Government funding and tax extenders legislation affects investors

After weeks of negotiations, Congress reached agreement on a bipartisan bill to fund the government through September 2016.  Following are provisions of particular interest to investors.

The legislation makes permanent (including retroactively for 2015) some provisions that previously had expired every few years:

  • IRA / charitable contribution provision for account holders over age 70-1/2
  • Tax credit for research and development expenditures
  • Enhanced write-off of small business capital expenses under section 179

The legislation extends (including retroactively for 2015) other provisions:

  • Extension and phase out of bonus depreciation through 2019

The legislation includes a number of new provisions:

  • Repeals the forty-year-old prohibition on exports of domestically produced crude oil
  • Expands 529 plan qualifying distributions to include student computers and technology

The legislation delays sources of funding and government reimbursements under the Affordable Care Act:

  • “Cadillac tax”(40%)  imposed on high cost employer health plans delayed until 2020; thereafter tax becomes deductible
  • Medical device tax delayed until 2018
  • Annual fee on health insurance provider premiums written (“belly button tax”) delayed until 2018
  • Government reimbursements for insurance company losses limited to amounts collected from profitable insurers (reimbursement fund must be revenue neutral)

Of interest to financial advisors, the legislation:

  • Does not prevent the Department of Labor from finalizing and implementing the proposed IRA account fiduciary rules
  • Does not make significant changes to Dodd-Frank

 


Andrew H. Friedman is the principal of The Washington Update LLC and a former senior partner in a Washington, D.C. law firm.  He and his colleague Jeff Bush speak regularly on legislative and regulatory developments and trends affecting investment, insurance, and retirement products.  They may be reached at www.TheWashingtonUpdate.com.

The authors of this paper are not providing legal or tax advice as to the matters discussed herein.  The discussion herein is general in nature and is provided for informational purposes only.  There is no guarantee as to its accuracy or completeness.  It is not intended as legal or tax advice and individuals may not rely upon it (including for purposes of avoiding tax penalties imposed by the IRS or state and local tax authorities).  Individuals should consult their own legal and tax counsel as to matters discussed herein and before entering into any estate planning, trust, investment, retirement, or insurance arrangement.

Copyright Andrew H. Friedman 2015.  Reprinted by permission.  All rights reserved.

Another government shutdown?

Congress returns from recess next week facing a month-end deadline to fund government operations for the next fiscal year. I’m concerned we could be looking at a reprise of 2013. That year, the federal government shut down on October 1 for sixteen days over a Republican proposal to defund the Affordable Care Act. Now, Republicans are talking about defunding Planned Parenthood, a proposal the President is almost certain to veto. More broadly, there is significant disagreement on funding for social programs generally (the President wants increased funding; the Republicans are calling for social program cuts). If these disagreements cannot be breached, the government faces an October 1 shutdown.

 

The difference this time is when the debt limit must be raised to allow the federal government to borrow additional funds. In 2013, the government ran out of money and had to borrow by mid-October, setting up an incontrovertible deadline that Congress had to address, reopening the government in the process. This year, we’re told that the government will not need to borrow more money before November or even December. So, if the government shuts down, what will force Congress to compromise and reopen it in the near term?

 

Historically, markets often are volatile as fiscal deadlines approach and Congress appears unable to agree on a solution – until it does. Investors might consider taking action to protect against volatility until these deadlines have been addressed. More aggressive investors might view a pullback as a buying opportunity; markets tend to recover nicely after Congress finally agrees to raise the nation’s borrowing limit (as Congress invariably will do here, likely at the last possible moment).

 


Andrew H. Friedman is the principal of The Washington Update LLC and a former senior partner in a Washington, D.C. law firm. He speaks regularly on legislative and regulatory developments and trends affecting investment, insurance, and retirement products. He may be reached at www.TheWashingtonUpdate.com.

Neither the author of this paper, nor any law firm with which the author may be associated, is providing legal or tax advice as to the matters discussed herein. The discussion herein is general in nature and is provided for informational purposes only. There is no guarantee as to its accuracy or completeness. It is not intended as legal or tax advice and individuals may not rely upon it (including for purposes of avoiding tax penalties imposed by the IRS or state and local tax authorities). Individuals should consult their own legal and tax counsel as to matters discussed herein and before entering into any estate planning, trust, investment, retirement, or insurance arrangement.

Copyright Andrew H. Friedman 2015. Reprinted by permission. All rights reserved.

