payers combined (29.92% of total tax share). As these top earners pay much of the total share of income tax, we wonder if this will change in the future. This largely depends on the state of the economy and political landscape. Before predicting where we are headed with the 2020 election on the horizon, we wanted to look back at how taxes changed through different presidential administrations.
Abraham Lincoln 1861- 1865
Although short lived, the Revenue Act of 1861 imposed the first tax on the American people. The tax was 3% on income over $800 and it was used to pay for the Civil War. To enforce collection, the Internal Revenue Service (IRS) was created on July 1, 1862. This tax was repealed by Congress in 1871.
Grover Cleveland 1885-1889, 1893-1897
In 1894 Congress tried to enact a federal flat rate income tax but the U.S. Supreme Court ruled it unconstitutional because of the varying population in each state. What a time to earn money!
Woodrow Wilson 1913- 1921
In 1913, The IRS created form 1040 for better tax reporting and record keeping. Additionally, the 16th Amendment was changed so taxes did not need to be proportionate to state population. Then a 1% tax was placed on income over $3,000 and 6% on income over $500,000. In 1916, the tax was increased to 2% to aid in World War I expenses. Taxes changed yet again in 1917 by placing the 2% tax on all income over $1,000 and the surtax increased to 63%. By 1920, taxation revenue was up to $6.6 Billion, but fell to $1.9 Billion by 1932 as a result of the Great Depression.
Herbert Hoover 1929-1933
The Revenue Act of 1932 ended up being a major tax reform in US history. The bill caused increased tax rates across the board with the lowest rate starting at 4% and gradually increasing to the highest rate of 63%. This greatly impacted high earners and caused the affluent to explore various tax strategies to reduce income. Corporate taxes also increased by nearly 15%.
Franklin Roosevelt 1933-1945
With the wealthy uncovering several tax loopholes, President Franklin Roosevelt sought out to tax the rich to offset the large deficits created by the New Deal. In 1944, he raised the top marginal tax rate to its highest rate ever, 94%, to help fund the war. And then in 1945, he lowered the rate down to 86.45%. By 1945, yearly tax revenue was $45 billion, up from $9 billion in 1941. Much of this increase was required to fund Social Security which was established in 1935.
Harry Truman 1945-1953
Although Republicans in the Senate and House were able to cut rates in 1948, President Truman increased taxes in 1950 to raise money for the Korean War. The lowest and highest tax brackets increased to 20% and 91%, respectively.
Lyndon B. Johnson 1963-1969
The Revenue Act of 1964 was initially pushed for by President John F. Kennedy but implemented by President Lyndon Johnson. The idea was to cut tax rates to increase job growth. This act cut the top rate to 70%. Furthermore, the standard deduction was initiated and set at $300. Then, in 1965 Medicare was introduced. Similar to other social programs like Social Security, Medicare made it more difficult to lower taxes without running large deficits.
Ronald Reagan 1981- 1989
President Ronald Reagan’s Economic Recovery Tax Act of 1981 greatly reduced the top tax rate from 70% to 50%. The law also indexed tax brackets for inflation. His hope was to encourage savings and investments to stimulate economic growth. Then again in 1986, Ronald Reagan created the Tax Reform Act to further cut taxes and simplify the tax code. The top rate was lowered to 28%, and the standard deduction and personal exemption were increased. This favored many but was extra beneficial to low-income households.
George H.W. Bush 1989- 1993
President George H.W. Bush passed the Omnibus Budget Reconciliation Act of 1990. This raised the top rate to 31% in efforts to reduce the federal deficit.
Bill Clinton 1993-2001
Bill Clinton raised the top tax bracket to 39.6% in 1993. He also increased the taxable portion of Social Security benefits. In 1997, President Bill Clinton signed the Taxpayer Relief Act. The act introduced new tax breaks for families with dependent children and education costs. It lowered the capital gains tax rates to 10-15% to encourage investments. The Roth IRA was born.
