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Category: Wisdom

How CapSouth Advisors are Responding to the Bear Market & Recent Legislation

How CapSouth Advisors are Responding to the Bear Market & Recent Legislation – April 13, 2020

You can tell a lot about your broker or advisor from the actions they take (or don’t take) in market disruptions. The current period, with steep market declines, extreme volatility, pandemic fear, and emergency legislation packages certainly qualifies as a market disruption. We believe good advisors and brokers excel in communicating with clients regarding the markets, financial plans, and legislative effects in such periods.

The current period offers many topics, and even opportunities, that should be discussed. These include:

  1. Basic Communication
  • Touching base with clients to determine their mindset. Is the current environment causing fear or is it looked upon as an opportunity to purchase assets at a reduced price? Each client will have a unique perspective, and it is important for your advisor or broker to understand your view. Any appropriate action will vary based on your circumstances and perspective.

2. Focus on Goals

  • It is extremely important that any action be consistent with long term goals and an established financial plan. Often emotional and hasty decisions made in times of market turmoil are harmful to the ability to achieve a long-term plan.

3. Put Cash to Work or Increase Risk

  • If you see investment opportunity when markets fall, this is a great opportunity to discuss investing extra cash or increasing risk in accounts.

4. Roth IRA Contributions and Conversions

  • Consider making 2020 contributions and conversions while markets are lower.

5. Tax Considerations of the Market Decline

  • If you have investments with a low cost basis that you have held to avoid taking the gains, these positions will likely have lower gains or no gains at this point. This may be a good time to discuss reducing or getting out of such positions.
  • Gains on investments made in non-retirement accounts will be subject to long-term capital gains rates if held for twelve months or longer
  • For some clients a partial or full conversion from a traditional IRA to a Roth IRA should be considered. Funds in a traditional IRA have not been taxed. By converting, taxes will likely be owed. Because balances in most traditional IRAs are presently lower, the associated taxes owed may also be lower. As an added bonus, if the markets bounce back in the next couple years, the growth on any converted money will occur in the Roth IRA and should not be taxable in the future.

6. Periodic Withdrawals

  • If you have consistent withdrawals, monthly or quarterly for example, from investment accounts, you may want to discuss funding the withdrawals from any cash or fixed income investments that are available. This will keep you from selling equities at a reduced price.Legislative Updates

7. Legislative Updates

  • Filing deadline – For most people, 2020 tax filings are not due until July 15th (instead of the normal deadline of April 15th).
  • Federal quarterly estimated tax for April 15th has been extended to July 15th; second quarter estimated tax payment has also been extended to July 15th.
  • Required Minimum Distribution (RMD) – If you are normally required to take an RMD from any type of IRA or from your workplace retirement plan, you will not have to do so in 2020.
  • IRA Withdrawals and 401k Loans – the CARES Act relaxes some of the rules regarding these items. Your advisor or broker should be able to discuss this in more detail should you have a need.
  • Charitable Contributions – for 2020 there is no limit on the amount of a cash gift you can donate to a charity and subsequently receive an offsetting deduction, in the amount of the gift, from your income. If you’ve ever considered a large gift to a charity, you should discuss with your advisor if 2020 is the appropriate year. This change does not apply to donations to donor advised funds.

CapSouth advisors are prepared to discuss all these topics with clients and prospects, and they have been actively doing so over the last few weeks. If your current advisor or broker is not discussing them with you or you have no current advisor, we would welcome the opportunity to speak with you and to potentially begin a new relationship.

To speak to a CapSouth advisor about these topics, contact our office at 800.929.1001 or visit our website at www.capsouthwm.com

Investment advisory services offered through CapSouth Partners, Inc., an independent Registered Investment Advisor, dba CapSouth Wealth Management. CapSouth Partners does not provide tax or legal advice. Please consult your tax or legal advisor prior to making decisions which may have tax or legal consequences. Information contained herein is believed to be reliable but is not guaranteed as such by CapSouth. Nothing contained herein should be construed as individual investment advice; all commentary is of a general nature. This commentary contains opinions; any opinions presented should not be construed as fact and are not in any way a guarantee of future events, returns, or outcomes.

New IRS Details on July Tax Filing Deadline

By: P. Lewis Robinson, CPA

As you might have already heard, due to the coronavirus pandemic, this year’s tax filing and payment deadlines for form 1040 has been extended to July 15 for many taxpayers. We also wanted to update you on a couple new details from the IRS about July tax deadline.