Obamacare upheld again: Consequences for Business Owners and Investors

Presidential Seal

 

 

 

 

Last week the Supreme Court ruled that all qualifying Americans are entitled to receive subsidies to purchase health insurance under the Affordable Care Act, regardless of where in the country they live.  The decision leaves the status quo in place but nonetheless raises considerations for investors and business owners:

  • As interpreted by the Administration, the ACA requires small business owners with more than fifty employees to provide health coverage to their employees beginning in 2016.
  • There remains a concern about inadequate ACA enrollment, particularly by middle- and higher-income Americans.  If enrollment continues to lag, it could lead to significant premium increases, as the insurance pool will not have sufficient “good” risks to balance out the less favorable ones.
  • Speaker Boehner’s legal action against President Obama remains outstanding.  Boehner’s suit objects to the Administration’s unilateral decisions to delay the employer mandate and to reimburse insurance carriers for losses incurred from insuring high-risk people.  A Boehner victory (which most legal experts consider a long shot) could end the carrier subsidies, which likely would prompt carriers to increase premiums or cut coverage to recoup the lost revenue.
  • The decision avoids a decline in health care stock values.  Many companies – particularly for-profit hospitals – benefit from the greater insurance coverage provided by the ACA.  However, premium increases discussed above could cause the feared “death spiral”, in which higher premiums leads to fewer healthy enrollees, which leads to higher premiums, etc.  That consequence could hurt health care stock values down the road.
  • The decision eliminates any realistic possibility of repeal of the 3.8% surtax on investment income for higher-income taxpayers.  Revenue from that tax is used to pay for the bulk of the insurance subsidies that the Court upheld.  There is no realistic prospect of a reduction in tax rates in sight.

 


Andrew H. Friedman is the principal of The Washington Update LLC and a former senior partner in a Washington, D.C. law firm.  He speaks regularly on legislative and regulatory developments and trends affecting investment, insurance, and retirement products.  He may be reached at www.TheWashingtonUpdate.com.

Neither the author of this paper, nor any law firm with which the author may be associated, is providing legal or tax advice as to the matters discussed herein.  The discussion herein is general in nature and is provided for informational purposes only.  There is no guarantee as to its accuracy or completeness.  It is not intended as legal or tax advice and individuals may not rely upon it (including for purposes of avoiding tax penalties imposed by the IRS or state and local tax authorities).  Individuals should consult their own legal and tax counsel as to matters discussed herein and before entering into any estate planning, trust, investment, retirement, or insurance arrangement.

Copyright Andrew H. Friedman 2015.  Reprinted by permission.  All rights reserved.

What is the Generation Skipping Transfer Tax?

Recently, M Financial posted a brief blog on the generation skipping transfer tax.  Please copy and paste the link below into your internet browser to read.Transfer Tax

http://mfin.com/m-intelligence-details/Understanding the Generation Skipping Transfer Tax

 

Life Insurance in a Rising Tax Environment

In March, we posted an article about investing in a rising tax environment.  We at WealthPoint thought the article in the link below would be a good follow up to that article.  Please take a moment to read through it.

Rising Tax Environment

Please click the link below.

WP_Marketing Intelligence Report – Life Insurance in a Rising Tax Environment

U.S. HOUSE PASSES ESTATE TAX REPEAL DESPITE VETO THREAT

US House of Rep

By Richard Cowan and David Lawder

WASHINGTON (Reuters) – The U.S. House of Representatives on Thursday ignored a White House veto threat and passed legislation to repeal the estate tax that hits inherited assets worth $5.4 million or more.

By a mostly partisan 240-179 vote, the Republican-backed bill will be sent to the Senate, where Democrats are expected to use procedural hurdles to try to block it. Even if it passes the Senate, it would likely fail to achieve a two-thirds majority needed to override a veto.

House passage was timed for the week when most Americans file their tax returns. Conservatives, who refer to the estate tax as the “death tax,” have long railed against it, arguing it hurts the families of small business owners and farmers.

“It’s past time to repeal this unacceptable tax. Every American deserves the ability to pass their life’s savings to their kids,” said Representative Tom Graves, a conservative Republican from Georgia.

Repealing the tax would boost the federal deficit by about $269 billion over 10 years, according to Congress’ Joint Committee on Taxation.

Few Americans pay the 40 percent tax on assets above the $5.4 million exclusion amount. About 5,400 estates, equal to 0.2 percent of taxpayers, will owe such taxes in 2015, according to the JCT.

(Reporting By Richard Cowan and David Lawder; Editing by Dan Grebler)

The Impact of True Collaboration

Recently, Ryan and Tim were asked by STAFDA, a large national trade association we have spoken to, to write an article for their upcoming trade magazine.  This article highlights the impact of collaboration with an entrepreneurial family group and their advisory team.

Please click the link below to view the PDF file.

The Impact of True Collaboration – Ryan Barradas – Tim Young

Common Life Insurance Mistakes

We at WealthPoint continually strive to provide insight to our clients and advisory community.  The attached piece was written by M Financial and discusses life insurance policy issues that have been encountered through the years.  Please click the link to review the white paper.

 

 WP_AMI_Common Life Insurance MistakesMistake

How To Get Started

Part 4 of a 4 part series

Provided by Ryan F. Barradas and Tim Younggetting-started

In order for you to confidently move forward with big decisions in a manner you haven’t previously, you need an approach that invites three key dynamics into the room: your entrepreneurial spirit, the relational factors unique to closely-held or family business and the technical aspects of sound planning. You have to get to that point of instinctual clarity about how you’d like your story to play out from here forward.

