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Asset Location and Creating Tax-Free Retirement Income

The SECURE Act was signed into law by President Trump in December and went into effect on January 1st of this year. The new law was intended to expand opportunities for individuals to increase their retirement savings, but also brings about some significant changes to retirement and financial planning. Here are the two most important changes along with six notable provisions that you should know about regarding the SECURE Act: 1) Increased Access to Retirement Plans for Small Business Owners and 2) The Elimination of the Stretch IRA. 1. Increased Access To Retirement Plans For Small Business Owners: The SECURE Act expands the ability for small businesses to offer retirement plans because it allows small-businesses to pool resources with other small businesses to offer 401(k) plans at lower costs. This piece of the legislation could help more small businesses take advantage of employer-sponsored plans. This is good policy. If you are a small business owner, we encourage you to reach out to us to see how this may affect your business. 2. Elimination Of The Stretch IRA: One of the biggest changes from the Secure Act comes from the elimination of the “stretch” IRA on inherited retirement accounts. This means that younger beneficiaries can no longer stretch the distributions over their lifetime, but now must distribute the entire account within 10 years of the account owner’s death. This does not apply to spouses who inherit their deceased spouse’s IRA or minor children of a deceased account owner. The elimination of the stretch provision presents significant changes, including the need to review current estate plans to avoid unintended consequences. This change may require you to look at other options for giving retirement accounts to your beneficiaries. Roth Conversions, life insurance and charitable trusts may now look a lot more attractive in light of the new laws. In addition to what we just shared, there are six notable provisions from the new law: 1. Age Limit Removed For IRA Contributions: There is no longer an age cap on contributions to a traditional IRA. Before the SECURE Act, there was an age cap of 70 ½ for contributing to a traditional IRA. Individuals who continue to work can now continue to save for retirement in an IRA, regardless of their age, as long as they have earned income. 2. Required Minimum Distribution (RMD) Age Extended to 72: The SECURE Act delays RMDs from retirement accounts until age 72 (up from 70½). Anyone who is over 70½ must continue taking RMDs. For those under 70 ½. this extension basically means that investors have a longer time horizon to keep their investments tax-deferred in their IRAs… and this has direct implications on how you should be investing your taxable assets to produce income in retirement. 3. Penalty-Free Withdrawals For New Parents: The SECURE Act now allows new parents to pull up to $5,000 from their retirement plans penalty-free, if they do it within a year of the birth of a child or adoption. Income taxes will still apply to any withdrawals from a traditional retirement account, but this provision allows new parents to pull money from their retirement plan to pay for some of those first-year child expenses and not incur any penalties. 4. Student Loan Repayment Through 529 Savings Plans: Individuals can now withdraw up to $10,000 from 529 savings plans to make student loan payments. This is a small step forward in helping Americans manage the growing costs of college education by empowering the 529 plan with one more tool to help students. 5. Retirement Plan Conversion To A Lifetime Annuity: Retirement accounts can now be converted to a lifetime annuity. Essentially, this piece of the legislation gives investors the ability to lay off their longevity risk onto an insurance company who will gladly take on that risk for a healthy annual premium that they collect from investors. This is good in that it gives investors another option, but it also puts them at risk of being taken advantage of by insurance companies. 6. Lifetime Income Disclosure For Defined Contribution Plans: Employers are now required to disclose to employees the amount of sustainable monthly income their balance could support in their 401(k) statements. This is not a big deal, but it could be a helpful resource for investors as they look for guidance on how to prepare for retirement. If you take away anything from this article, take away this: The Secure Act has essentially pushed you to review your retirement and estate plans to make sure they take advantage of the good provisions of the new law while employing strategies to mitigate the bad provisions of the new law. If you have additional questions, or need help putting together a holistic plan that takes the Secure Act into account, please reach out to Monotelo Advisors at 800-961-0298. WHAT YOU SHOULD KNOW About The SECURE Act Read more articles 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.

