WHITE PAPER INTRODUCTION Our 1-2-3 case involves a husband and wife client of ours who received an unpleasant surprise when they filed their 2017 tax return. The husband and wife are both public servants, between them they are earning $225K per year. On top of this they received another $40K in interest and trust income during 2017. Anticipating a large tax bill, they decided to purchase a rental property and use the expenses they incurred to offset some of their taxable income and reduce their tax bill. During the year they spent $40K on the property. Based on advice they received from coworkers as well as another accountant they consulted, they believed they would be able to deduct this entire $40K on their 2017 tax return. THE CHALLENGE Unfortunately, when they came to us we had to tell them that not only could they not deduct the full amount, they would not be able to deduct any of their expenses on their current year return. There were 3 reasons they could not deduct the $40K they had been led to believe they would be: Cap on Losses from Rental Properties. What this couple was not aware of when they decided to purchase this rental property to write off the expenses, is the $25K limit on rental property losses that can be deducted per year. This means that at least $15K of the $40K they spent would need to be carried forward to a future year. The only exception to this limit would be if one of them qualified as a real estate professional, which they do not as this property is the only activity they have in the real estate field. Capital Expenditures. A large portion of the $40K came from improvements to the property preparing it for rent. These expenses cannot be deducted in the year they are paid but must be capitalized and depreciated over the useful life of the property, in the case of a residential rental property 27.5 years. Income Limit on Passive Losses. The final nail in the coffin for this couple’s rental loss deduction is they failed to realize there is a phase-out threshold for passive losses. Once a married couple, filing a joint return, have adjusted gross income above $150,000 they cannot take a loss for passive activities. Instead those losses are carried forward to future years until their income drops below the phase-out threshold. THE SOLUTION This couple was understandably not happy when we informed them that they would not be able to deduct any of the expenses they had incurred on the property on their 2017 tax return. They explained to us that one of the primary drives behind their purchase of the property was the tax break they expected to receive. Had they consulted with us during the year before making this purchase we could have warned them they would not be able to realize any tax breaks in the short term from the property and could have provided them with some alternative methods to reduce their tax burden for the year. By maxing out their respective deferred compensation accounts they could have reduced their taxable income by $16,000. Contributing to a Health Savings Account could have further reduced their taxable income by $7000. By failing to consult with us before making this decision they missed 3 red flags that show they would not be able to reduce their taxable income by purchasing this property. To avoid missing your own red flags be sure to seek counsel from Monotelo Advisors before making major investment decisions. Save as PDF View More White Papers

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SMALL BUSINESS TIPS DEDUCT YOUR MEDICAL EXPENSES BY HIRING YOUR SPOUSE What Business Types Qualify? This option is available to you if you operate your business as one of the following: A sole proprietorship A partnership (provided your spouse is not a partner in the business) An LLC taxed as a sole proprietorship or partnership A real estate rental business A farm business If your business is organized as an S-Corporation than this option will not be available to you. While insurance premiums and out-of-pocket medical expenses can be deducted as itemized deductions , the limitations placed on those deductions make it difficult to realize any actual benefit. However, if you operate your own business, you may be able to get around these limitations by hiring your spouse and paying them through tax-free fringe benefits, including reimbursing them for medical expenses and insurance premiums. How Does This Work? Hire Your Spouse: Your spouse needs to be operating as a real employee for the business, performing services at your direction that benefit the business. Your spouse should not be a co-owner of the business and should not have any title in the business assets or control over the business bank account. To substantiate their role as an employee your spouse should keep a timesheet to document the hours that they worked and the tasks that they completed. Don’t Pay Cash Wages: If you pay your spouse cash wages for working in your business you are simply moving money around without creating any tax savings. In fact, you are likely increasing your tax burden by converting qualified business income to non-qualified wage income. Instead of paying them cash wages you can compensate them through tax-free employee benefits which can provide you with a sizeable tax break and avoid the need to file payroll tax returns. Establish a Medical Reimbursement Arrangement: A medical reimbursement arrangement allows you to compensate your spouse for their work by reimbursing out-of-pocket medical expenses and health insurance premiums. This provides the business with tax-deductible compensation expenses and tax-free income to your spouse. If your spouse is your only employee, you can easily establish a 105-HRA plan to reimburse them for their medical expenses by signing an agreement between yourself and your spouse. If you have additional employees you will need to establish an ICHRA plan, which has additional requirements. If you have multiple employees and want to establish