However, your advisors also have a responsibility to know your story. In order to do this, there must be a process that allows them to take the time and have the respect to hear the full story of all the stakeholders in the planning process before recommending any action. You need to learn how potential planning will affect their lives; how they make decisions and the motivations they bring to their role. Sometimes people just need to be heard. Yet sometimes they have a legitimate issue that will impact the plan. I believe it’s imperative to get all the necessary players into the arena and on the team at the onset. Anything else is inefficient.

So how do you do this? You do it through deep discovery with all key stakeholders – meaning anyone who’s going to be affected by decisions you will make either financially, emotionally or from a business perspective. This can include: spouses, business partners, key employees, active and inactive children, key advisors, bankers, key business relationships and more. It’s the people part where most if not all planning processes get derailed, technical solutions come later.

Once this deep discovery is complete, the findings should be organized and distilled down into a document that outlines ten to twenty of your macro goals. These are goals and objectives that absolutely cannot be violated, period. Regardless of the effectiveness of a strategy, if it violates one or more of the macro goals, it should never be presented for consideration. This will keep you on track and provide you with benchmarks for measuring success.

Next, you must embrace a process that allows advisors to truly collaborate. Some families feel that bringing advisors together for group meetings may increase fees. Ironically, if organized properly the opposite occurs. With communication occurring real-time amongst all parties, better ideas are formulated in less time, often reducing fees, taxes or other expenses. The team arrives at more relevant solutions faster and there’s less chance of one person’s style driving the result.

Last but not least, do not try to do this yourself! It’s hard enough to run your business, but doing it while managing a complex process with so much at stake is nearly impossible. As soon as the process diverts your attention from what makes you money, you’ll table the subject until the “right time” which never comes. Procrastination can cost money and more important, it limits your choices. Hire a professional with a multidisciplinary background. Make sure they have the capacity to understand all the dynamics at play (entrepreneurial, relational and technical), and will hold all the accountable parties accountable.

Ryan Barradas (ryan@wealthpoint.net) and Tim Young (tim@wealthpoint.net) are co-founders and partners of WealthPoint, LLC in Phoenix, AZ.  WealthPoint is a nationally recognized firm focusing in the areas of succession, exit and wealth transfer planning for entrepreneurial family groups.

Averting Planning Disasters

Part 3 of a 4 part series

Provided by Ryan F. Barradas and Tim Young
Unknown Conditions Ahead

In our previous articles in this series we discussed the entrepreneur’s need for a decision-making process versus a planning process. Furthermore, we covered the fact that good decision-making is governed and grounded by gut instincts. So what prevents us from making decisions? What enables us to procrastinate and kick the proverbial can farther and farther down the road?

We often seek out or are offered help with succession and exit planning without a process to gain clarity on the following: the relational factors that are unique to closely held business, the operational needs of the company and a way to see all of this transpire numerically.  We believe the primary reason most plans never get off the ground is that they are driven by solutions or the technical aspects of sound planning.  Tax and legal advisors are attempting to solve the income and estate tax issues along with ownership succession matters.  The technical or tax tail begins to wag the dog.  Before you know it, you become overwhelmed with solutions that fail to address some of the basic needs that are at play in the back of your mind. Instinctually, you know there is more to the puzzle.

Below is a list of common reasons we see that most plans fail:

  • They ignore basic business issues – what does the business need in order to support the needs of all of the stakeholders?
  • They fail to address the “void” left by the involvement in business – passion can be channeled in other directions so long as there is comfort in leaving.
  • They fail to adequately address family financial security – When do you cross over the line from “I need more” to “I have enough”?
  • Too many moving parts (too complex) – the best plan isn’t the one with the most tax savings or looks the prettiest on paper. It’s the one you can implement, live with and maintain.
  • They don’t involve “the next generation” – what are the needs and desires of the next generation? What are their expectations?
  • They don’t involve “the key employees” – how are you going to get where you want to go unless you know your key employee’s goals, desires and expectations?
  • Professionals are conflicted out of representing multiple parties – when there are conflicting interests, tax and legal advisors are forced to serve one client.
  • Everyone wants to avoid confrontation – any business is successful due to its ability to avoid drama. However, some relational issues cannot continue to be swept under the rug.
  • They rely upon the owner(s) to drive implementation – this only lasts for a short while.  Once the owner’s primary duties suffer, progress halts.
  • There is no way to measure success.

 

Without a process to avert one or more of the above, smart people might move forward in planning for a little while, but when it comes time to execute, they back away from the table. There’s simply too much at stake with their wealth, their business and their relationships to risk faltering.

In our next article, we will define the components of a successful planning process to avoid the pitfalls above and describe how to get started.

Ryan Barradas (ryan@wealthpoint.net) and Tim Young (tim@wealthpoint.net) are co-founders and partners of WealthPoint, LLC in Phoenix, AZ.  WealthPoint is a nationally recognized firm focusing in the areas of succession, exit and wealth transfer planning for entrepreneurial family groups.