I hope this letter finds you well during these difficult times.

This isn’t the spring we were all looking forward to, but we are thankful that Washington is trying to manage the spread of COVID-19. We look forward to the next several weeks and months as this crisis begins to subside and we can all get back to our normal daily lives.

What Is the New Normal?

Our lives have changed dramatically over the last few weeks.

This invisible enemy has altered our travel plans, work schedules, and daily life routines. Not only as individuals but as a company, we at Ambassador Wealth Management, LLC are adjusting the way we operate.

We have made adjustments to how we invest your money and help you plan for the future.

One example: we are scheduling phone reviews rather than meeting in person. Utilizing technology allows us to keep meeting with you while keeping everyone safe.

Consumer Spending & its Impact on the Economy

We do not anticipate life returning to what it was two months ago for the foreseeable future. The places we used to eat at, visit, and enjoy with loved ones might not be as prevalent in our lives when this is all over.

To prepare for this new economy, we are looking ahead and shifting towards companies that will benefit this new way of doing business, at least for now. For example, instead of holding stock in airline companies, we have built positions in companies that sell essential goods.

Dividends and Sustainability

We had considered companies’ guidance (predictions) in our decision making. Now, large corporations have admitted that their guidance going forward is not reliable. Others have started to withdraw their guidance altogether due to there being so much economic uncertainty

We are carefully monitoring your portfolios for potential vulnerabilities.  Even in spite of the recent recovery in the market, we have chosen to err on the side of conservatism at this time. We are willing to forgo further modest market upside of 5% or so in exchange for protection against the risk of a decline of -20% or more.  Economic weakness, political uncertainty, and expensive valuations in many cases give us continued caution near term.  Continued low-interest rates and eventual recovery next year lead us to be more constructive on a strategic view, but not now.

We are also monitoring the direction of earnings, dividend payments, and how that can potentially impact families who heavily rely on dividends as a source of income.

Earnings for 2020 and Beyond

As we look ahead for the rest of 2020 and even the next several years, we believe this pandemic will drastically reduce earnings across all industries.

Our research suggests it might take up to two years to return to pre-pandemic earnings, assuming that there is no relapse or additional economic deterioration.

First Quarter 2020 in Review

Financial Planning

I started 2020 with a letter of encouragement to you. To know where you stand so that when the unexpected happens, you are prepared. Some of you took my advice and are reaping the benefits of having a thoughtful plan.

Amidst the havoc and uncertainty, many of you have peace of mind, confidence, and freedom in knowing that you were proactively planning and taking care of your financial health.

Communication

Over the last three months, I have been constantly communicating with you. If you have not already done so, please take the time to read through my updates.

• Investment Update: February 2020
• Investment Update: Did the Market Just Catch a Cold, or Is It Terminally Ill?
• Separating Emotions from Investing is Key to Surviving Coronavirus.

In all of these updates, I have encouraged you not to panic.

Those who have panicked have already hurt the success of their retirements. Their portfolios might not appear as “red” with declining stocks, but they are missing some of the best opportunities for big positive returns. In my experience, once an investor goes out of the market because of fear, it’s hard to go back in. Emotions tend to control logic.

Families with strategic discipline have the potential of benefiting where others might panic.

Tax Planning

The last bull market caused problems for investors who are in high tax brackets by generating Large Capital Gains.

The recent market volatility has provided some rare opportunities to help manage taxes more efficiently. We have been taking gains and offsetting them with more recent losses and trying to create a tax neutral environment.

This has also been a good opportunity to review current investment holdings and when appropriate, swap them for higher quality and greater diversification. (In some cases, we have shifted from individual stocks to baskets of stock for greater diversity.)

Washington DC is continuing to produce further opportunities to help some of you with taxes in 2020. Congress has eliminated RMD’s for the year. The stimulus bill also raises limits on qualified charitable deductions.

Portfolio Management

Our goal has been to avoid unnecessary risk through prudent diversification. You own stocks, fixed income, and alternatives such as gold. Since 2018, we have been reducing many areas that were exposed to credit risk.

Specifically, we began reducing small-cap, international, and high yield debt from many portfolios over a year ago. We also eliminated dedicated REIT exposure for clients without the need for high income. This year, we sold small-cap, high yield, and emerging markets in favor of gold and large-cap domestic equities.