At Monotelo Advisors our accountants work hard to free up cash flow by helping you minimize your federal tax liability, giving you more money to reinvest into your future. Simplify Your Taxes with Trusted Experts Accurate, stress-free tax preparation for individuals and businesses. Learn More Schedule Meeting Start your 2025 Tax Return Tax Season Resources Social Security Changes for 2026: A Complete Guide for Retirees and Working Beneficiaries Jan 15 4 min read Key Tax Season Deadlines for Monotelo Small Business Clients in 2026 Jan 13 2 min read Important Tax Dates for Small Businesses in 2026 Jan 8 3 min read Social Security Changes for 2026: A Complete Guide for Retirees and Working Beneficiaries Key Tax Season Deadlines for Monotelo Small Business Clients in 2026 Important Tax Dates for Small Businesses in 2026 Looking for Financial Planning Help? Our values-based retirement planning will give you the quiet confidence that everything is on track for you to achieve your life goals. Get Started Learn More Run your business, we'll handle your finances. Small business owner? Yes, we can help you with your tax, bookkeeping and payroll needs. But there is so much more to having the right financial partner. Get Started Learn More

Whether you are just starting out, or are a seasoned veteran, you need someone who will work with you to ensure that you are set up for success. Small Business At Monotelo we start every relationship with a tax conversation. We work hard to free up cash flow by helping you minimize your federal tax liability. That's because every dollar you pay the federal government is one less dollar available for you to reinvest back into your business, or one less dollar available for you to reinvest into your future. Learn More This video provides a brief summary on how we reduce the tax liability for our small business owners. Why Monotelo? Tax Tips and Strategies Strategies that you can implement in your small business to simplify the filing process while reducing your tax burden. How We Work With Clients The biggest enemy to the accumulation of wealth is the 23-43% cut the government is going to take on your income. That is why we start every relationship with a tax conversation. Monotelo White Papers Read about some of our previous cases, the challenges we faced, and the solutions we developed to help our clients make better financial decisions.

