Fi3 Financial Advisors Partner Samuel Muse Receives the Indiana CPA Society’s Emerging Leaders Award

Samuel Muse, CPA, CFP®, is one of five Indiana CPAs being presented with a 2018 INCPAS Emerging Leaders Award.

“We are incredibly proud of Sam for being named an Emerging Leader by INCPAS,” said Ivan Hoffman, Managing Partner of Fi3 Financial Advisors. “Sam works diligently to uncover and analyze new opportunities for our clients. He serves as a Family CFO, which means that he must integrate wealth planning, investment consulting and family leadership for a comprehensive and seamless client experience. This is a challenging but rewarding role, and we are glad to see Sam recognized for his capabilities.”

 Sam Muse, CPA, CFP receives the 2018 Indiana CPA Society's Emerging Leaders Award.

The annual Indiana CPA Society Awards recognize CPAs with active licenses in good standing who have demonstrated excellence in serving the profession, company, community and public interest.

The Emerging Leaders Award was established in 2001 to recognize up-and-coming leaders in the profession. Each recipient must demonstrate leadership and initiative; have made significant contributions to their employer’s success; and be age 34 years or younger.

“CPAs are often the ones working behind-the-scenes to make their companies and clients more successful,” said INCPAS President & CEO Jennifer Briggs, CAE. “We appreciate the colleagues who noticed and nominated these members who have made truly exceptional contributions to the profession. The Society looks forward to spotlighting them at this year’s CPA Celebration!”

Winners for all award categories will be honored at the CPA Celebration at the Indiana Roof Ballroom on May 11, 2018. Categories include Advocacy, Building Bridges to the Profession, Community Service, CPA Center of Excellence®, Distinguished Service, Emerging Leaders and Innovation. Event details at


Stocks Will Rise … and Fall

Thoughtful Investors Should Respond to Fluctuations With a Clinical Approach

Unlike two years ago, when in January 2016, we saw the largest start-of-year decline in the history of the S&P 500, this year, stocks soared out of the gate. It appeared good times would roll on. That changed abruptly a few weeks ago, and investors are left wondering, “What should we do now?” 

Before providing a specific recommendation for how we believe every thoughtful investor should respond, allow us to address two important points.

Unnerving Correction

The downdraft we saw at the beginning of February was especially challenging for many because of its speed (one of the quickest declines of 10% we’ve ever seen) and the fact that it followed one of the calmest years in the history of stocks (no declines of greater than 2% in the S&P 500 last year).

Healthy Correction?

While only time will tell if this decline is constructive or instead leads to a bona-fide bear market and real pain, we feel it’s more likely this was a healthy sell-off. We base this on the fact that this correction wasn’t triggered by fears of a recession, but interestingly just the opposite. This swift move lower was the result of accelerating growth, leading to higher interest rates, which is potential competition for stocks. We’re also encouraged that we didn’t see indiscriminate selling of risk assets; but rather, the more overvalued areas of the market were punished most. 

A Clinical Approach

So back to how investors can thoughtfully respond to this changed environment. Given that no one can predict with certainty how stocks (or bonds for that matter) will perform, we strongly advocate adopting a clinical approach.

1. Re-assess your risk/return profile. Simply put, do you truly need to take on the added risk that accompanies higher expected returns from your current allocation? Consider it a luxury to ponder this question with markets at these levels.

2. Adjust any of your Three Levers as necessary. Remember that all Three Levers – Inflows, Outflows and Expected Return – might deliver your solution. If you can’t bear the thought of your portfolio dropping, say, 20 percent, consider modifying inflows (e.g., Can you save more?) or delaying/reducing/eliminating outflows (e.g., distributions from your portfolio). 

3. Thoughtfully diversify. Even with recent declines, very few asset classes appear to have cheap valuations. As a result, broad diversification remains a necessity. But that doesn’t mean sitting on bundles of cash. Remember, there’s no guarantee stocks will falter, and trying to time the market is often a loser’s game. 

4. Thoughtfully rebalance. Adopting a disciplined approach to selling winners and reinvesting according to a long-term plan makes perfect sense and becomes particularly important in volatile markets. 

5. Be disciplined when things get rough. The return of volatility can be unsettling, so it won’t shock us if investors react poorly. But by following a clinical approach, you will have affirmed your objectives and why your portfolio is positioned as it is. Knowledge truly can be power – and you’ll have it. It’s also helpful to appreciate that the typical bear market lasts less than 18 months.