a medical reimbursement arrangement, please reach out to us for more guidance. To qualify the insurance premiums for reimbursement your spouse should purchase a health insurance plan in their name that covers the entire family (including you). Then you, as the employer, reimburse your spouse for the premiums. The reimbursement arrangement can also be used to reimburse your spouse for any out-of-pocket expenses that the insurance doesn’t cover, including deductibles, copays, and prescriptions for your entire family. Pay a Reasonable Amount: To make sure the employee benefits you pay your spouse can withstand IRS scrutiny, make sure that the amount they are compensated is reasonable for the work that they are performing. A good rule of thumb is not to compensate your spouse more than you would compensate someone else for those same services. Consider Other Fringe Benefits: While health insurance and medical expenses are typically the largest items you can provide to your spouse as employee benefits, there are other benefits that you may also be able to provide: Education. You can reimburse your spouse for job-related education expenses Life Insurance. You can provide your employees with up to $50,000 in group term life insurance coverage Working Condition Fringe Benefits. You can reimburse your spouse employee for expenses that help them do their job. For example, you can reimburse the cost of a cell phone they use for work and they are not required to track how much of their phone use is for business. Summary Hiring your spouse to work for your business can provide some meaningful tax benefits by allowing you to deduct personal expenses that otherwise would not be deductible. To qualify for these deductions, you need to follow some simple guidelines: make sure your spouse is operating as your bona fide employee establish a formal medical reimbursement arrangement compensate fairly for the services provided If you would like assistance establishing a medical reimbursement plan for your spouse or other employees, please give us a call.

2023-2024 Tax Brackets and Federal Income Tax Rates There are seven federal income tax brackets. Here's what they are, how they work and how they affect you. There are seven federal tax brackets for the 2023 tax year: 10%, 12%, 22%, 24%, 32%, 35% and 37%. Your bracket depends on your taxable income and filing status. These are the rates for taxes due in April 2023. Tax brackets and rates for the 2023 tax year, as well as for 2022 and previous years, are elsewhere on this page. 2023 Federal Income Tax Brackets (for taxes due in April 2022 or in October 2022 with an extension ) Single filers Married, filing jointly Married, filing separately Head of household 2022 Federal Income Tax Brackets (for taxes due in April 2023) Single filers Married, filing jointly Married, filing separately Head of household How tax brackets work The United States has a progressive tax system, meaning people with higher taxable incomes pay higher federal income tax rates. Being "in" a tax bracket doesn't mean you pay that federal income tax rate on everything you make. The progressive tax system means that people with higher taxable incomes are subject to higher federal income tax rates, and people with lower taxable incomes are subject to lower federal income tax rates. The government decides how much tax you owe by dividing your taxable income into chunks — also known as tax brackets — and each chunk gets taxed at the corresponding tax rate. The beauty of this is that no matter which bracket you’re in, you won’t pay that tax rate on your entire income. The percentage of your taxable income that you pay in taxes is called your effective tax rate. To determine effective tax rate, divide your total tax owed (line 16) on Form 1040 by your total taxable income (line 15). Example #1: Let’s say you’re a single filer with $32,000 in taxable income. That puts you in the 12% tax bracket in 2021. But do you pay 12% on all $32,000? No. Actually, you pay only 10% on the first $9,950; you pay 12% on the rest. (Look at the tax brackets above to see the breakout.) Example #2: If you had $50,000 of taxable income, you’d pay 10% on that first $9,950 and 12% on the chunk of income between $9,951 and $40,525. And then you’d pay 22% on the rest because some of your $50,000 of taxable income falls into the 22% tax bracket. The total bill would be about $6,800 — about 14% of your taxable income, even though you're in the 22% bracket. That 14% is your effective tax rate. That's the deal only for federal income taxes. Your state might have different brackets, a flat income tax or no income tax at all. What is a marginal tax rate? The term "marginal tax rate" refers to the tax rate paid on your last dollar of taxable income. This typically equates to your highest tax bracket. For example, if you're a single filer with $30,000 of taxable income, you would be in the 12% tax bracket. If your taxable income went up by $1, you would pay 12% on that extra dollar too. If you had $41,000 of taxable income, however, most of it would still fall within the 12% bracket, but the last few hundred dollars would land in the 22% tax bracket. Your marginal tax rate would then be 22%. How to get into a lower tax bracket and pay a lower federal income tax rate Two common ways of reducing your tax bill are credits and deductions. Tax credits can reduce your tax bill on a dollar-for-dollar basis; they don't affect what bracket you're in. Tax deductions, on the other hand, reduce how much of your income is subject to taxes. Generally, deductions lower your taxable income by the percentage of your highest federal income tax bracket. So if you fall into the 22% tax bracket, a $1,000 deduction could save you $220. In other words: Take all the tax deductions you can claim — they can reduce your taxable income and could kick you to a lower bracket, which means you pay a lower tax rate. 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.

