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Tax Efficient Retirement Planning Schedule Your Retirement Planning Call

If your taxable income is between $315,000 and $415,000, you could be paying a higher tax rate than any other taxpayer. July 2018 MONOTELO QUARTERLY Quarterly: Oct 17 STAYING OUT OF THE "DANGER ZONE" OF THE NEW SMALL-BUSINESS DEDUCTION The Tax Cuts and Jobs Act introduced a 20% deduction for small business owners. You can read our overview of this deduction in our last quarterly article. The gist of this new deduction is it will allow small-business owners to deduct 20% of their business income from their taxable income on their personal return. While this new deduction provides some welcome relief for small-business owners, there are restrictions on the deduction that highlight how critical proper tax planning is in 2018. If your business qualifies as a “specified service trade or business ” then your deduction will start to be phased out at taxable income of $157,500 ($315,000 if married filing a joint return) and entirely eliminated at taxable income of $207,500 ($415,000 if married filing a joint return). While this means any service business owner with taxable income above $415,000 will receive no benefit from the deduction, the toll is heaviest for any business owner who lands in the middle of the phaseout range. Example: John and Mary own a small consulting business and have taxable income of $315,000. Since they are right at the lower phaseout threshold they will receive the full deduction and their taxable income will be $252,000 ($315,000 x 80%). The tax they will pay on this income is $49,059. Now if their taxable income increases by $100,000 they will be completely phased out of the deduction and their taxable income will jump from $252,000 to $415,000, increasing their tax bill to $96,629. That is $47,500 in federal taxes alone on $100,000 of income. With what is effectively a marginal tax rate of 48%, small-business owners with taxable income between $315,000 and $415,000 are paying a higher tax rate than any other taxpayer! To avoid this heavy tax burden, proper tax planning is critical to reduce your taxable income and stay out of this “danger zone” of high taxes. Strategies to Reduce Your Taxable Income Contribute to a retirement plan. As a small-business owner, you have several options to save for retirement while simultaneously avoiding the heavy tax burden of this phaseout range. By setting up a SEP IRA you can contribute up to $55,000 per year (subject to earned income limitations). A SEP IRA is a simple way to defer significant income for retirement and works best when you are the sole employee. If you have other employees in your business, be aware that you will need to contribute an equal percentage of wages for each eligible employee. Make the most of your medical expenses Take advantage of the deduction for self-employed health insurance premiums . Unless you or your spouse are eligible to receive subsidized health insurance through your employer, you can reduce your taxable income by paying your health insurance premiums through your business. Set up a Health Savings Account . If you have a High-Deductible Health Plan then you can contribute up to $6,900 per year to save for future medical costs. Your contributions will lower your taxable income in the year they are made, and as long as your distributions are for qualified medical expenses they will be tax-free. Increase your charitable donations. If you find yourself in the middle of this phaseout range after an exceptionally successful business year, then you may already be considering increased charitable donations. With the large tax burden you could be facing in this phaseout range, the tax deduction from your donations will be more valuable than ever. These are just a few of the options available to you to lower your taxable income and avoid this danger zone of high taxes. Even if you don’t expect your income to reach the phaseout level for the new deduction, you can still realize significant tax savings by taking advantage of these strategies to lower your taxable income. Previous Article Next Article

Set up user access in Chase Bank for accountant view-only access: 1. Navigate to the account management section after logging in to your Chase Bank account. 2. From there, select the "Access and Security Manager" option. 3. Next, choose "Add Authorized User." 4. You will then be prompted to input the necessary information for the new user. Enter the first and last name of your Monotelo accountant, as well as the email address and phone number. First & Last Name: John Smith Email: john@monotelo.com Phone number: 800-961-0298 5. Then, on the next page, select only limited access, remove travel, and full access. Hit submit. 6. You can select the appropriate permissions for the new user. In this case, your Monotelo accountant only needs to see activity and check images, documents, and statements. 7. After you select the appropriate permissions, you should review and confirm the information entered and then submit the request. 8. Chase Bank will then email your accountant at the provided email address with instructions on accessing your account at Chase. 9. Your accountant should check their email for the invitation and follow the instructions to accept it. The invitation may expire after 24 hours, so your accountant should accept it immediately. 10. Once your accountant has accepted the invitation and set up their login credentials, they can access your account with view-only access. Congratulations! You have successfully set up user access in Chase Bank for your accountant with view-only access.

