Buy-Sell Agreement: Calamity or Certainty?

Is there a way to protect your business from the effects of the death, disability, or divorce of a co-owner?

When you went into business with a co-owner or co-owners, you entered into a legal arrangement that combined your resources and skill sets…and also, to some degree, your fortunes and misfortunes. We can’t always plan for the surprises that lie on our life’s path, but there is a brilliant legal tool which can help your business avoid disruption when calamity strikes your life, or the life of one of your co-owners.

A buy-sell agreement performs three essential functions with efficiency when disaster strikes:

  1. Identifies how the departing co-owner’s interest in the business will be reassigned;
  1. Converts the ownership interest into a liquid asset for easy transference;
  1. Resolves legal inquiry about the true dollar value of your business.

Let’s consider each:

  1. Reassignment of a co-owner’s interest: When a co-owner leaves the business for whatever reason, a decision must be made about the redistribution of the co-owner’s share. The interest may be divided equitably or by percentage among the remaining co-owners, or it may be transferred to the co-owner’s heirs, or it could be offered for purchase to a third-party. Unless you like thrills and chills, knowing what will happen to the co-owner’s interest will go a long way toward relieving anxieties!
  1. Establishing the liquidity of the business interest: When the buy-sell agreement is funded, possibly with life or disability insurance, funds can quickly become available to satisfy payout requirements and taxes. There are several ways to fund a buy-sell.
  1. Determines the precise value of the co-owner’s business interest: The tax man and sometimes the courts will need to know the exact dollar value of the co-owner’s interest. A business valuation will be required to identify the business entity’s value, based on one of several formal court-approved valuation processes.

Frankly, the last thing you want is to wonder who will receive the departing co-owner’s interest in the business, how the value of that interest will be funded, and have uncertainty about the precise dollar value of that portion.

When a co-owner is deceased, or must leave the business because of disability, divorce, bankruptcy, or retirement, having a premeditated agreement that clearly describes the expectations of the remaining co-owners will help keep your business running efficiently during a time of difficulty and stress. Forethought and good planning will help your business weather the changes that are likely to come sooner or later.

Because life is filled with uncertainty, schedule a visit with a Certified Financial Planner® (CFP®) who will help you safeguard the financial security of your business.

It all starts with a conversation. Please call me and let’s schedule a complimentary meeting.



Synergy Financial Management, LLC

701 Fifth Avenue Suite 3520

Seattle, Washington   98104

ph: 206.386.5455

fx: 206.386-5452



Synergy: Holding Real Estate in Your IRA: Limited Liability Companies, Part 4 of 4