History of Bear & Bull Markets Since 1926.JPG

It does not matter much that stocks will rise and fall. It’s normal and a part of investing. What truly matters is whether you will take a clinical approach to overseeing your investments. Absent some essential information, we can’t tell you if you should increase your allocation to stocks or reduce your exposure. However, we can say that now seems like a superb time to assess your allocation and to, as one wise CFO once told us, minimize your maximum regret. 

As always, please feel free to contact any of the professionals at Fi3 Advisors for assistance.


Charitable Giving: Not a One-Trick Pony

Insight on Gifting Appreciated Securities

The beginning of a new year presents an opportunity for investors to recalibrate and review their goals. Often among these is a renewed endeavor to give back in a charitable fashion. While it may seem counterintuitive, the appropriate planning techniques make it possible to maximize return, enhance tax efficiency and satisfy philanthropic ambitions. In lieu of traditional donations, these techniques focus on gifting appreciated securities, one of the more tax efficient methods to give to charitable organizations.

Gifting Appreciated Securities
The mechanism of gifting shares is relatively straightforward. When a long-term asset that has appreciated in value is gifted to the qualified charity, the fair market value of the asset is deemed to be tax deductible for the donor. This includes, but is not limited to, the gift of stocks, bonds and mutual funds. The greater the unrealized gain of the donated asset and the higher the individual’s tax bracket, the more impactful the gift becomes to the donor’s tax deduction relative to simply writing a check or giving cash. No capital gain is created so the donor incurs no tax liability.

An individual should consider two critical factors when donating an appreciated asset. First, the deduction for gifting appreciated assets is limited to 30% of an individual’s adjusted gross income (AGI), which differs from a 60% limit on cash donations and property. However, excess contributions may be carried forward for up to five years. Second, the financial benefit of charitable contributions only applies to those who itemize their tax deductions. With the recent increase in the standard deduction, many taxpayers will not find it advantageous to itemize. For this reason, charitable givers will look to a practice known as “bunching.” Bunching allows an individual to delay and group deductions every other year such that it is financially beneficial to alternate between itemizing one year and taking the standard deduction the next. Creating a strategy that follows this pattern could be advantageous for charitable givers.  

Donor-Advised Fund
Aside from donating an asset directly to a charity, a Donor-Advised Fund (DAF) allows a donor to make a charitable contribution, receive an immediate tax benefit and then control when the gifts are made. The bequest could be immediate or over a series of years. A DAF is particularly useful in the event of a financial windfall, volatile income, deferred compensation and/or stock options. In years when an individual may be pushed into a higher tax bracket, a targeted gift can significantly reduce the tax burden and front-load a charitable fund. Added benefits of establishing a DAF include privacy and simplicity. Gifts can be made anonymously and the recent uptick in popularity has led most major brokerages such as Fidelity, TD Ameritrade and Schwab to allow investors to establish DAF accounts quickly and efficiently.

Charitable Giving image 2.20.JPG

Portfolio Rebalancing
Gifting can also serve as an effective rebalancing tool for individuals who are charitably inclined. As a result of one of the longest bull markets in recorded history, many are in the process of rebalancing their portfolios. While it is a fairly simple task with respect to tax-deferred assets such as a 401(k) or IRA, rebalancing a taxable portfolio with large unrealized gains can lead to a hefty tax bill. Consequently, the prudent act of rebalancing can appear disadvantageous at times. Gifting appreciated securities provides the opportunity to reduce risk in an individual’s portfolio, avoid capital gains and receive a tax deduction, all while supporting a valued charitable organization. 

When employing a rebalancing strategy, highly appreciated securities representing a significant position in the portfolio, concentrated holdings from company stock vesting or a meaningfully overweight position in the portfolio all make for good candidates. To qualify, the security must be a “long-term” holding (i.e. purchased and held for over a year). 

Note that banks and brokerages typically require a letter of instruction in order to gift the shares, which can take several weeks. Most charitable organizations will already have an investment account established to receive securities that can be monetized with no tax implications. This process should be initiated well ahead of the December 31st deadline for the year in which a giver desires to take the deduction and make a gift.

IRA Charitable Rollover
For those seeking an alternative to taking the Required Minimum Distribution from their IRA, yet another charitable giving strategy exists. In 2015, Congress passed a permanent law allowing individuals over age 70.5 to give up to $100,000 from their IRA directly to charity without paying income tax. The strategy of gifting directly to charity alleviates the tax burden that would have been associated with the IRA distribution flowing through the tax return as income.