Your investment portfolios reflect your family’s risks, objectives, income needs, and time horizon based on our conversations with each of you.

Recently, we have started to make selective additions to your investment portfolios. Many of you will recognize a new investment in one of the largest consumer goods companies in the world. It has paid a consistent and meaningful dividend and appears to be able to grow even when the economy remains sluggish.

Going Forward: What We Are Doing 2Q20

1. Carefully investing in quality companies that will weather the recession and continue to find a way to innovate and grow their revenue. We also will be focusing on companies with sustainable dividends to minimize the risk to your income.
2. As we brace and position ourselves for a new way of thinking, way of life, and economy, we will be looking for opportunities.
3. We are encouraging all of you who have not developed a plan, or have not reviewed it in a long time, to please be proactive. Now is the time to invest in yourself to make sure that your holistic financial picture (not only what we manage) encompasses your goals and dreams.

What Should You Be Doing?

1. Don’t panic – it’s so important to stay calm and collected during these uncertain times. Let logic lead your decisions. Talk to us if you are struggling to understand where you are at.
2. Have a plan – It’s never too late to start planning. If you already have a plan, it’s time to review it and make sure it still aligns with your family’s needs and goals.
3. Look for opportunities – I encourage you to shift your thinking from worry and fear into optimism. Let this pandemic be your chance to look for opportunities.

We appreciate your trust in us as we partner with you on your financial journey. Thank you for being part of our family.

As things change in your life, please stay in touch with us so we can continue to make decisions that are best for you and your family.

Sincerely

Petr Burunov, CFP®
President / Wealth Strategist

The post Client Newsletter 2Q20 appeared first on AWM.

We’re encouraging everyone: don’t let fear rule your finances.

Many of you have developed a financial plan to achieve successful retirements and we’re very thankful that during these times, those plans have helped to mitigate uncertainty.

If you don’t have a plan, we encourage you to think about developing one and putting it in place. Knowing where you are going can help give you peace of mind and confidence, especially in the midst of economic and social uncertainty.

During seasons like this, our focus is to continue reviewing risks and looking for opportunities.

What have we been doing?

1. Continue to Further Reduce Risk.
   

   After such a strong market in 2019, we suspected we were due for some sort of correction. That said, we did not expect the coronavirus or a crash in oil prices to move the market to such an extent.

   In January, we started reducing risks in your portfolios. Specifically, we reduced positions in emerging markets, small-cap equities, and intermediate high yield debt in favor of cash and gold.  We had concerns over international growth, especially from China, causing us to cut emerging markets. High leverage and higher credit risk (in part due to the collapse in oil prices first on lower China and air travel, then recently the collapse in OPEC talks with Russia) made us cut positions in small-cap and high yield.

2. Roth Conversions.

   This might be a good opportunity for some to think about doing Roth Conversions. Converting more shares at lower prices can potentially reduce your future RMD’s once the market starts to recovers.

   As a result, these conversions could reduce your taxable income in the future.

3. Tax Harvesting.

   Taking down risk in portfolios followed by the market’s subsequent decline has also created opportunities for tax harvesting in taxable accounts.

   This might be a good opportunity to start taking gains off the table and offsetting them with more current losses to minimize or even reduce future tax liabilities in taxable accounts.

4. Looking for Opportunities.

   This week we are slowly beginning to selectively re-enter the market when the opportunity presents itself and aligns with your goals. We are being patient and not jumping in too quickly.

   We are also seeking to enhance client portfolios in the process. For instance, one shift is to remove individual companies with more exposure to economic downturn and add more diversified investments (individual companies or broader equity baskets).

What might lie ahead?

Much uncertainty remains.

• Coronavirus quarantines will put economic activity on hold for much of the spring, if not longer.
• Low oil prices will pressure US energy producers for a while longer.
• Earnings are likely to decline in 2020.

However, US Treasury yields have collapsed below inflation. Relative valuation for equities, particularly those with sustainable dividend yields, have improved immensely. While their stock prices have cratered, US banks appear to be better capitalized than in 2008.