Going to an office is no longer a requirement of conducting business in the age of the internet, cell phones, Skype and GoTo meetings. UNLOCKING the Missed Deductions of a Home Office Small-business owners should not miss the benefit of a home office deduction out of fear of a tax audit. Going to an office is no longer a requirement of conducting business in the age of the internet, cell phones, Skype and GoTo meetings. This means an increasing number of small-business owners are working from home, and eligible to claim a home office deduction. When Properly implemented, this deduction can make a significant difference in your tax liability. WHAT CONSTITUTES A HOME OFFICE? In order to claim a deduction for a home office the IRS requires that a designated space be used exclusively and regularly for business. Going to an office is no longer a requirement of conducting business in the age of the internet, cell phones, Skype and GoTo meetings. Exclusively used for business means it cannot ever be used for personal reasons during the tax year, this includes any type of storage for personal items. Although the office is to be used only for business, the tax code does not mandate that it be a separate room, it can be part of a room - walls are not a requirement. The office must also be used on a regular basis for business. HOW TO DEDUCT EXPENSES FOR THE HOME OFFICE There are two different methods you can use to claim a home office deduction, the actual expense method and the simplified method. ACTUAL EXPENSE METHOD The actual expense method allows you to deduct all direct expenses and a portion of any indirect expenses. Direct expenses are any expenses incurred specifically for the home office, such as painting the office or putting in new carpet. Indirect expenses include any expenses incurred for the home such as mortgage interest, property taxes and utilities. To claim these indirect expenses you need to determine the portion of the expenses that relate to the home office. This can be calculated by dividing the square footage of the office by the square footage of the house. You can also claim depreciation or a rent deduction for the part of the home used for business purposes. On the downside, when you sell the home any depreciation taken needs to be recaptured. This can be an unpleasant surprise come tax time. When using the actual expense method, detailed records and supporting documentation must be kept for all expenses. SIMPLIFIED METHOD If you prefer not to maintain records of these expenses, you can still take a home office deduction using the simplified method. The simplified method is calculated by simply multiplying the square footage of the office by $5 per square foot (up to 300 sq. ft.). The advantage to this method is the IRS does not require you to keep any records that are required by the actual expense method. The main drawback of the simplified method is that you will not be able to deduct your actual expenses if they exceed the allowance of the simplified method. The best solution is to keep track of all of your expenses and then determine at the end of the year which method will provide the greater deduction. MILEAGE Regular commuting to and from work is not a deductible expense, however travel between your primary office located in your home to your second office is classified as business miles that are deductible. This does not mean that you can set up a "home office" to deduct your regular commuting miles. It means that if your home office is where you conduct the majority of your business, you can deduct any mileage to a secondary location. Setting up a home office can potentially create several thousands of dollars in deductible mileage each year. TAKE AWAY Even the smallest home office can unlock significant deductions if the expenses are properly accounted for using either the actual or simplified method. It is very important that the space be used exclusively for business purposes.