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One step away to save on your taxes. Schedule a quick 10-minute, no-obligation consultation. INTRODUCTION Realtor Sam, while a real person, is not the actual name of this real estate agent. We have changed the name to protect the innocent! The Realtor Sam case is a case we examined in 2015, which had similarities to cases that had come across our desk in the past. Realtor Sam had been in the real estate business for nearly twenty years. He was not only selling real estate, he also owned several residential properties that were generating significant cash flow and taxable income. Realtor Sam had incorporated his commission-based business as a C-Corp ten years prior to our interaction with him. Apart from a bad year in 2013, his gross commissions were generally around ninety-five thousand dollars per year and his commission-based business was generating around forty-thousand per year in free cash flow after all his expenses were paid. What made Realtor Sam’s case unique was the fact that his investment properties were generating significantly more income than his commission-based business. THE CHALLENGE By incorporating his commission-based business, Realtor Sam had taken the first step towards a tax-efficient business structure. However, there were additional steps he should have taken when he first set up his business ten years earlier. Because of the way Realtor Sam had structured his compensation from his C-Corporation for his commission-based income, he was regularly generating losses on his corporate tax returns. Worse, because he was set up as a C-Corporation, those losses could not be used to offset the income he was generating from his rental properties. These issues were causing Realtor Sam to significantly overpay on his tax returns every year. THE SOLUTION Fortunately, we were able to put a plan together for Realtor Sam to help get him back on track. Our first goal was to take advantage of the accumulated losses on his corporate tax return. To accomplish this, we made some adjustments to how he was compensating himself through the business. Our second goal was to help him efficiently pull profits out of his business by taking advantage of some provisions in the Internal Revenue Code that were available to him as an officer of a corporation. These changes reduced his tax bill in the first year by $9,000 and by $5,500 in each of the subsequent years. These results were beyond what we had expected, and beyond what we generally see for someone with Realtor Sam’s taxable income, but they do demonstrate what can happen when we apply a deep understanding of the tax code as it relates to real-estate centered businesses. At Monotelo our focus is more than tax preparation, it is to make a difference with actionable and meaningful financial solutions that positively impact our clients’ lives. Save as PDF

Bitcoin - Caveat Emptor or Ship It In? This presentation is for informational and educational purposes only. This content should not be construed as financial or legal advice, and should not be interpreted as a recommendation to purchase Bitcoin or any other type of Crypto Assets. Investors thinking of investing in Crytpo Assets should be prepared to lose 100% of their investment. Any investment in Bitcoin or other Crypto Assets is a highly speculative investment, and should not be made with money the investor cannot afford to lose. The content of this presentation is not intended to create a financial advisor-client relationship. We strongly recommend you seek advice from a professional advisor before making any investment decisions, as investing involves risk. Past performance is not a guarantee of future results, nor is it indicative of future performance. Schedule Your Integrated Wealth Management Discovery Call

