Posts Taged investments

Tax Considerations for the Working Individual Reviewing 2018 Returns – Investments, Income, and Other Issues

Investments and income are typically the two biggest players in your tax plan. After all, these are likely to be your primary sources of personal revenue.

When it comes to planning your tax strategy, you need to consider a variety of factors related to your income and investments, as well as some various issues that are related to these categories. Here are the top considerations to make for income, investments, and other issues.

This article is second in a series on Tax Considerations for the Working Individual. Read of the series here:

  1. Tax Considerations for the Working Individual – Family and Filing Issues
  2. Tax Considerations for the Working Individual – Investment Income and Other Issues
  3. Tax Considerations for the Working Individual – Qualified Plan Issues

 

Investment Income Issues

Depending on your specific investments, there are a few areas on your 2018 return to check and ensure whether you’re on the right path for your 2019 tax strategy.

 

Interest

Are your investments earning interest? (Review From 1040, Lines 2a and 2b) Did you receive any dividends? (1040, Lines 3a and 3b) If you answered “yes” to either of these questions, you need to reference Schedule B for more information about which accounts are generating interest and whether dividends earned are qualified or ordinary.

 

Income and Investments

If you’re self-employed and your income is greater than $200,000 ($250,000 married, filing jointly), you may be required to pay and additional Medicare tax at 0.9% (consult Form 8959). For all working individuals, if your income is greater than $200,000 ($250,000 MFJ), and you have high Net Investment Income (see Form 8960), your income may be subject to a Net Investment Income Tax at 3.8%.

 

 

Capital Gains

Remember, your capital gains and losses also count toward your income and make a difference at tax time. For capital gains distributions, consult Schedule D, Line 13; for losses look at Schedule D, Lines 6 and 14. Verify whether short- or long-term loss carryovers are properly accounted for.

 

Income Issues

While you’re probably already making notes of income changes from 2018 to 2019, here are some specifics to focus on during your review.

 

W-2 Employees

If you’re a W-2 employee, you’ll want to review your W-2 for any HSA and FSA contributions from both your employer and your pre-tax income. Additionally, you need to review your retirement plan contributions and employer matching.

 

Stock Options

If you are part of an employee stock option or have any other type of equity compensation, you will need to consult your 2018 return to see how this impacted your tax strategy during the last year. Look at your W-2 and Schedule D to learn more about how your get a better understanding of your tax responsibility for exercising or selling your option. If you filed an 83(b) election, ensure that you prepare one this year as well.

 

Other Issues

There are, of course, some odds and ends issues that are difficult to classify with other categories. However, when you’re filing your taxes, it’s important to account for all of your financial activities. Here are some additional issues you want to watch out for.

 

State-Specific Issues

You will want to take a look at your state return, in addition to your federal one, to look for specific issues unique to your locale. If you have recently moved or earned income in another state during the calendar year, consult a financial professional to learn about the tax laws that apply to your situation.

 

Real Estate

If you have real estate investments, consult Schedule E to see how to properly claim your rental income.

 

Student Loans

You may be able to claim interest paid from student loans if you paid any this year. Look at Schedule 1, Line 33 to see whether the deduction applies to your situation.

These are only some of the considerations that you need to make as you review your 2018 tax return and prepare for the upcoming tax season. To learn more about tax considerations for the working individual, consult our resources on family and filing issues.

This article is second in a series on Tax Considerations for the Working Individual. Read of the series here:

  1. Tax Considerations for the Working Individual – Family and Filing Issues
  2. Tax Considerations for the Working Individual – Investment Income and Other Issues
  3. Tax Considerations for the Working Individual – Qualified Plan Issues

 

This information is not intended to be a substitute for specific individualized tax advice.  We suggest that you discuss your specific tax issues with a qualified tax advisor. 

Tax Considerations for the Retiree – Investment Income and Other Issues

Your income situation as a retiree is probably quite a bit different than it was when you were working. There may be multiple streams of income to account for, as well as other unique factors to consider from year to year.

Investment income is an essential item to cover here, since this is likely to represent a meaningful portion of your retirement income. There may also be some odds and ends that impact your tax strategy in other ways, so we’ll take a look at those too.