Quarterly: Oct 17 Patientia, The Not-So-Secret Sauce ”Repetitio est mater studiorum” is a Latin proverb that says “Repetition is the mother of learning.” We are going to repeat a theme from the past because one of the biggest mistakes made by investors has the simplest of fixes. If one were to study the traits that John Templeton, Warren Buffet, Benjamin Graham or Ray Dalio shared (or continue to share) in common, they would find that each of them employed (or continue to employ) a disciplined process for identifying market opportunities. Each of them put their capital to work in areas where they believed they had an edge or in areas where they had a reasonable level of conviction that the market was mispricing assets. And each of them were patient with their capital, knowing that the monetization of market mispricing can take time (see Three Marks of Great Investors ). Warren Buffet’s comment that “the stock market is a device for transferring money from the impatient to the patient” sums up his perspective on the value of being disciplined when seeking to harvest superior returns. The challenge with patient investing is that it’s easier said than done. That’s because it’s a perfectly normal response for people to avoid pain. If you have a headache, you take an aspirin, or drink some water. You respond with an action to reduce the pain. The simplest way for investors to avoid short-term pain is to exit the investment strategies that are underperforming, but that is the type of behavior that ultimately leads to underperformance. In looking at Callan’s Periodic Table of Investment Returns, we can observe the bottom to top movements of both low-risk and high-risk asset classes from 1998 to 2017. Click Here for a full-scale view of Callan’s Periodic Table of Investment Returns from 1998 to 2017 In 1998 and 1999 the Russell 2000 Value Index (the light blue box in the bottom left corner) was at the bottom of the pack for two years in a row and then moved to the top of the pack in 2000 and 2001. But how many investors had the discipline to stay in small-cap-value-land when it underperformed the S&P 500 by a cumulative 63% in 1998 and 1999? Or which investors had the discipline to remain in "low-risk" bonds (green boxes at the bottom, left of center) from 2003 to 2007 (when they were the worst performing asset class in four of those five years) to hold onto the only asset class that had a positive return in 2008? Which investors pulled out of "high-risk" emerging market equities (orange boxes) after any one of the six bottom-of-the-pack years, causing them to miss out any one of the nine years that EM was the top performing asset class? (see How Intelligent Investors Use Fear To Their Advantage ) We are not saying that the Barclay’s Aggregate, or the Russell 2000 Value or Emerging Markets are the path to outperformance. We are simply saying that the only investors who benefited from exposure to these asset classes were the ones who had the conviction to remain after periods of significant underperformance. Investment strategies that deliver superior long-term returns require investors to be incredibly patient, disciplined, and indifferent to short-term performance. That’s because the seasons of underperformance drive away demand by pushing away the impatient investors, making things more attractive on a relative basis, and act as the build-up to the seasons of outperformance. While this is easy to comprehend, it is much more challenging to execute. Without strict discipline, and a deep understanding of how and why alpha-producing strategies generate their returns, even seasoned investors will want to pull out of a strategy after two or three years of under-performance. It is these seasons of under-performance however, that effectively create the risk premium that patient investors capture when they keep their eyes fixed long-term. As long as investors continue to chase short-term performance, there will be opportunities for disciplined, process-driven investors to harvest superior long-term returns. If you are still wondering about the title, "Patienta" is Latin for "Patience!"

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PRIVACY POLICY This Privacy Policy governs the manner in which Monotelo Advisors collects, uses, maintains and discloses information collected from users (each, a “User”) of the monotelo.com website (“Site”). This privacy policy applies to the Site and all services offered by Monotelo Advisors. PERSONAL IDENTIFICATION INFORMATION We may collect personal identification information from Users in a variety of ways, including, but not limited to, when Users visit our site, register on the site, subscribe to the newsletter and in connection with other activities, services, features or resources we make available on our Site. Users may be asked for, as appropriate, name, email address, mailing address, phone number, etc. Users may, however, visit our Site anonymously. We will collect personal identification information from Users only if they voluntarily submit such information to us. Users can always refuse to supply personal identification information, except that it may prevent them from engaging in certain Site related activities. NON-PERSONAL IDENTIFICATION INFORMATION We may collect non-personal identification information about Users whenever they interact with our Site. Non-personal identification information may include the browser name, the type of computer and technical information about Users means of connection to our Site, such as the operating system and the Internet service provider’s utilized and other similar information. WEB BROWSER COOKIES Our Site may use “cookies” to enhance User experience. User’s web browser places cookies on their hard drive for record-keeping purposes and sometimes to track information about them. User may choose to set their web browser to refuse cookies, or to alert you when cookies are being sent. If they do so, note that some parts of the Site may not function properly. HOW WE USE COLLECTED INFORMATION Monotelo Advisors collects and uses Users personal information for the following purposes: To improve customer service. Your information helps us to more effectively respond to your customer service requests and support needs. To improve our Site. We continually strive to improve our website offerings based on the information and feedback we receive from you. To administer a content, promotion, survey or other Site feature. To send Users