  1. You do not have to use a special form in order to be able to file using the July 15 deadline. If you file a return or an automatic extension request and pay your tax due by July 15, no interest or penalties will be due.
  2. Individuals can ask for an automatic extension of time to file (but not pay) by filing Form 4868 by July 15. The deadline to file these returns remains October 15, 2020 – as it would have been without the three-month filing and payment delay.
  3. The deadline to contribute to an Individual Retirement Account (IRA), Roth IRA, Health Savings Account, or Archer MSA is also extended to July 15.
  4. What DOES NOT qualify for the IRS’s three-month delay?
  • Estate and gift taxes
  • Excise taxes
  • Information returns such as 1099 form and payroll taxes. Congress is considering a payroll tax deferral.
  • Tax items that don’t have April 15 deadlines, such as the March 16 due date for partnership returns

For more information on this or other questions, check the IRS’s FAQs and its page devoted to the coronavirus issues. https://www.irs.gov/coronavirus

For more information about CapSouth Wealth Management, call our office at 800.929.1001 or visit our website at www.capsouthwm.com

CapSouth Partners, Inc., dba CapSouth Wealth Management, is an independent registered Investment Advisory firm. CapSouth does not offer tax, accounting, or legal advice. Consult your tax or legal advisors for all issues that may have tax or legal consequences. Information provided by sources deemed to be reliable. CapSouth does not guarantee the accuracy or completeness of the information. 

Provisions in the 2020 Stimulus Plan that Affect your Retirement Accounts and Income Taxation

by: P. Lewis Robinson, CPA

Retirement Accounts Required Minimum Distributions (RMDs):

  •  For the calendar year 2020, no one will have to take a required minimum distribution from any individual retirement accounts or workplace retirement savings plans, like a 401(k). That way, you aren’t forced to sell investments that may have fallen in value, which would lock in losses. If you don’t need the money now, you can let the funds remain invested in expectation that they will recover.
  • If you took your 2019 or 2020 RMD within the last 60 days, you are also in luck. You can roll over your distribution to the same or a different IRA within 60 days of the prior distribution and not pay the income tax on the withdrawal (as long as you have not made an IRA Rollover within the 365 days preceding your distribution).
  • Normally, RMDs cannot be converted to Roth IRAs, but now since there are no RMDs, you can withdraw IRA funds at low values and low tax rates and convert them to your Roth IRA. Yes, you pay taxes on the conversion, just like you would have on your RMD. Now, under this 2020 RMD waiver period, you can get more for the tax you pay by being able to convert the funds you withdraw to your Roth IRA at a relatively low tax cost.

Provisions to withdraw funds without paying a 10% penalty:

  • You can withdraw up to $100,000 from your retirement accounts this year without the usual 10 percent penalty for being under age 59 ½, if the need for the funds is a result of COVID-19.
  • You will also be able to spread out any resulting income taxes that you owe over three years from the date you took the distribution. And if you desire, you could put the money back into the account before those three years are up, even though the rules may normally keep you from making that large of a contribution.

Borrowing from 401(k):

  • You can take out twice the usual amount. For 180 days after the passing of the bill, with certification that you’ve been affected by the pandemic, you’ll be able to take out a loan of up to $100,000. The normal rule limiting the withdrawal to half of your balance has been suspended.

Charitable Contributions A deduction for charities even if you don’t itemize:

  • $300 per year without having to itemize deductions
  • To qualify, you must give cash to a qualified charity and not to a donor-advised fund. You may be aware of donor-advised funds, as we often recommend these charitable accounts to batch contributions in a particular year in order to maximize deductions and to accomplish other objectives. If you’ve already given money since Jan. 1, that contribution counts toward the $300 cap.

Limits on annual contributions have been lifted:

  • As part of the bill, donors can deduct 100 percent of their gift against their 2020 adjusted gross income.
  • If you have $200,000 of income, you can give $200,000 to a public charity and deduct the full amount in 2020.
  • The new deduction is only for cash gifts that go to a public charity. If you give cash to, say, your private foundation, the old deduction rules apply. And while the organizations that manage donor-advised funds are public charities, you do not get the higher deduction for donating cash to your donor-advised fund.

If you have any questions about how these changes might impact your financial plan, please contact your local CapSouth office or 800.929.1001.

To learn more about CapSouth Wealth Management, please visit our website at www.CapSouthWM.com

CapSouth Partners, Inc., dba CapSouth Wealth Management, is an independent registered Investment Advisory firm. CapSouth does not offer tax, accounting, or legal advice. Consult your tax or legal advisors for all issues that may have tax or legal consequences. Information provided by sources deemed to be reliable. CapSouth does not guarantee the accuracy or completeness of the information. 

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