This article is second in a series on Tax Considerations for the Retiree. Read of the series here:

  1. Tax Considerations for the Retiree – Family and Filing Issues
  2. Tax Considerations for the Retiree – Investment Income and Other Issues
  3. Tax Considerations for the Retiree – Qualified Plan Issues

 

When it comes to your investment income, here are the issues you want to consider:

 

Are You Reporting Investment Interest?

Investment interest should be reported on Form 1040, Lines 2a and 2b. You will also want to look at Schedule B to get a better idea of which accounts are generating interest and see how you reported them in 2018.

 

Did You Receive Dividends?

Dividends will also be reported on Form 1040, but on Lines 3a and 3b. Again, look at Schedule B to see whether the dividends are ordinary or qualified and how to proceed with reporting this income.

 

How Does Your MAGI Impact Your Net Investment Income?

If you have a MAGI above $200,000 ($250,000 MFJ), and significant investment income, you may be subject to an additional Net Investment Income Tax of 3.8% (Form 8960). Talk to your tax professional to learn more about whether this additional tax will affect your bottom line and to see whether there are strategies you can use to offset this liability.

 

 

Did You Have Capital Gains or Losses?

Look at Form 1040, Line 6 for reporting capital gains or losses. If you have Capital Gain Distributions, you’ll want to consult Schedule D, Line 13 for more information about reporting. For losses, look to Schedule D, Lines 6 and 14 to calculate your short- and long-term loss carryovers. Ensure that you account for losses carried over from previous tax returns.

 

Other Issues

Additionally, there are some tax issues that fall outside of the broader categories, but still need attention when you’re working on your tax strategy. These other issues include:

 

Medical Expenses

If you had large medical expenses during the year, you may be able to deduct a portion of the expenses from your tax responsibility. Look at Schedule A, Line 1 to understand more about your medical expenses and the deduction limit. You will also want to factor your Medicare Premiums and Long Term Care Premiums into your total medical expense figure.

 

State Taxes

As always, you will need to consider your individual state tax responsibility in addition to your federal taxes. Your state tax return from 2018 should contain information to help you get a better idea of what your state tax liability will be for this year. Your tax professional can help you to determine how state laws impact your tax strategy.

 

Real Estate

If you own rental properties, you may be able to claim deductions. Consult Schedule E for more details on how to claim your rental real estate deductions.

These are only some of the considerations that you need to make as you review your 2018 tax return and prepare for the upcoming tax season. To learn more about tax considerations for the retiree, see our post on family and filings issues.

This article is second in a series on Tax Considerations for the Retiree. Read of the series here:

  1. Tax Considerations for the Retiree – Family and Filing Issues
  2. Tax Considerations for the Retiree – Investment Income and Other Issues
  3. Tax Considerations for the Retiree – Qualified Plan Issues

 

This information is not intended to be a substitute for specific individualized tax advice.  We suggest that you discuss your specific tax issues with a qualified tax advisor. 

Ask Jake: What are some common mistakes that investors make?

Whether you’re new to investing or have been investing for years, it seems like there’s always something new to learn. As regulations change, markets move, and time goes by, investors frequently face new challenges.

While there’s no way to ensure that you’re never going to make an investing mistake, there are some ways to become a better investor. Today, we’re talking to Jake Sturgill to learn more about some common mistakes that investors make – and savvy investors can avoid these pitfalls.

Here are some common investor mistakes, according to Jake:

  1. Over diversification

Many financial experts claim that diversification is one of the most important things to consider when investing. But sometimes, too much of a good thing is simply too much. 

Over-diversification is, in some ways, owning nothing by owning everything. This mistake manifests itself when you have a core portfolio, then purchase something else… and something else… All of a sudden you own a bunch of stuff that more resembles a nicely curated collection of financial trinkets as opposed to a healthy investment portfolio.

  1. Under-diversification

The flip side to over-diversification is, of course, under-diversification. This is the impulse to keep narrowing your portfolio down to “what’s working”. In theory, choosing what works is a good idea, but as the markets approach significant tops, the basket of “what’s working” typically shrinks to just one or two ideas. So, under diversification is essentially narrowing a portfolio to one idea — this is a big mistake.