SMALL BUSINESS TIPS A SIGNIFICANT NEW TAX DEDUCTION NOW AVAILABLE TO SMALL BUSINESS OWNERS! The Tax Cuts and Jobs Act, signed into law in December of 2017, placed a severe limit on the deduction for state income and property taxes. This limitation, commonly referred to as the SALT (State and local taxes) cap, restricts this deduction to a combined amount of $10,000. For reference, a family in Illinois making $400,000 with $18,000 in property taxes would have combined state income and property taxes of $38,000 but could only deduct the first $10,000. Even if your combined taxes are below the $10,000 level, you are unlikely to realize any actual savings from the deduction since you need to itemize your deductions to do so. To circumvent this restriction, a number of states have passed laws allowing pass-through businesses to elect to be taxed at the business level, rather than the personal level. This election can provide meaningful tax savings to small business owners. How Does this Work? If your business is a partnership or an S-Corporation, it is considered a pass-through business, meaning the business itself is not taxed at the corporate level. Instead, that income is passed through to the owners, who are then responsible for the taxes on the business profits. This is relevant because the SALT cap only applies to individual taxes, not business taxes. By electing to pay tax at the entity level, business owners can now turn their state income taxes into deductible business expenses without needing to itemize and without being subject to the $10,000 SALT cap. Nineteen states have passed laws allowing pass-through businesses (as of 10/8/21) to make an election to be taxed at the business level, including Illinois, Wisconsin, New York and California. We are going to focus today's article on how this provision will work in Illinois, as Illinois’ flat tax rate makes it the most straight forward example. Illinois The bill that created this provision in Illinois was signed at the end of August. We are still waiting on the state to provide more thorough guidance on how businesses will make the election, but here is what we currently know: Passthrough businesses can elect to pay state taxes at the business level for tax years 2021-2025. (The SALT cap is set to expire in 2026). This election will need to be made each year. Once made for a given year, the election cannot be revoked. Starting in 2022, businesses that make this election will need to make quarterly estimated tax payments towards state taxes to avoid penalties. This requirement is waived for 2021 since the first 2 quarterly payment deadlines had already passed before the bill was signed. A business that makes the election will pay a 4.95% tax rate on its net income. The owners of the business will then receive a credit towards their personal taxes equal to the amount of taxes the business paid times their percentage ownership in the business. Should You Make This Election? The decision to make this election will depend on several factors, including the net income of your business, the total taxable income on your personal return, your filing status, and the state you live in. As we mentioned, because Illinois has a flat tax rate, nearly all business owners in Illinois will benefit by making this election, though the extent of that benefit may not always be worth the extra steps. The more income your business generates, the larger the benefit this election will have on you (for Illinois business owners). However, in other states the benefits are less certain due to differing methods of implementing this program. Example In Wisconsin, individual taxes fall into one of four brackets depending on income, with 3.54% being the lowest bracket and 7.65% being the highest bracket. However, businesses making this election in Wisconsin will pay taxes at the fixed corporate rate of 7.9%. As a result, the federal tax savings barely outweigh the increased taxes paid to Wisconsin at lower income levels. See the chart below that illustrates how business owners in different states will benefit from making this election,. As these examples illustrate, the savings for businesses in flat-tax states like Illinois are fairly straightforward. The more income your business generates the larger the potential savings. This is due to the fact that Illinois tax rates do not change when you make this election, they are simply changed from a personal expense to a business expense. On the other hand, there are additional factors at play in Wisconsin. The benefits in Wisconsin are not so obvious until higher income levels. For example, in scenario 5, a married couple in Wisconsin with $250,000 in wages and $500,000 in business profits could reduce their federal taxes by $11,123 while only increasing their Wisconsin taxes by $2,667 resulting in net savings of $8,456. And the benefits only increase as incomes rise. The key takeaway is that the benefits for business owners in states with a flat tax rate (such as Illinois) are straightforward. The more income your business generates, the greater the savings from making this election. For states with bracketed tax rates (such as Wisconsin), the benefit is not as clear. We will need to analyze the impact of making this election on both your federal and state taxes to determine the best course of action. Summary The essential benefit of this strategy is that you can now capture your state income tax payment as a business expense to reduce the taxable income on your federal tax return. If you have $1,000,000 in business income you are likely in the 37% marginal tax bracket. If we push a $50,000 tax bill through your business, we can save you between $14,000 and $19,000 on your federal income tax bill. The SALT cap has been a thorn in taxpayer’s sides for nearly four years. With the passage of these laws in different states, many business owners will now have the ability to work around this cap to deduct their state income taxes against their federal tax liability. The benefit to each individual will depend on your home state, your marital status and your income level. Please reach out to us for help determining if you would benefit from making this election. Schedule a Tax Planning Call