Valuation has not yet been enough of a compelling argument to boost risk-on assets like stocks and commodities. Yet, when the US economy eventually starts to resume operating at normal capacity with a peaking in Coronavirus cases, we think the market might start to recover on less bad news.

It’s impossible to know when the chaos will end. That said, we are proactive and vigilant.

What can you do?

1. Stay calm and don’t panic. Stay true to yourself and don’t let your emotions run your financial decisions
2. Have a plan. If you have a financial plan, lean into it and let it do its job. If you don’t have a plan, now is the time to get one.
3. Let’s look for opportunities. Tax season is upon us and we are encouraging you to look for opportunities to utilize the new tax code to save on tax liabilities.
   Now might also be the time to think about slowly re-entering the market in small increments.

Thank you for your trust in us as we partner on your financial journey with you.

The post Separating Emotions from Investing is Key to Surviving Coronavirus. appeared first on AWM.

Direct Transfer vs. 60-day Rollovers

• Direct Transfer – A direct transfer is sometimes called a “direct rollover”, depending on the context. The term “transfer” is used in the tax code when referring to IRAs, while “rollover” is used for other qualified plans. Either way, we’re always talking about distributions that are payable to another tax-deferred account, but never to the account holder. There are two ways to distribute your funds into another account:

1. 1. ACH/Wire Transfer – This is generally the preferred method since the account holder never touches the funds.
   2. Check Payment – In this case, the check is made payable to the recipient account and is handled through a custodian.

• 60-day Rollovers — Often referred to as an “indirect transfer,” a 60-day rollover is when a distribution is payable to an individual to be redeposited into an IRA or other retirement plans within 60 days. Partial rollovers are also allowed.

Consult with your financial advisor which is the best option for you and your situation.

Benefits of a Direct Transfer

Now that you understand the difference between the two ways of transferring assets from a retirement plan to an IRA, here are some benefits of choosing a direct transfer:

• Simplicity – You can’t really get much simpler than a direct transfer. Plus, with an ACH/wire transfer, there is less room for error.
• Once-per-year Rollover Rule – Direct transfers are exempt from this rule, which means you can make as many distributions from or to qualified retirement plans as you want.
• Withholding (in qualified plans) – Qualified plans are required to withhold 20% of distributions that are paid to the account holder. Direct transfers, however, are not subject to this 20% taxable income. This factor alone is worth considering when transferring your assets.
• Inherited IRAs – A direct transfer is the only way an account owner can transfer an inherited IRA to another institution. Any amount that is payable to the beneficiary immediately becomes taxable income. Unless the custodian makes an error, there is no way to “fix” this.
• Divorce – A direct transfer is the only way to distribute the awarded amount to an ex-spouse without tax penalties.
• Timing – While 60-day rollovers are subject to time constraints, direct transfers are not.
• IRS Relief – Unlike 60-day rollover issues, any problem that comes up with a direct transfer will automatically be exempt from taxes.

At the end of the day, if you want to transfer money from an IRA or other qualified retirement plans, a direct transfer is the best way to avoid most or all tax consequences.

Always speak with your fiduciary financial advisor for help with tax relief and the mechanics of transferring funds. This could get very complicated and you don’t want to make mistakes, especially irreversible ones.

If you don’t know where to start, I would love to help.

Schedule Appointment

The post Direct Transfers vs. 60-Day Rollovers – Which is Better? appeared first on AWM.

Here are 10 things you should know about QCDs:

1. Under the new tax reform, you have more opportunities to maximize your deductions. Most taxpayers take a standard deduction on their tax forms. If you take a standard deduction, the option for charitable giving is eliminated. Ask your fiduciary advisor how best to make charitable distributions from your IRA(s).
2. A QCD might add to your standard deduction. Donations made directly from your IRA can help lower your adjusted gross income (AGI) by excluding all donations made from your IRA from your income. It just takes a bit of planning.
3. If you own an IRA or are a beneficiary and have reached age 70½ years old, you can make qualified charitable distributions. Check with your fiduciary financial advisor(s) before jumping into a decision.
4. Should you choose to make a QCD, it must be a direct transfer from your IRA account to your selected organization. Any distributions you take cannot be given to the charity for a deduction. That said, you can request a check, payable to the organization, mailed to you and then you can deliver it in person. It’s usually easier for our clients to just set up a direct transfer.
5. To qualify for a QCD, you cannot receive anything in return for your donation. That means no free tickets, mugs, or services in exchange for your contribution. Make sure your gift is actually a gift, not a trade. It’s also important to note that gifts to donor advised funds or private foundations do not meet the requirements for a qualified charitable distribution.
6. QCDs are limited to $100,000 per year, per individual. If you are married and your spouse also qualifies, you can each give the full $100,000 annually. Talk with your tax advisor to review your best options.
7. Any amount transferred from your IRA to a charity as a qualified charitable contribution can count towards your 2018 RMD. If you don’t need additional taxable income, this is a great way to keep your tax bracket lower.
8. Qualified charitable distributions can only be made from an IRA, Roth IRA or inactive SEP or SIMPLE IRA. Other employer plans, such as a 401(k) or 403(b), do not qualify for QCDs. Your financial advisor can help you choose the best account to make donations from. If you still have a corporate plan and want to make a QCD, talk to your fiduciary advisor to potentially transfer funds from your plan to an IRA.
9. With regards to #8, QCDs only apply to the taxable amounts in your IRA. Only the taxable amounts in a Roth IRA will qualify. This can get very complicated. Please seek out your fiduciary advisor’s recommendations.
10. Make sure you keep the communication with your accountant open and consistent during this process. Your accountant should know about any QCDs you make or plan to make for that calendar year. Otherwise, when your custodian submits your 1099-R form, there will no be information about your qualifying charitable distributions. Don’t make this mistake by making sure your accountant is aware of any IRA transactions you make, especially QCD’s.

Planning out your finances can be tricky and complicated. If you need help with tax-planning or charitable donations, consider working with a fiduciary financial advisor to guide you. Ambassador Wealth specialized in tax-planning services. We would love the opportunity to meet you.

Schedule Appointment

The post 10 Things to Know About Qualified Charitable Distributions (QCDs) appeared first on AWM.

Many people who already know which causes they should champion can benefit from straight gifts to charities.

Yet, many other people also desire to do good, but they are unsure how and when to donate. 

Other people are willing to help a specific charity, but they are not ready yet because they still need income.

Still, other people want to donate to charity, but they also want to help their children and grandchildren.

The good news is that a variety of options exist to help those who find themselves in unusual circumstances.

This is true even with the Trump tax reform.

People in such circumstances might consider 3 potential strategies that can help their situation:

1. You Want to Donate to Charity but You Don’t Know Which Ones Yet

You might be someone who knows you want to make an impact on your world. However, you have not yet figured out which charities best reflect your values. Yet, you would like to start making large contributions now.

One option is to start your own private foundation. This can offer you significant control over where your donations ultimately go later on. 

Private foundations do have drawbacks.  One drawback is the expense, since they must satisfy a host of complex rules. A second drawback is that you can contribute a lower percentage (30%) of your Adjusted Gross Income (“AGI”) to a private foundation than if you simply contributed cash to specific charities (60% of AGI). 

One potentially cheaper option to a private foundation is a donor-advised fund (“DAF”). Larger charities and investment firms offer such vehicles.  However, in order for your DAF donation to be tax deductible, you will need to obtain a letter from the sponsor of the DAF stating that it has exclusive legal control over the assets you donated.

2. You Need Income Now but Wish to Donate Your Inheritance to Charity

Some families still need the income from their investments for living expenses, yet they wish to deed over their inheritance to a charity upon death. A Charitable Remainder Trust (“CRT”) might be a viable option. 

A family might donate their money to a charity in the form of a CRT.  In exchange, the charity pays the family an annual income, some of which is taxable, over a fixed time period.  The family receives an income tax deduction for their contribution to the CRT, but their property is removed from their estate. The charity owns the property now.

Another potential benefit of a CRT is that it might help diversify your portfolio.  Large assets that generate no income or embed large capital gains might benefit from being housed within a CRT.  The family would receive financial income.  Additionally, the family would not have to pay capital gains tax.  As the CRT is a tax-exempt entity, the charity could sell the illiquid asset at some point in the future without generating a tax event for the donating family. 