The above strategies reflect general guidelines and principles. Always remember to consult with a professional tax advisor to quantify the implications and determine suitability for your personal situation. 

For further assistance with exploring these strategies and optimizing your charitable endeavors, please contact any of the professionals at Fi3

A Reminder of What Volatility Feels Like

Insights and Impact Analysis

What Happened?

On Monday, February 5th, the S&P 500 Index and Dow Jones Industrial Average (DJIA) both fell more than 4%, marking the worst one-day percentage decline since August 2011. When combined with declines from last Friday, the two trading sessions resulted in these indices falling more than 6%, bringing the indices back to levels as of mid-December 2017.

Remarkably, the recent sell-off ends a streak of more than 400 trading sessions since the last time the S&P 500 Index had experienced a 5% pullback (dating back to the Brexit vote of June 2016).

Tuesday, February 6th was another violent trading day. The DJIA had an intraday move of 1,134 points, heading down at the open, but finishing the day strong at +2.33%. 

Equity Markets Pull back Table 1 revised.JPG

What Caused the Pullback?
There was not a notable development or headline that led to the recent market pullback; in fact, corporate earnings and global economic data have generally remained quite strong. Some have pointed to concerns over a pick-up in inflation, rising bond yields and waning central bank stimulus as potential factors behind the volatility. Other possible factors include stop-loss orders (which would have automatically triggered sales during the sharp intraday decline) and algorithmic trading (computer models which recognize the pace of the decline and in turn produce additional selling – a situation of “selling begets more selling”).

Is the Recent Drop in the Markets Unprecedented?
It is important to note that while the recent pullback has been sharp over a short period of time, the move is well within historical norms. Many headlines focused on the Dow Jones Industrial Average (DJIA) recording its biggest single day point decline (-1,175), though the percentage decline (-4.6%) was only its 100th worst single trading day, according to S&P Dow Jones Indices.

The fact that 2017 was such a unique and extended period of low volatility makes the recent market pullback feel extreme. Last year, the S&P 500 Index had a maximum peak-to-trough drawdown of only -3%; since 1928, the index’s average intra-year decline is nearly -14%. The S&P 500 Index did not decline by more than 2% on a single trading day last year, though it did so on 5 days in 2016, 6 days in 2015 and 4 days in 2014 (the index had 21 such days in 2011).

Equity Markets Pull back Table 2.JPG

What Should Investors Do?
While it is understandable for investors to feel frustrated or anxious in the midst of such market volatility, we continue to emphasize the importance of maintaining a longer-term view. While the markets have recently shifted lower, nearly all investors have the same time horizon today as they did a week ago. During periods of heightened volatility, investors often feel the need to “do something,” though short-term, reactive moves are often ill-timed and can significantly impair the effectiveness of a well-designed investment plan. So long as circumstances and long-term objectives have not changed, investors should adhere to their long-term investment plan and should thoughtfully rebalance over time.

For more information, contact a member of the Fi3 team.

Featured Resources and Insights for 2018

Market Snapshot from Ivan Hoffman

Last year, financial markets produced pleasantly surprising returns coupled with historically low volatility. By the numbers, the Dow Jones Industrial Average posted more than 70 record highs (87 since the presidential election) and the S&P 500 is in the midst of its longest streak ever without experiencing a decline of 3% or more (14 months and counting). Investors begin 2018 with a desirable combination of strong earnings, broad global growth, historically low interest rates and business friendly tax reform. If you’re looking for a negative, it’s that stocks (and bonds, and real estate) appear to be richly valued, or fairly valued at a minimum. While high valuations and long running bull markets aren’t good predictors of when markets might actually fall, now is an excellent time to review your family’s goals and year end balance sheet to ensure proper alignment with your portfolio’s allocation and return objectives.   

Featured Resources from Fi3

We want to share some key resources with you to guide our conversations in 2018. We look forward to discussing these topics with you.

  Download our 2018 Financial Planning Guide.

Download our 2018 Financial Planning Guide.

  Download our Updated 10-Year Capital Market Assumptions.

Download our Updated 10-Year Capital Market Assumptions.

  Download our Five Themes for 2018.

Download our Five Themes for 2018.

Tax Reform Arrives: Key Provisions of the Final Bill and Year-End Opportunities

What You Need to Know

  • Having now passed both the House and Senate, the tax reform bill now heads to President Trump to sign the bill into law.
  • The article that follows highlights key provisions of the final tax bill as well as several year-end planning opportunities.
  • Already up to speed on the bill? Jump to Six Considerations for Year-End Planning.