Here are some examples of under-diversification:

  1. You have just one stock — maybe you inherited it or worked for a company with a stock option for 30 years. You can get wealthy by under-diversifying in this way, but you cannot stay wealthy over the long-term.
  2. You chase hot managers or sectors — hot investments can be thrilling, but they can present significant volatility and risk. While some investors can stand to dedicate a portion of their investing “pie” to these investments, they aren’t for everyone.
  3. Euphoria or Overconfidence

In summary, euphoria or overconfidence is really just greed. When you get caught up in euphoria, you lose sense of the principal risk. When you forget about risk to principal, then you instead worry about being outperformed.

It’s not uncommon for euphoria or overconfidence to pair with Mistake 2: under-diversification, especially if you’re chasing hot markets. If you’re prone to investor overconfidence, it’s imperative to align yourself with an advisor who knows when to anchor you to a more sound investing strategy.

  1. Panic 

And of course, the opposite of overconfidence is panic. Both stem from an emotional investing attitude and can be detrimental to your portfolio’s performance.

Panic is the failure of faith in the face of the apocalypse du jour. Just as it’s wise to avoid fear-driven panic selling during extremely volatile periods in financial markets, it’s also wise to avoid greed-driven euphoric buying during extremely bullish periods — again, it all boils down to avoiding mixing emotions with investments!

Panic can be sneaky and almost always rationalizes itself. You might think: I have to get out until we see who wins the election, I need to get past depression, wait for this deficit to get under control, for inflation to get under control, for unemployment comes down.

If you look hard enough for a reason to panic, you’ll find one. For many investors, the source of their panic is driven by current events.

Bottom line? It is perfectly normal and okay to feel fear about current events/political climate/market performance but it is generally not advisable to act on the fear.

  1. Speculating when you think you’re still investing

When you’re investing, at some point you’ll probably hear the siren song of a new era and be tempted to chase hot price trends instead of evaluating investments on their intrinsic values.

Remember, an investment is an identification of value. Speculation is a bet on the continuation of a price trend. Speculatory behavior is not a suitable strategy for most people.

This ties into the whole euphoria/under-diversification class of mistakes — you chase what’s hot, what’s working right now. Performance chasing can be thrilling, but again, it’s probably not going to play out well next quarter, next year, next decade.

Some recent examples of hot trends include: tech stocks in 1999, real estate in 2005, oil in 2008, gold in 2010. Investors look to recent patterns: typically investments that have done well for the past 5 or so years, and assume that this record is strong enough to bring them success over time. Speculating on hot trends always seems intelligent at the moment, but can be costly in the long-run.

  1. Letting your cost basis dictate your investment decisions

One common mistake you might make is asking your investments to behave differently because of what you paid for them. After all, you put in the investment; now you want the payout. This kind of thinking can cloud your judgement and make it difficult to know when to cash in or offload under-performing investments.

Some investors make great fortunes by owning one spectacularly successful stock, but end up giving it all back by refusing cash in and to pay capital gains taxes on the earnings. In reality, capital gains taxes are lower than ordinary income taxes, but some investors lose sight of the big picture when they view the tax as a loss on their big gain.

Of course, there’s always the temptation to hang onto a poorly performing investment for too long because of the mentality that you need to stick it out long enough to earn back what you put into it. Maybe you’ll earn it back, maybe you won’t. In many cases, your money would do better elsewhere.

Want to avoid these investor mistakes?

It’s hard to avoid investor mistakes, since most of avoiding investor mistakes simply means keeping a clear head and considering your investments in purely objective terms. Removing emotions from money is a challenge!

Instead of trying to check yourself and risking the primary investor mistakes, look for a financial advisor who can help you to stay on track and act as a voice of reason when you are uncertain.

If you’re ready to approach your investing with a new perspective, contact Jake today to identify the investor mistakes you’re most likely to make and how to avoid them in the future!

 

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio.  Diversification does not protect against market risk. 

Your Mid-Year Financial Check-In

Keeping an eye on your financial health and investment performance is essential for staying on track for meeting your financial goals. To stay up to date, it’s important to schedule regular meetings with your financial advisor – and a mid-year meeting may be just the right place to start.