Quarterly: Oct 17 Better Thinking... The world is complex, and it can tax our mental resources to process all the information that is coming our way. To keep up with all the data that our minds are processing, we come up with time-saving (and energy saving) rules of thumb, called heuristics. We may be applying these heuristics unconsciously, and they don’t even need to be rational. We simply need to believe them. In Thinking, Fast and Slow, Nobel Prize winner and author Daniel Kahneman breaks down our decision-making process into two systems. To keep things simple he describes them as “System 1” and “System 2.” System 1 is intuitive and emotional. It is fast and easy. “There was a shark attack last week, I am never going to the beach again.” System 2 is deliberative and logical. It is also slow and requires effort. “What are the chances of getting attacked by a shark? Are they higher today than they were last week? Is swimming in the ocean more dangerous than swimming in a community pool?” If I were to ask you “What is 7 times 3?” You could access System 1 and respond immediately with “21.” If I were to ask you “What is 277 times 53?” You could respond with the correct answer, but it would likely require you to tap into System 2 before you answered correctly. System 2 requires a deeper level of thinking, and it requires a near-exclusive devotion to the problem-solving effort. It would be nearly impossible for someone to multiply 277 by 53 in their head while writing out instructions on how to make banana bread - even if they had a great recipe for banana bread stored in their memory. That’s because System 2 thinking requires concentration to solve the problem. The interesting thing about System 2 is that it can morph into System 1 when we spend hundreds or thousands of hours training our mind. Here are two examples: My younger son got his license back in February. When he first started driving, it took all of his concentration to remember where to put his hands on the steering wheel, the rules of the road, and the process of looking ahead, behind and the sides of the road to identify threats. When we first start driving, we go into “System 2” to concentrate on the task at hand. As time goes by, those basic driving and awareness skills become second-nature to us, and driving can move from a System 2 process to a System 1 process. I often listen to podcasts while driving on the interstate. I can do this because System 1 takes over, and driving is second-nature . Another example of this would be Garry Kasparov, who retired from professional chess after being ranked as the world’s top chess player for 20 years. If Gary were to come and play 10 amateur chess players, he could play them all at the same time. We could line them up and Gary could could move from player to player, knowing immediately what his next move would be. The next move on a chess board is second nature for Gary because he has played thousands of games. He knows the implications of moving the rook or moving the queen. He doesn’t need to access System 2 to beat an inexperienced player. The challenge with our System 1 and System 2 thinking is when we "think" we are an expert, or we have a life experience that impacts us. This perception of “expertise” or the impact of life experience can shape our decision-making process in an equally profound way – to our benefit and to our detriment. That’s because these experiences build the heuristics that we use as short-cuts to make decisions, and some of these heuristics are helpful, but some are not. So how do we distinguish between the two? Understanding how System 1 and System 2 work together is critical because we cannot always trust our System 1 intuitions. And a big part of our challenge is that System 1 is so much easier to operate from, because we have all the data to reinforce our personal biases. How do we determine which of these short-cuts lead to better outcomes? Over the next few weeks we will explore how to limit the downside of our System 1/System 2 thinking and how to use these two systems to make better investment decisions. Read Part Two: "...Better Decisions"

Be aware of the special situations that could cause you to owe when you file your taxes next year. Save as PDF Read more articles Share 1 2 AVOID SURPRISES ON YOUR 2018 TAX RETURN According to the IRS, the number of taxpayers who owe at the end of the year has increased 40% in recent years. To make matters worse, if you owe money on your tax return you will also likely be charged penalties and interest for not paying the correct amount throughout the year. The best way to avoid this is to make adjustments to your federal withholdings with your employer or to make estimated tax payments throughout the year. To get started you should determine if you are likely to have a balance due when you file your 2018 tax return next year. WHY DO I OWE? When you are paid by your employer they are required to withhold federal taxes to cover your expected liability. However, these withholdings are not always sufficient to cover your final tax bill due to various factors that can affect your tax liability. Several of these factors include: More than one source of income . If you work more than one job, or if you have a spouse that also works, you have an increased chance of owing on your tax return. This is because each employer only accounts for the wages they are paying you when determining how much taxes to withhold. When you have more than one source of income you could be in a higher tax bracket than your employer expects. Significant increase in income. When you start making more money you run the risk of being phased out of various tax deductions that you may have qualified for in the past. And if you receive a large pay raise in the middle of the year, your withholdings in the first half of the year may no longer be sufficient for that portion of your income when you move into a higher tax bracket. No longer claiming your child. Claiming your child on your tax return can reduce your tax bill by $2,000-3,500 per year. So when you child moves out on their own, or when you cannot claim your child due to divorce, it can take a heavy toll on your tax bill. Major life changes. Getting married, getting divorced, or retiring. These are all major life changes that can have a dramatic impact on your tax return. When you go through one of these changes you should be prepared for significant changes to your tax bill. WHAT TO DO? If any of the above situations apply then you are at increased risk of having to pay when you file your 2018 tax return. To avoid this you can change your withholdings with your employer. If you have more than one job we recommend claiming zero allowances with your second employer. You can also request that an additional specified amount be taken out of each check and put toward your federal tax liability. You can also estimate your final tax bill and make quarterly estimated payments to reduce or eliminate your bill at the end of the year. If you still owe, making quarterly payments can help you avoid paying additional penalties when you file your return. If you would like help determining if you should adjust your withholdings or make estimated payments please give us a call. 1 2 3 4 Save as PDF Read more articles Share Failing to order your affairs to minimize your tax burden could cost you significant money - so don't wait to take action. If you have additional questions or need some planning help, please reach out to us.