Individual Tax
The new tax bill incorporates a wide range of changes for individual taxes, though most of the tax cut provisions (for individuals) are structured to expire after 2025 due to Senate budget rules. GOP leadership has emphasized that a future Congress could choose to extend any expiring tax provisions.
Income Tax Brackets – While the House tax bill initially reduced the number of tax brackets from seven to four, the Senate tax bill and the conference agreement retained seven brackets, with the top bracket falling from 39.6% to 37%.

Tax reform chart.png

Alternative Minimum Tax (AMT) – the House tax bill called for the elimination of the AMT, though both the Senate tax bill and the conference agreement ultimately retained the AMT (much to the chagrin of the more than four million households that are subject to the AMT).  

  • While the AMT system is still in place for individuals, the amount that taxpayers can deduct from alternative minimum taxable income (the ‘AMT exemption’) would increase from $84,500 to $109,400 for joint filers and from $54,300 to $70,300 for other filers.
  • In addition, the phaseout range that applies to the AMT exemption would increase significantly from $160,900 to $1,000,000 for joint filers and from $120,700 to $500,000 for other filers. 
  • Between the increased exemption amounts and phaseout ranges, fewer households will be subject to the AMT, and those subject to AMT will likely owe a smaller amount under the new tax bill.  

Pass-Through Income – pass-through owners that meet certain conditions would be able to deduct up to 20% of “qualified business income” from a partnership, S-corporation, or sole proprietorship.  

  • The 20% deduction phases out over the following income ranges: $315,000-$415,000 for joint filers and $157,500-$207,500 for other filers.
  • Owners of certain service businesses (such as law, medical, and accounting firms) are only eligible for the deduction if income falls below the initial threshold ($315,000 for joint filers, and $157,500 for other filers).

Estate, Gift, and Generation-Skipping Transfer Tax – existing exemptions would approximately double to $11.2MM per person and would be indexed annually for inflation. The exemption amounts would revert back to current levels after 2025.

  • There had been some discussion whether the step-up in cost basis at death would be eliminated, though the conference report retains the current basis step-up provision.

Personal Exemption – the exemption is eliminated as of 2018 (for 2017, the exemption is $4,050 each for taxpayers, spouses, and qualified dependents, subject to income limits).

Standard Deduction – the standard deduction approximately doubles under the tax bill:

  • For single taxpayers, from $6,350 to $12,000
  • For head of household taxpayers, from $9,550 to $18,000
  • For married filing jointly taxpayers, from $12,700 to $24,000

Child Tax Credit – the child tax credit increases substantially under the new bill, with the credit changing from $1,000 to $2,000 per child under age 17. The refundable portion of the credit adjusts up to $1,400.  In addition, the initial threshold for the phaseout of the credit begins at $400,000 for joint filers (up from $110,000) and at $200,000 for other filers (up from $75,000).
Mortgage Interest Deduction – existing mortgages (pre-12/15/17) are grandfathered under current law with the $1,000,000 mortgage limit, while new mortgages have a $750,000 limit.
Home Equity Loan Interest Deduction – this deduction is eliminated as of 2018.
State & Local Tax Deduction (‘SALT’) – this deduction was a point of contention between the House and Senate tax bills, with the conference agreement ultimately allowing taxpayers to deduct up to $10,000 (total) for property taxes plus the greater of state and local income taxes or sales taxes.
Charitable Donations – this deduction was not impacted by the tax bill, with the exception that cash contributions to public charities will now be allowed up to 60% of adjusted gross income (rather than the current 50% of AGI limit).
Medical Expense Deduction – the bill drops the threshold for the deduction to 7.5% of Adjusted Gross Income (AGI) for 2017 and 2018, with the threshold increasing back to 10% of AGI as of 2019.
Miscellaneous Itemized Deductions – the bill eliminates all miscellaneous itemized deductions (for example, unreimbursed job expenses, investment expenses, tax preparation fees, legal expenses, etc.).
529 Plans – these plans are typically designated for higher education expenses, though the new bill allows these plans to distribute up to $10,000 per child per year for K-12 expenses.
Alimony – for divorce or separation agreements executed after December 31, 2018, alimony and separation maintenance payments will be neither deductible by the payor spouse, nor taxable income for the payee (recipient) spouse.