As summer comes to a close, it’s an ideal time for a financial tuneup. In addition to any personal questions and concerns you may have concerning your portfolio, here are some areas to check on when you meet with your financial advisor.

Review Your Investments

The only thing that’s certain about your investment portfolio is that it will always be changing. Over time and as markets fluctuate, certain investments may perform better than others. To stay on course with your financial benchmarks, you need to keep track of how your investments are performing.

Your financial advisor can help you monitor portfolio performance and provide direction when you have questions or concerns. If you decide it’s time to take a different approach to your investment mix, your advisor can help you explore different options that might make sense for your situation.

Take a Look at Your Tax Obligations

It’s a good idea to take a mid-year review of your tax obligations and formulate a tax strategy before you file next tax season. A financial professional can provide the guidance you need to review your situation and try to avoid any surprises once the new year rolls around.

As you work through your tax strategy, you will want to review your lifestyle and income to see whether there are any factors that could impact your potential tax return. Factors like a career change, a new home, or retirement could make a big difference when it comes time to file.

Mid-year is also an ideal time to tweak your strategy in order to offset your tax liability. You can defer funds to charitable giving and retirement investing or look into other strategies in seeking to maximize your potential return.

Make Adjustments as Necessary

Likely, after reviewing your income, investments, tax liability, and other factors, you’ll probably have some questions. Perhaps you’ll feel the need to make an adjustment here or reconsider an investment there.

Your financial advisor is the ideal partner for working through these mid-year changes. Not only can your advisor help you to work through paperwork and get into the details of your specific portfolio, but they can also provide professional guidance to interpret how your financial activity aligns with your financial goals and benchmarks.

By taking advantage of periodic check-ins – such as the mid-year meeting -, you can keep a finger on the pulse of your financial performance and hopefully avoid major surprises. Even when unexpected events occur, your advisor can help you navigate the outcome by bringing a more neutral perspective to balance any emotionality you might be tempted to act upon.

Are you ready for your mid-year financial check-in? Contact Puckett & Sturgill Financial Group today to schedule a consultation.

Portfolio on Purpose

Behavior Gap Illustration - Puckett & Sturgill Financial Group

When you look at your investment portfolio, do you know why you own what you own?

  • Does it look like the picture on the left, an eclectic mix of things accumulated over the years?
    OR
  • Does it resemble the picture on the right, with each piece intentional, organized, structured, well thought out?

 

If you’re like many people, your portfolio looks more like a collection – it has a little bit of everything in it. These bits and pieces might include inheritance, something you invested in after read about it (or saw it on TV, heard a tidbit from co worker), last years hot performer, and so forth.

In a purposefully designed portfolio, each piece of your portfolio should work together. The goal is not to beat “the market” (after all, what is the market anyway?), but for each piece to work in unison to achieve your goals.

Because your investments will eventually be used for something, you may believe the logical thing to do is start with viewing your investments in isolation. But you run the risk of hurting yourself in the long run.

Instead of viewing your investments myopically, it’s important to see the whole picture. You want to look at your investments as a means to an end, rather than the end in and of themselves.

Sounds easy enough.. How do we do it? First, start with end in mind.

DO: Prioritize Your Ideal Financial Future (Clarify Goals)

  • Give yourself permission to take your best guess at your financial goals. For example, your favorite artist, movie, etc has likely changed throughout your life. Your idea today of your financial future may be different than what you ultimately end up prioritizing.
  • If you start with a desired end point, it becomes easy to work backward to figure out what you need to do for your financial portfolio today.
  • This can be very challenging. How do you know what is important to you? “They” say the checkbook and the calendar never lie. Start with your daily reality today and work from there.

DO: Develop a Plan

  • Set realistic expectations for your portfolio performance.
    • How much do you think you will need?
    • How much can you reasonably save?
    • When do you need your money? (i.e. what is your time-frame?)
    • What rate of return do you need?
  • While market performance is important, market performance should not be the ultimate goal – achieving your desired financial state should be.

DO: Find the Investments that Fit Your Plan

  • Revisit your portfolio periodically (at least annually) and make smaller changes to it over time.
  • If you know where you are going, it’s easier to know what it is going to take to get there. Think of going on a road trip; you know you’ll need to gas up at some point – but you probably don’t know which exit you’ll actually need to stop at!