OCTOBER 2016 MONOTELO QUARTERLY WHAT IS THE BEST Business Structure for You? assets. Once you choose a corporate structure, it is not easy to switch to another, so it is important that you weigh all your options before deciding. LIMITED PARTNERSHIPS. If your business is structured as a limited partnership, then all the profits and losses of the company to distinguish between income earned as a salary, and income earned as profits of the corporation, allowing them to only pay payroll taxes on a portion of the income. The major downside to the C-corp is what is referred to as double taxation, where the profits of the company are taxed first at the corporate level, and then again at the personal level as they are passed through to the owners. S-CORPORATIONS. The main benefits to operating as an S-corporation, are that income is passed through the corporation without being taxed, and you can differentiate between salary and profits of the corporation. The S-corp provides the same benefits as the C-corp, without being subject to the double taxation of the C-corp. Another benefit to the S-corp over the C-corp is when an S-corp is sold, the proceeds are treated as capital gains, which have Once you choose a corporate structure, it is not easy to switch to another When you operate a business, it is very important how you decide to initially structure that business. While a sole proprietorship is the easiest business to start and operate, not only will you miss out on tax strategies to lower what you pay the government, but you could find yourself personally responsible for the debts of the company if the company takes a turn for the worse. To avoid this risk, you can structure your business as a limited liability company, a limited partnership, or a corporation. These structures protect you from the debts of the company, hence creditors can't go after your personal will flow through to the individual returns of the owners, meaning there is no income tax at the business level. In a limited partnership, only the owners who are actively involved in the management of the business are personally liable for the debts of the company. Owners who are only financially involved in the company are not personally liable. C-CORPORATIONS. This is the most common type of corporation, as there is no limit to the number of shareholders and it is easy to transfer ownership. One benefit of the C-Corporation is the ability of the managing owner LIMITED LIABILITY COMPANIES. Similar to an S-corp, an LLC provides the liability protection of a corporation, along with the pass-through nature of a partnership. An LLC, however, places no restrictions on the number of owners, the tradeoff being that all LLC members pay self-employment taxes on all income. LLC's also provide advantages upon dissolution as assets distributed to owners are not taxable until sold by the recipient. more favorable tax treatment than ordinary income, which is how proceeds from the sale of a C-corp are treated. While there are requirements to qualify as an S-corp, such as no more than 100 owners, they can provide significant tax advantages over the C-corp. July 2016 Save as PDF January 2017

HOW TO GET FORGIVENESS OF YOUR PAYCHECK PROTECTION LOAN Congratulations to those of you who were able to secure a loan through the Paycheck Protection Program. Now that your loan has been secured, proper steps must be taken to get the loan forgiven. Loans made through the PPP program can be forgiven in-part or in-full – meaning you may be obligated to repay 0-100% of the principal balance plus accrued interest on the loan if certain conditions are not satisfied. MAXIMUM FORGIVENESS To be considered for maximum forgiveness, you must meet all of the following conditions: Use the loan in the first eight weeks from the day you received the funds in your bank account. At least 75% of the total loan amount must be used for eligible payroll expenses. No more than 25 percent of the loan amount can be used for other eligible expenses. The other eligible expenses are interest on a commercial mortgage incurred before February 15, 2020, as well as rent and utilities payments under agreements in effect also prior to February 15, 2020. PARTIAL FORGIVENESS The following items could reduce the forgiveness amount or be excluded from forgiveness consideration: Reducing the number of full-time employees during the eight-week period as compared to certain prior periods or decreasing the compensation for any employee making under $100,000 per year (annualized in 2019) by more than 25 percent of the employee’s salary for the most recent full quarter. However, loan forgiveness will not be reduced to the extent the changes to salaries or reductions in full-time employment made between February 15, 2020 and April 26, 2020 are reversed by June 30, 2020. Using funds for non-eligible expenses. Having unused funds after the eight-week period. Paying amounts to an independent contractor or sole proprietor (other than you as the borrower). Providing compensation to employees whose principal place of residence is outside the United States. You will be required to pay back the portion of the loan that is not forgiven. Payments will not be required on the remaining portion of the loan until after six months from the day the loan was first disbursed to you. It is important to note that during those six months interest will continue to accrue at one percent (1%) per year on the outstanding loan amount. You will have two years from disbursement of the loan to repay the remaining principal and interest on the loan in full in accordance with the terms of your Note. You may pay the loan off before two years without penalty. WHAT SHOULD YOU DO NOW? Keep accurate records and documentation of how you spend the loan funds. You will need to submit documentation and certify the expenses you paid with the loan over that eight-week period. You should consult with your lender to find out what documentation they will be requesting to support your expenses. Do your best to pay out at least 75 percent of the loan for eligible payroll expenses over the eight-week period and use the remainder for other eligible expenses. Toward the end of the eight-week period, you will need to reach out to your lender and fill out a forgiveness application. If you have any additional questions on the Paycheck Protection Program please reach out to us.

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!"

The Big Picture

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