Retirement Account/Plan Provisions
Retirement Plan Contributions – initial proposals had considered limiting pre-tax contributions to retirement plans with a requirement that certain contributions be made on after-tax basis (referred to as ‘Rothification’). In the end, the bills did not impact/alter retirement contributions.
Roth IRA Recharacterizations – under current law, a taxpayer who completes a Roth conversion has until October 15th of the following year to unwind a Roth conversion (which treats the Roth conversion as though it had never happened). This ‘do-over’ maneuver is eliminated as of 1/1/2018.

Non-Qualified Deferred Compensation Plans – the final bill did not incorporate any changes to these plans.

Outstanding Retirement Plan Loans – under the final bill, participants who separate from service with an outstanding loan against their plan balance have until the tax return due date for that year to repay the loan balance to an IRA (effective as of 1/1/2018).

Corporate Tax
Corporate Tax Rate – the tax bill permanently cuts the top 35% corporate tax rate to 21% as of 2018.

Corporate Alternative Minimum Tax (AMT) – the tax bill permanently repeals the corporate AMT.
Taxation of Multi-National Corporations – the bill shifts the U.S. from a worldwide system to a territorial system in which only domestic profits would be taxed. The bill includes certain anti-abuse tax provisions.
Deemed Repatriation – currently deferred foreign profits will be deemed and taxed as repatriated at 15.5% for liquid assets and 8.0% for illiquid assets.

Six Considerations for Year-End Planning
Now that taxpayers have seen the updated version of the tax reform rules and provisions, there are a few tax planning strategies that can be executed prior to year-end.  
Some of the following planning considerations relate to managing itemized deductions. Given that the Alternative Minimum Tax (AMT) disallows deductions such as state and local income taxes and property taxes (among others), taxpayers should determine whether they are likely to be subject to AMT and the resulting impact of executing any of these planning items in 2017.
Currently, approximately 30% of taxpayers (approximately 45 million) itemize deductions; with the standard deduction nearly doubling, it is estimated that as many as 25 million taxpayers would no longer itemize deductions, choosing instead to take the increased standard deduction.  
Going forward (2018 and beyond), itemized deductions will primarily consist of:

  • Medical Expense Deduction
  • State and Local Tax (‘SALT’) Deduction (capped at $10,000 for the total of property taxes plus either state and local income taxes or sales taxes)
  • Mortgage Interest Deduction
  • Charitable Deduction

1) Accelerate Charitable Gifts into a Single Tax Year
Taxpayers should review itemized deductions excluding charitable donations under the new rules to determine what portion (if any) of charitable gifting would not produce a tax benefit. If a portion of charitable gifting would not produce a tax benefit, taxpayers would be incentivized to accelerate charitable gifting into a single year (to maximize itemized deductions in a single tax year) while taking the standard deduction in other years.
For example, Rob and Maria have mortgage interest of approximately $8,000 and state and local taxes of $10,000 (new limit). Since their standard deduction has increased to $24,000, the first $6,000 of charitable giving would not produce a tax benefit (calculated as $24,000 - $8,000 - $10,000); any gifting beyond $6,000 would produce a tax benefit as Rob and Maria’s itemized deductions would then be greater than the $24,000 standard deduction. Rob and Maria typically give $10,000 to charity each year. In this case, Rob and Maria could choose to group multiple years’ of gifting into a single year (e.g. giving $40,000 in one tax year, while opting for the standard deduction in the following three years). If Rob and Maria would still prefer to do a level amount of charitable giving each year, they could utilize a donor-advised fund (ideally gifting long-term appreciated securities rather than cash) to get the tax deduction in a single tax year while making subsequent distributions from the donor-advised fund at a pace of their choosing.
In addition, if a taxpayers’ tax rate (while also factoring in the potential for AMT) is likely to be lower in 2018 than in 2017, the taxpayer would benefit from greater charitable giving in 2017.
2) Pre-Pay Taxes (if possible)
As noted earlier, popular itemized deductions such as state and local income taxes and property taxes are disallowed under the Alternative Minimum Tax (AMT). To the extent a taxpayer is not likely to be subject to AMT in 2017, the taxpayer should consider prepaying state and local income taxes and property taxes (attributable to the 2017 tax year) before 12/31/2017 (given the new $10,000 limit on the ‘SALT’ deduction that will be applicable as of the 2018 tax year).
It is important to note that the conference agreement closed the loophole allowing taxpayers to prepay taxes. State and local income taxes attributable to the 2018 tax year would be claimed as a 2018 itemized deduction (meaning, a taxpayer cannot prepay income taxes for the 2018 tax year in 2017 and claim a 2017 itemized deduction).
3) Pre-Pay Miscellaneous Itemized Deductions
To the extent a taxpayer is not likely to be subject to AMT in 2017, consider pre-paying miscellaneous itemized deductions such as tax preparation fees or investment advisory fees, as these miscellaneous deductions are eliminated under the new tax bill. Many of the miscellaneous itemized deductions fall into a category in which the sum must exceed 2% of Adjusted Gross Income (AGI), for which the portion exceeding the 2% AGI limit is deductible.
4) Defer Income
Salaried employees will likely have limited ability to defer income, though business owners may have greater flexibility in deferring income into 2018 if the projected tax rate for 2018 would be lower than that for the 2017 tax year.
5) Potentially Reverse a 2017 Roth Conversion
The new tax bill would eliminate taxpayers’ ability to unwind Roth conversions (‘Roth recharacterization’) as of 1/1/2018. Taxpayers that completed a 2017 Roth conversion are likely to have benefited given significant 2017 market gains (and thus less likely to want to unwind a successful Roth conversion); that said, certain taxpayers might have unique 2017 tax considerations for which unwinding a portion of the Roth conversion could make sense.
6) Consider Utilizing the IRA Charitable Rollover
Charitably inclined taxpayers over age 70½ might consider using an IRA Charitable Rollover to satisfy Required Minimum Distributions (RMDs). Taxpayers over age 70½ can transfer up to $100,000 each year to charity; the distribution neither counts as taxable income nor an itemized deduction. Since some taxpayers may see a portion of their charitable giving provide less tax benefit (as explained above, due to the increased standard deduction), using this provision leverages the effectiveness of charitable giving.