It is possible to name a beneficiary other than yourself in the event you were to die before the term of the CRT were to expire.  The beneficiary would receive the remaining income from the CRT. 

3. You Want to Donate Income to Charity but Seek to Transfer Your Inheritance to Your Children (or Grandchildren)

Charitable Lead Trusts (“CLT”) can help people who seek to help both charity and their own children (or grandchildren) at a lower tax rate.

A CLT pays an amount to one or more charities periodically over the life of the Trust. When the Trust’s life expires, then the remaining assets pass on to beneficiaries designated by the original donor. Donors who fund CLT’s benefit from tax deduction of their original gift. However, the property is removed from their estate. 

For gift tax purposes, the amount of remainder interest is calculated with the assumption that the assets grow at Section 7520 rate.  If the trust’s earnings out perform the Section 7529 rate, excess earnings are transferred to the remainder beneficiaries free of both gift and estate taxes.

However, depending on what interest rates do, the increased gift and estate tax exemption might reduce your tax benefits from CLT, depending on your specific situation. Consult with a tax expert for your specific situation. 

We would be happy to give you a free consultation in navigating the complexities of leaving a legacy for good causes and less to the tax man.

Start the Conversation

The post Trusts Might Give You Flexibility and Lower Taxes appeared first on AWM.

All charitable donations are susceptible to taxation. With proper planning, however, you can reduce the amount of taxes you will owe. This guide will walk you through some of the most common questions about the charity tax deduction and how to qualify.

1. How to Claim your tax deduction for donations

   The first and most important step in getting your charitable tax deductions is to claim any donations you make on your taxes. This notifies the IRS and state tax-collectors that you have made a charitable gift, qualifying you for a deduction.

   Next, you will want to itemize your deductions. Make a list of all the charitable donations you have made in the last calendar year. You can only claim a deduction for a donation in the year you gave to the nonprofit.
   

2. Types of Donations to Qualifying Organizations

   How much can you deduct for your charitable giving? Here are the types of donations that qualify for deductions. Ask your tax advisor for additional details or for further explanations.

   • • Cash – gifts by cash, credit card, check, or payroll are 100% deductible so long as it does not exceed 60% of your adjusted gross income (AGI).
     • Ordinary–income property – this includes stocks and bonds that have been held for one year or less, inventory, and property that is subject to depreciation.
     • Long–term capital gains property – appreciated stocks, bonds, and other securities that you have had for at least one year may be deducted at the current fair market value. If you have a loss, it would be better to sell your stock, take the deduction, and give that cash to charity. There is no tax benefit by gifting a stock with a loss directly to a charity.
     • Tangible personal property – deductions depend on each situation:
       • if the property is not related to the charity’s tax-exempt function (such as an antique donated to for a charity auction), your deduction is limited to your basis.
       • if the property is related to the charity’s tax-exempt function (such as an antique donated to a museum for its collection), you can deduct the fair market value.
     • Vehicle – unless the donated vehicle is being used by the charity, you can usually deduct the amount the charity receives after the sale.
     • Use of property – Use of a vacation home, loan of artwork is not usually deductible because it is not considered a completed gift. There may be ways to structure the gift to enable you to get a deduction.
     • Services – you can only deduct your out-of-pocket expenses, not the fair market value of your service. You can also deduct 14 cents per charitable mile you have driven.
     • Payments made in exchange for college athletic event seating rights – under the TCJA, these are no longer deductible.

3. Qualified Organizations

   According to the IRS, any charitable contributions made to the following organizations qualify for the charitable tax deduction:

   • A state or US possession, or the United States or the District of Columbia, if contributions are exclusively for public purposes
   • A community chest, corporation, trust, fund, or foundation which operates exclusively for charitable, religious, educational, scientific, literary purposes, or the prevention of cruelty to children or animals
   • A church, synagogue, or other religious organization
   • A war veterans’ organization or its post, auxiliary, trust, or foundation if organized in the US or its possessions
   • A nonprofit volunteer fire company
   • A civil defense organization created under federal, state, or local law
   • A domestic fraternal society, operating under the lodge system and only if the contribution is exclusively for charitable purposes
   • A nonprofit cemetery company, if the funds are irrevocably dedicated to the perpetual care of the cemetery as a while and not a particular lot or mausoleum crypt

4. Limitations on Deductions

   All good things can come to an end. Same goes for tax deductions. With charitable contributions, you can claim up to 60% of your adjusted gross income (AGI).