information they agreed to receive about topics we think will be of interest to them. To send periodic emails The email address Users provide may be used to respond to their inquiries, and/or other requests or questions. If User decides to opt-in to our mailing list, they will receive emails that may include company news, updates, related service information, etc. If at any time the User would like to unsubscribe from receiving future emails, we include detailed unsubscribe instructions at the bottom of each email or User may contact us via our Site. HOW WE PROTECT YOUR INFORMATION We adopt appropriate data collection, storage and processing practices and security measures to protect against unauthorized access, alteration, disclosure or destruction of your personal information, username, password, transaction information and data stored on our Site. Sensitive and private data exchange between the Site and its Users happens over a SSL secured communication channel and is encrypted and protected with digital signatures. SHARING YOUR PERSONAL INFORMATION We do not sell, trade, or rent Users personal identification information to others. We may share generic aggregated demographic information not linked to any personal identification information regarding visitors and users with our business partners, trusted affiliates and advertisers for the purposes outlined above. We may use third party service providers to help us operate our business and the Site or administer activities on our behalf, such as sending out newsletters or surveys. We may share your information with these third parties for those limited purposes provided that you have given us your permission. CHANGES TO THIS PRIVACY POLICY Monotelo Advisors has the discretion to update this privacy policy at any time. When we do, the revised date will be added at the bottom of this page. We encourage Users to frequently check this page for any changes to stay informed about how we are helping to protect the personal information we collect. You acknowledge and agree that it is your responsibility to review this privacy policy periodically and become aware of modifications. YOUR ACCEPTANCE OF THESE TERMS By using this Site, you signify your acceptance of this policy and terms of service. If you do not agree to this policy, please do not use our Site. Your continued use of the Site following the posting of changes to this policy will be deemed your acceptance of those changes. CONTACTING US If you have any questions about this Privacy Policy, the practices of this site, or your dealings with this site, please contact us at: Monotelo Advisors www.monotelo.com info@monotelo.com

November 2019 SMALL BUSINESS TIPS Quarterly: Oct 17 Five Year-End Business Deductions As we approach the end of the year, your business may be slowing down as you prepare for the upcoming holidays. If that is the case, now is a good time to analyze your business’ performance in 2019 and consider pushing some additional expenses into the last month of the year to minimize your 2019 tax burden. We have identified five strategies you can use to minimize your 2019 tax bill. Please note that the year-end strategies we are discussing involve pulling expenses from 2020 into the end of 2019 to reduce your current year tax bill. This will increase your tax liability in the future. This strategy will make sense for you if 2019 was a particularly high-income year and you are expecting lower income in 2020 or if you are expecting other significant business deductions in 2020 to make up for the deduction pushed into 2019. Prepay Business Expenses If you operate your business on a cash basis then you have the option of prepaying certain expenses up to 12 months in advance and capturing the tax deduction immediately. These qualifying expenses include lease payments on business vehicles, rent on office space or machinery and insurance premiums. For example: If your rent for your office is $1500 per month you can send your landlord a check for $18,000 in December to cover all of your 2020 rent. If you send the check on December 31st but your landlord does not receive it till January 3 then you can deduct the expense in 2019 when the check was sent, but your landlord does not need to report the income until 2020 when it was received. Stop Billing Customers Your customers are unlikely to pay you until they are billed. If you have a successful December you can wait to bill some of your customers until January in order to push some of your December revenues into 2020. Buy Office Equipment The tax law currently allows you to fully write off the purchase of eligible business equipment in the year that you purchase it, instead of being required to depreciate it over a number of years. If you are in need of a new computer, office furniture or specialized equipment for your business, you can take advantage of this 100% depreciation to reduce your 2019 taxes. Use Your Credit Cards If you make a purchase with your credit card before the end of the year you can expense that purchase in 2019 even if the credit card bill is not paid until 2020. This allows you to move up expenses that you otherwise may not have purchased until January. If your business is a single-member LLC or a sole proprietorship then you can deduct the expense whether the credit card is in your personal name or the name of the business. If you operate your business as a corporation and the credit card is in your personal name you will need to reimburse yourself before the end of the year. If the credit card is in the name of the corporation you do not need to reimburse yourself. Save For Retirement As a small-business owner, you have the potential to put up to $56,000 away for retirement each year depending on the type of retirement account you have set up and the income of your business. If you do not have a retirement plan set up for your business you can still set up a SEP IRA or a 401k before December 31st and make pretax contributions to reduce your 2019 tax bill. Summary Each of the strategies we have outlined will help you reduce your 2019 tax bill at the cost of paying more taxes in future years. Depending on your specific situation it may make more sense to defer taxes today and pay them in a future year. For guidance on if you should be moving taxes into later years or paying them now, reach out to us to set up a tax-planning call. Schedule Your Tax-Planning Call Previous Article

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