For more information, contact a member of the Fi3 team.

Tax Reform Gains Momentum

In the early morning hours of December 2nd, the Senate passed its tax reform bill, with a 51-to-49 vote that mostly followed party lines (Senator Bob Corker was the lone Republican to dissent, citing deficit concerns). The recent Senate vote follows the House’s tax bill which was passed several weeks earlier. While the House could choose to expedite legislation by voting on the Senate bill without amendments, Republican leadership has indicated a conference committee will be assembled to reconcile differences between the bills. Given the slim margin that the bills passed the House and Senate, modifications will need to be done in a manner that finds suitable compromises while still positioning the final bill to carry a majority vote in both houses.

Key Points:

  • The Senate bill shifted to align with the House on several key issues, though notable differences still remain (excerpted list below):
Tax Reforms Chart Dec 2017.jpg
  • Attention will now shift to the conference committee tasked with creating a unified bill.
    • The goal of the conference committee is to reconcile differences between the House and Senate bills via a conference report (rather than the more arduous process of both houses making amendments to each other’s bills, potentially resulting in prolonged back-and-forth negotiations).
    • Each party (Democrats and Republicans) names conferees in proportion to the seats held in each chamber.  
    • According to the Congressional Research Service, conferees “as a general rule…may not change a provision on which both houses agree, nor may they add anything that is not in one version or the other. Furthermore, conferees are to reach agreements within the ‘scope’ of the differences between the House and Senate positions.” [1]
    •  If the committee’s conference report is passed by a majority of each house’s delegation, the conference report is then submitted for a floor vote (the conference report is not open to further amendment on the floor).
    • The first chamber to consider the conference report can choose 1) to accept or reject the conference report or 2) to recommit the conference report back to the committee. After one chamber has taken action on the conference report, the other chamber can only accept or reject the conference report.
    • If a chamber rejects the conference report, the committee can make modifications and resubmit for another floor vote. (While possible, it is generally rare for this to occur since the committee solicits input from congressional leaders before finalizing the conference report.)
  • With year-end fast approaching, Republicans hope to produce a conference report shortly that will pass the House and Senate in time for President Trump to sign the legislation before Christmas.
  • The House and Senate bills give some indication as to what tax reform might entail, though taxpayers (in consultation with trusted advisors) should continue to monitor tax reform developments to evaluate planning opportunities.

    We stand prepared to help clients address financial planning matters resulting from any tax code changes. Please contact any of our professional advisors for more information.

    [1] Rybicki, Elizabeth. “Conference Committee and Related Procedures: An Introduction.” Congressional Research Service Report, 9 Mar. 2015.

Nothing Can Stop This Market ... Until Something Does!

Is this not the most nerve-racking stock market rally you can remember? Despite countless reasons for concern — including political uncertainty at home, geopolitical risks abroad, high valuations and Fed rate hikes … just to get started — stocks continue rambling to new highs at a dizzying pace. What’s especially frustrating is that many investors, with a strong recollection of the financial crisis that nearly crippled markets 10 years ago, have positioned portfolios for a breakdown that has yet to occur.