Choose a Financial Advisor Who can Help

We are all human. Life happens. Things change.

There are always going to be things that seem like better options or bigger risks in the market. Sometimes it seems like one of these factors could jeopardize everything and you may be tempted to make changes.

Blind spots are, by their very definition, things we cannot see. A trusted advisor, like Jocob Sturgill, can help you clearly define your goals, set realistic expectations, sidestep common investment mistakes, and build intentional investment portfolios.

Contact Jacob Sturgill

Important Disclosures:

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Investing involves risk including loss of principal.

Managing Wealth by Managing Emotions

Dollar Bills - Puckett and Sturgill Financial Group

How do your finances make you feel?

Do you feel anxious about growing or sustaining your retirement funds?

Hopeful for the impact your legacy will leave?

Concerned with market fluctuations you see covered in the evening news?

When it comes to managing your wealth, it can be complicated to separate your emotions from your investments. But could your emotions be feeding into the less-than-stellar performance you fear?

Likely, yes.

However, there are ways to strive to get the most out of your financial activity.

Understand and Identify Emotional Investing Behavior

Before you can reverse the trend of emotional investing behavior, it’s important first to understand what the behavior looks like. You won’t be able to successfully overcome your emotions until you can identify the things that trigger emotional responses.

What should investors do in the following scenario:
a. Buy low, sell high (and make a profit)
b. Buy high, sell low (and lose money)

The answer here, as we all know, is “a”. However, market trends play heavily into investor emotionality and real life is not so simple. After all, it can be difficult to tune out the barrage of financial information you receive each day.

Everyone wants to avoid major investment losses and own the next hot company with an amazing product that has been all over the news.

When it comes to exciting investment opportunities, should investors:
a. Research the company (mutual fund, ETF, etc) and potentially invest?
b. Ignore the news, stick to their long term plans, and invest as before?

The answer to the second question is not as easy. Although “a” might feel more natural because of the positivity, you know that “b” is probably the right answer even though it might not feel as good. This is why you see articles with titles such as “10 Funds to Own Next Year”, “Where to Invest Now”, or “All Signs Point to Bear Market”.
Whether you see something on the news, read a blog post about downturn in the tech sector, or are exposed to negative opinions on certain financial ideas in a Facebook group that you participate in, it can be hard to get through a day without something shaking your confidence in your financial future.

Being impacted by this information isn’t necessarily a bad thing. It’s what you do as a result of receiving new – and often conflicting – information that matters.

Don’t Follow Emotional Investment Trends

It can be hard to resist the knee-jerk reaction to receiving information that makes you question your investment decisions. And this is a pattern that’s surprisingly prevalent throughout the larger history of human financial behavior.

Think of events like the Great Depression, Black Monday and the recent financial crisis of 2008. Each of these events has something major in common: investors reacted with fear to significant financial news and pulled their money out of investments that they thought might cause them future harm.

When markets are bad, people may be anxious to rid themselves of their investments and may sell as quickly as they possibly can. Of course, when everyone is trying to sell, the market becomes saturated and prices decline, sometimes excessively – think back to returns during the aforementioned periods.

Conversely, when things are going well, people may become confident and may want to invest more money. This is a self-fulfilling prophecy that causes prices to rise. Purchasing when things look good and prices have risen is the very definition of “buying high”.

Manage Your Investments by Seeking the Right Counsel

Despite what we may see on the surface, investing, at times, is not natural. This matters because if we do not understand investing, we can lose our money.

So how can you avoid emotionality in investing?

First, understand that investing is about more than missing a hypothetical gain or avoiding a hypothetical loss. Investing should be about designing a plan to reaching our goals, finding the right investments for the plan, and making adjustments along the way.

A CERTIFIED FINANCIAL PLANNER ™ practitioner can help ease your fears as you consider your investments and will help you decide which options are the best for your present status, as well as your future. Even if you have a hard time taking a step back to view your financial factors objectively, your financial advisor can help you see through them with clarity.

Certified Financial Planner, Jacob Sturgill, can help you look at the markets objectively

IMPORTANT DISCLOSURES

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.