George W. Bush 2001-2009
President George W. Bush implemented The Economic Growth and Tax Relief Reconciliation Act of 2001 to lower tax rates and drop the top rate to 35%. A new 10% tax was imposed for the first $6,000 of income for individuals ($12,000 for married couples). Bush also initiated The Jobs and Growth Tax Reconciliation Act of 2003. This act cut taxes again and lowered capital gains rates. This greatly benefited high earners.
Barack Obama 2009-2017
The Obama American Taxpayer Relief Act of 2012 and Obama’s Affordable Care Act of 2010 increased the tax rates with the top rate being 39.6%. It also placed additional taxes relating to health care. The Net Investment Income Tax (NIIT) was also created which imposed a 3.8% surtax intended to tax portfolio income over a certain threshold. Learn more about NIIT here.
Donald Trump 2017- Present
President Trump pushed the Tax Cuts and Jobs Act of 2017 through Congress, with numerous changes to the tax law. To highlight a few, the standard deduction nearly doubled, various tax deductions were eliminated, estate tax exclusion nearly doubled, individual tax rates were lowered, and corporate tax rates dropped significantly to a flat 21%. The top individual rate is currently at 37%. A Sunset provision was also enacted which would cause some of the changes to revert to prior law in 2026.
To review details of the current tax law, please reference our 2019 Key Financial Data Sheet.
When reflecting on our country’s long history of taxes, it is evident that we have come a long way since 1861! As the 2020 election nears, discussions about expanding social programs and health care reform polarize political debates. As we do not have a crystal ball to see into the future, we will reserve judgement on what will happen with the tax code going forward. However, we believe it is important for investors to focus on what they can do today.
Although income taxes are often the highest tax US citizens pay, capital gains tax from investment portfolios can also be costly. As we are in the longest bull market to date, it is becoming more challenging to offset gains. Many investors face a difficult question when seeking to rebalance or de-risk their taxable investment accounts. Do you sell investments to reach your target allocation and incur additional taxes OR pay no taxes (by making no changes) and have a higher risk exposure to equity investments? As this can be a costly question, investors can look to tax strategies in other areas to help limit the total liability.
Some of these tax strategies include-
- Contributions to retirement accounts
- 401Ks and self employed 401Ks (by year end)
- Traditional IRAs and Roth IRAs (by April 15th of 2020)
- SEP IRA (by April 15th or October 15th if filing an extension)
- Donations to Charities
- Qualified Charitable Distribution (QCD) through IRA
- Donations to Donor Advised Fund (DAF)
- Tax Loss Harvesting
- Utilizing Old Tax Loss Carry Forward or Net Operating Losses for businesses (NOL)
As your trusted advisors, we are happy to elaborate on the strategies above and explore potential opportunities. As the bulk of this planning needs to be completed PRIOR to yearend, it is important to take action sooner than later. To allow us ample time to review and make recommendations to your specific situation, please provide us with your 2018 tax return at your earliest convenience.
As opinions vary around the topic of taxes, we hope to find common ground by concluding with a quote from famous historian, Albert Bushnell Hart, – “Taxation is the price which civilized communities pay for the opportunity of remaining civilized.”
Further Reading:
https://www.gobankingrates.com/taxes/tax-laws/biggest-tax-reforms-in-us-history/#10
https://www.irs.gov/pub/irs-pdf/p1304.pdf
https://www.history.com/news/why-we-pay-taxes
https://www.forbes.com/2010/04/14/tax-history-law-personal-finance-tax-law-changes.html#5dad45da1cf8
** The information provided should not be interpreted as a recommendation, no aspects of your individual financial situation were considered. Always consult a financial professional before implementing any strategies derived from the information above.
In the 2017-2018, the SDHS served over 67,000 animals through pet adoptions, wildlife rehabilitation, community spay/neuter service and more. This year, thanks to the support of our communities, the SDHS is on their way to serving even more animals per year! In the fall of 2019, our team paid a visit to the Gaines Street campus of this great organization for a behind the scenes tour and afternoon of volunteering. We spent time socializing a few of the resident bunnies, made dog toys, and sorted food for the PAWS program whose focus is providing animal services and products to under served communities in San Diego, allowing many the ability to keep their pets when they otherwise wouldn’t be able to. To learn more about this organization and how to get involved please visit: https://www.sdhumane.org/support-us/