One might argue that many thoughtful acts by investors have resulted in higher frustration levels. Which of the following are you “guilty” of?

  • Owning investment-grade bonds
  • Rebalancing winning positions
  • Owning hedge funds
  • Maintaining higher levels of cash
  • Owning master limited partnerships

While perhaps prudent, each and every one of these actions would have cost an investor money in the recent past. Owning conservative or diversified investments didn’t pay off. Neither did thoughtfully trimming winning positions that have soared in value. Nope! By the numbers, all these sensible acts simply caused some investors to feel like losers (even though their portfolios may be performing quite well this year).  

Bear Bull Market Image.png

This cartoon makes us want to scream out that thoughtful, disciplined investors should never feel like losers. Yes, it can be frustrating when the S&P 500 hits record highs for 12 consecutive months (surpassing the previous record of 11 months) and when the gains seem to come without risk — this is the first year in a dozen years there have been no movements of +/- 2%  days [1].  However, market highs give us a unique, and limited, opportunity to truly optimize our portfolios. 

1.    Just because the market is high doesn’t mean it will soon fall. In other words, there’s no assurance that this bull market will end anytime soon. Prudent investors may grow even more frustrated, but that’s no reason to abandon thoughtful strategy. 

2.    Examine, or re-examine, your goals. Market highs afford investors great opportunities to revisit their risk/return profile and to adjust accordingly. We're not referring to market timing but instead to clinically review the expected return of your portfolio and consider whether you still require as high a return. Have circumstances changed? Can you tolerate a lower risk/lower return portfolio and still accomplish your financial goals? A good example of this is a client that, because their portfolio has grown considerably in recent years, is rebalancing the portfolio and reducing leverage.  It’s a unique opportunity to reduce their financial risk (reducing leverage) and reduce portfolio risk (rebalancing to a less aggressive allocation) while continuing to meet their long-term financial and investment goals.

3.    Stick with a thoughtful rebalancing strategy. Watching new market highs can seduce investors to stay with or even load-up on the winners and underweight target allocations in those investments that haven’t fared as well. Remember that balanced portfolios are built to perform across a variety of market conditions. Just because we haven’t seen volatility and downturns of late, certainly doesn’t mean we won’t. Disciplined portfolio rebalancing strategies, help investors seal out the noise and maintain a thoughtful approach.  

So while prudent investors might feel some frustration, they never should feel like losers.  We stand prepared to help clients address financial planning matters such as these. Please contact any of our professional advisors for more information.

[1] Schwab Market Perspectives, September 29, 2017

Year-End Tax Planning Strategies

With year-end quickly approaching, now is a great time to plan ahead with strategies that may provide meaningful tax savings. Included below are several planning opportunities to consider before year-end:

Harvest Losses.png

Harvest Losses
Review unrealized gains and losses in taxable investment accounts and harvest losses where available. Realized losses can offset other realized gains. To the extent that realized losses exceed realized gains, net realized losses can offset up to $3,000 of ordinary income with any remainder resulting in a loss carryforward to be used in future years. 

Given strong market returns in 2017, loss harvesting options may be fewer than in years past, though still worthwhile to review. Beware of the ‘wash sale’ rule which states that a loss cannot be realized (for tax purposes) if a substantially identical position was bought within 30 days before or after the sale.


Watch Out for Mutual Fund Year-End Capital Gain Distributions
Mutual funds are required to pass along capital gains to fund shareholders. Regardless of whether the fund shareholder actually benefited from the fund’s sale of underlying securities, the shareholder would receive (and be taxed on) the capital gain distribution if the mutual fund is held as of the dividend record date.

Mutual fund families typically give estimates for year-end distributions from mid-October to early November, with such distributions most commonly occurring in December. Capital gain distributions can be either short-term or long-term. Short-term capital gain dividends are treated as ordinary income and thus cannot be offset by realized losses. In contrast, long-term capital gain dividends can be offset by realized losses. It is important to review unrealized gains and losses across mutual fund holdings in taxable accounts and to compare those figures against capital gain distribution estimates to determine if selling a mutual fund position before the year-end dividend distribution could result in tax savings.