   If you are gifting directly from your IRA, also known as QCDs (Qualified Charitable Distributions), the maximum you can give is up to $100,000 per year, per giver. If you are married and your spouse also qualifies, you can each give up to $100,000 annually. Talk with your tax advisor to review your best options.

5. What to keep on record

   Always keep a record of your donations, especially if you’re planning to take advantage of the charitable deduction. In the case of an audit, you must have proof that you gave the donations. The IRS and tax-collecting agencies accept the following forms of proof:

   • A cancelled check
   • Credit card statement(s)
   • Bank statement(s)
   • Written proof from the charity
   • Pictures
6. If any of your donations exceed $250, you maybe need to prove to the IRS that you did not receive anything in return for the gift. Ask the charitable organization for a written statement to keep in your records.

Planning out your finances can be tricky and complicated. If you need help with tax-planning or charitable donations, consider working with a fiduciary financial advisor to guide you. Ambassador Wealth specializes in tax-planning services, and we’d love the opportunity to meet you.

Schedule Appointment

The post It’s the Season of Giving: Make Your Charity Giving Work for You appeared first on AWM.

Charitable giving potentially offers a key component toward managing one’s nest egg.  (Check out the IRS’s Tax Exempt Organization Search tool to make sure your charity is qualified to give you a tax deduction on your donation.)

You have the opportunity to donate toward causes in which you believe.  You also can save some money from the tax man.

This is true even with the Trump tax reform.

The Tax Cuts and Jobs Act (“TCJA”) made only very minor changes to charitable giving, particularly for high-income taxpayers.  While tax rates for many tax brackets were lowered, it also results in slightly less tax benefit from giving to charity.  Nonetheless, the potential benefits from charitable giving are still tangible.

Here are 3 ways you can take advantage of charitable giving through gifting strategies:

1. Cash Donations

   Straight cash donations to the charity of your choice are the simplest to make.  You can give via check, credit card, or payroll deduction. You will want to retain some proof that your donations went to charity for the IRS.  If your gift is less than $250, either a canceled check, credit card receipt or written letter from the charity will suffice.  If you gave more than $250, then you will need to get a written receipt from the charity for your records.

   The new tax law puts a cap on tax-deductible cash donations to specific charities at 60% of your Adjusted Gross Income (“AGI”), which is an increase from 50% prior to the TCJA.

   If you were to donate cash to a nonoperating private foundation, the IRS only allows you to deduct it up to a maximum of 30% of your AGI.

   You can carry excess contributions forward for up to 5 years.

2. Stock Donations

   One of the best charitable gifts you could donate might be appreciated stock or other publicly-traded securities.

   • You can deduct the current fair market value of the securities you gift to charity on your income taxes.
   • Additionally, you do not have to pay capital gains tax on the price appreciation in those securities.

   However, appreciated stock is subject to stricter deduction limits.  Unlike cash donations, appreciated stock donations to charities are deductible only up to 30% of your AGI.  If a stock donation is made to a nonoperating private foundation, the maximum donation deductible would only be up to 20% of your AGI.

   If you want to give stock that is below your cost basis, don’t do it.  It is best to sell the stock at a loss, give the cash proceeds to the charity, and write off the realized loss on your taxes.

3. RMD’s from Your IRA as Charitable Donations

   If you are age 70.5 years or more, you have a third option for donating to charity.  You can make direct contributions to charity from your IRA up to $100,000 each tax year.  While you cannot claim a deduction from your taxes, you can benefit in another way.  Any such donations you make from an IRA qualify toward satisfying your Required Minimum Distribution (“RMD”) mandated by the IRS.  Additionally, you would not need to pay any tax on such distributions.

These ways of charitable donation might apply for people who already know to which charities they wish to donate and are ready to do it right away.

But what if your situation is different?  Read how trusts and other strategies might give you more flexibility if your situation is unusual.

Come schedule a free listening session to figure out if we can help you to live a meaningful life while saving on taxes.

Start the Conversation

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