THE TAX-EFFICIENT RETIREMENT PLANNING GUIDE Download

TAX TALK In our articles we will frequently use tax-specific phrases that while second nature to us, may be confusing to many of our readers. To clear up some of that confusion we have provided some definitions for the most common phrases below. Adjusted Gross Income Adjusted Gross Income (AGI) is defined as gross income minus adjustments to income. Gross income includes your wages, dividends, capital gains, business income, retirement distributions as well as other income. Adjustments to Income include such items as Educator expenses, Student loan interest, Alimony payments or contributions to a retirement account. Many deductions and credits on your tax return are determined by your AGI. Tax Credits vs Tax Deductions There are two ways your tax burden can be reduced: Tax Credits which directly reduce your tax bill, and tax deductions which indirectly reduce your tax bill by lowering the amount of your taxable income. Let’s say you have taxable income of $10,000 which is taxed at 25%, your tax bill on that income is $2,500. If you receive a tax deduction of $1,000 it will bring your taxable income down to $9,000, reducing your tax bill to $2,250 and saving you $250. IF instead you have a tax credit of $1,000 it will directly reduce your $2,500 tax bill down to $1,500, saving you the full $1,000. Filing Status. Your filing status determines the deductions and credits you qualify for and how much tax you pay on your income. Depending on your situation, you may qualify for more than one filing status, in which case you can choose the one more beneficial to you. These are the five filing statuses: Single. This is the normal filing status for taxpayers who are not married or who are legally separated Married Filing Jointly . Taxpayers who are married can file a joint tax return, reporting all of their income and expenses together Married Filing Separately. Taxpayers who are married can instead choose to file separate tax returns, each reporting their own income and expenses. It is generally better to file a joint return to keep taxes low, but in rare circumstances it can be more beneficial to file separate. Head of Household. Taxpayers who are unmarried and provide more than half the cost of maintaining a home for themselves and at least one other qualifying person can file head of household. This filing status provides larger deductions and lower tax rates than filing single making it the best option for taxpayers who qualify. Qualifying Widow(er) with Dependent Child. Taxpayers whose spouse died within the last 2 years can choose this filing status if they have a dependent child. This status allows them to claim the same deductions and tax rates as if they were filing a joint tax return. Your filing status for any given year is determined by your marital status on the last day of the year. A couple who get married December 31st can file a joint return for that year even though they were unmarried for the majority of the year. This rule does not apply in the death of a spouse. When a spouse dies the surviving spouse can file a joint tax return for the year of death. Itemized Deductions vs Standard Deduction There are two ways you can take deductions on your tax return: you can itemize deductions or use the standard deduction. The standard deduction is a set amount and is based on your filing status. If you itemize your deductions you will take the actual amount you spent on allowable deductions which include: Mortgage interest paid on your personal residence State income taxes paid Real estate taxes paid on your personal residence Medical expenses paid including out-of-pocket premiums paid Charitable donations Each of these deductions is subject to various limitations. Since the passage of the Tax Cuts and Jobs Act in 2017, most taxpayers will benefit more from taking the standard deduction than from itemizing their deductions.

Why Monotelo? One step away to save on your taxes. Schedule a quick 10-minute, no-obligation consultation.