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Charitable Giving
Many taxpayers opt for the convenience of donating cash or writing checks to charities, though it is preferable from a tax planning standpoint to gift long-term appreciated securities from a taxable investment account. By gifting long-term appreciated securities, the charity receives the same benefit as a cash donation, however the taxpayer receives a tax deduction for the full market value of the gift and avoids paying capital gains taxes on the security (if it were otherwise sold). 

In high income years, a taxpayer might benefit from giving a greater amount to charity, though the taxpayer may not have a list of charities in mind. In such a situation, giving to a donor-advised fund can be an effective strategy, as the taxpayer receives a current year tax deduction for the gift to the donor-advised fund while charitable grants (from the donor-advised fund) can be made at a later date.

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Personal Giving
As the law currently stands, individuals with assets in excess of the estate exemption ($5.49 million per person for 2017) are potentially subject to federal estate taxes at a top 40% tax rate. The law provides for annual exclusion gifts ($14,000 per person for 2017) which do not count against the $5.49 million exemption amount.

In addition, payments for tuition and medical expenses which are made directly to the educational/medical institution do not constitute as gifts. Utilizing annual exclusion gifts (as well as direct payments for tuition and medical expenses) can be beneficial for high net worth individuals as it effectively reduces the size of an estate that might otherwise be subject to estate taxes.


Satisfy Required Minimum Distributions (RMDs) using the IRA Charitable Rollover
Taxpayers over age 70½ are required to take minimum distributions from retirement accounts (except for Roth IRAs). Taxpayers over age 70½ can transfer up to $100,000 each year from an IRA to qualified charities (generally, public charities other than supporting organizations and certain foundations and donor-advised funds are excluded). The charitable transfer does not count as an itemized deduction nor count as a taxable IRA distribution. This provision may be helpful to individuals with a certain portion of itemized deductions phased out due to income limits as well as to individuals who do not itemize deductions. 


Monitor Tax Reform Negotiations
In late September, Republicans released a proposal for tax reform, "Unified Framework for Fixing Our Broken Tax Code”. Given the potential for broad revisions to the tax code, taxpayers are encouraged to follow negotiations over the coming weeks and months in anticipation of what changes may occur. 

To the extent that income may be taxed at a lower rate in future years versus the current year, it might make sense to defer income items to a future year. To the extent that certain itemized deductions would be limited or eliminated in the future, it might make sense to accelerate those deductions into the current year barring any Alternative Minimum Tax (AMT) issues. Given the complexity involved with estimating year-over-year tax liabilities, consulting with a qualified tax professional is recommended.

We stand prepared to help clients address financial planning matters such as these. Please contact any of our professional advisors for more information.

John Sauder, Former CliftonLarsonAllen Managing Principal, Joins Fi3 Financial Advisors

Fi3 Financial Advisors is pleased to announce that John Sauder, CPA, the former Managing Principal of CliftonLarsonAllen in Indianapolis, has joined Fi3. Sauder brings his perspective from more than 34 years of consulting for small- to mid-sized privately held companies.

“We are thrilled to have John join the Fi3 team,” said Ivan Hoffman, CFP®, Managing Partner of Fi3 Financial Advisors, LLC. “John shares our view of client service as an opportunity to help families integrate their personal and business goals through creative solutions to financial complexities. His experience in tailoring solutions to the unique needs of each family is the same highly personalized approach that we take at Fi3. John’s perspective will be a valuable addition to our firm.”

Sauder retired from CliftonLarsonAllen (CLA) at the end of 2015. He joins Fi3 as a Senior Director, with a special focus on cultivating relationships and family succession planning. During his time with CLA, Sauder worked with many business clients including manufacturers, contractors, and professional practices. His expertise is in guiding owners of privately-held companies through financial decisions, including financing options, tax planning, sales and acquisitions, and succession planning. Sauder will leverage his experience and deep relationships to support growth at Fi3.

“I was drawn to Fi3 because of the team’s energy and entrepreneurial spirit,” said Sauder. “Fi3 is taking a creative approach to helping clients through their Family CFO model. The firm is focused on innovation and is strongly positioned to help clients integrate all aspects of their financial and investment planning. I’m glad to be a part of the team.”

Sauder currently serves on the board of advisors for Little Engine Ventures, a hybrid fund that is motivated to help customers, founders and investors prosper by working smarter and harder. He holds a Series 65 license, and is a Certified Public Accountant. Sauder served five years on the board of the Indiana CPA Society, the final year as the Chair. He also serves on the board of Conner Prairie, Indiana’s first Smithsonian Institute affiliate, located in Fishers, Ind.

 John Sauder, CPA, Senior Director

John Sauder, CPA, Senior Director