The limited liability company is another flexible option if your IRA does not provide sufficient funds for the purchase, and neither loans nor tenancy-in-common ownership provides a solution for which you are looking.
I am going to skip the long version of what an LLC is and leave that to your attorney, but, briefly defined, an LLC is a form of business entity that offers both limited liability for its owners and certain tax benefits.
When using LLCs, it is similar to investing in a real estate investment trust (REIT) in that your IRA may be invested in limited interests which is kind of like investing in shares of stock. The difference here is that LLCs are private, and there are usually only a few investors that are limited members and a developer that is the managing member.
Here is one way an LLC may be used.
You know a developer who is getting ready to start a new project in your local area. He has used $1,000,000 of his own money to purchase the land and now is trying to raise capital to develop the property. Once the project is finished and the condos are sold, he expects to realize a large profit. He is willing to give up some of his profit in exchange for the needed capital.
The name of his company is ABC Construction Company, LLC. After your attorney has reviewed the proper agreements and you have done your due diligence, you may instruct your self-directed IRA custodian to purchase the units of ABC Construction Company, LLC that have been agreed upon with the developer.
This is a simple version, and there are many more detailed points to be considered and understood when using LLCs, but I hope this provides some food for thought.
Now we are ready to talk about how to actually purchase the property. When using your IRA to purchase property, the steps in buying real estate are really no different than if you were not using your IRA. There are a few things to be aware of, and we will review them now.
The basic steps are:
  1. The Purchase and Sales Agreement (the offer)
  2. The Acceptance
  3. The Inspection
  4. The Closing
The purchase and sales agreement is where it all starts and is probably the most important. Each self-directed IRA custodian will have their own set of rules and procedures, so you need to review their real estate processing checklist well in advance of actually making an offer.
You need to make sure that the purchase is made by your IRA custodian and not you, personally. This means that you will need to set up your self-directed IRA prior to making an offer. If you are under the gun and did not have time to open your IRA, and if the person making the offer is not a disqualified person, you may make the offer in the following way: “John Doe and or assigns”. Adding the phrase “and or assigns” will allow you to assign the contract to the IRA custodian once the account opened.
In addition, if you put up earnest money with your personal funds, you will need to make sure you include that amount in the total due so that the title company can reimburse you upon closing.
Some IRA custodians will require that they hold the original recorded title to the property in safekeeping. The title should reflect the name of your IRA custodian for your benefit, such as, XYZ Trust Company, Custodian FBO John Smith IRA.
In conclusion, I hope you now realize there are some interesting and creative ways to invest in real estate and this can be done in your IRA or other types of retirement plans. This topic is very complex and, by no means, have all the elements of this opportunity been covered in the article, but I hope it was a good start for you.
Please remember that this type of investing is best performed when using a team of professionals that can help you navigate the potential hazards. Please seek the advice from the following professionals as needed: an attorney, CPA, IRA custodian, CFP, real estate professional, mortgage broker, registered investment advisor or other competent advisor.
We hope these four articles about using your IRA funds to invest in real estate were informative. Please contact us so we can review the possibilities for securing and increasing your personal wealth while enhancing your retirement. Thank you!
Synergy Financial Management, LLC
701 Fifth Avenue Suite 3520
Seattle, Washington   98104
ph: 206.386.5455
fx: 206.386-5452

Synergy: Holding Real Estate in Your IRA: Tenancy-In-Common (TIC), Part 3 of 4

For people who identify an attractive property that costs more money than they have in their IRA or more than they can (or are comfortable) borrowing, tenancy-in-common may be a solution.

Tenancy-in-common is a form of concurrent ownership in which two or more persons each have an undivided interest in the entire property, but no right of survivorship. Because each person’s interest, or share, is undivided, each can sell his share at any time without the consent or agreement of the others. So, how does this help you? Let’s go through an example:

Let’s say you and two of your friends find a good property in which to invest, and the purchase price is $100,000. With a tenancy-in-common arrangement, you can buy the property together, with each person putting in the amount of money he or she has available. Each will own a certain percentage of the property, the income generated from its operation, and, eventually, a percentage of the profits when the property is sold.

Owners                      Contribution Amount                    % Ownership

You                                      $60,000                                               60%

Tom                                      $20,000                                              20%

Rob                                       $20,000                                              20%

Total                                  $100,000                                             100%

A tenancy-in-common arrangement also allows use of both IRA funds and non-IRA discretionary funds to buy a single investment. It is not a requirement that each of the owners use the same type of funds as the others.

Here is what I mean:

Owners                      Contribution Amount                    Contribution Type

You                                         $60,000                                  50% IRA money/50% cash

Tom                                        $20,000                                  100% IRA money

Rob                                         $20,000                                  100% cash

Total                                     $100,000                                  100%

Your IRA has a current balance of $40,000 but you do not want to use the entire $40,000, so you use $30,000 from your IRA and $30,000 from your bank account. Your total contribution amount is $60,000, and you’re a 60% owner of the property.

Real Estate C Resized

Tom’s IRA has a current balance of $20,000. He is comfortable using the entire amount, and will fund future property expense inside the IRA with his annual IRA contributions.

Finally, Rob does not own an IRA, so he will use some of his savings account to contribute his $20,000.

The possibilities are endless.

In the fourth and final article of this series, we’ll share information on how to use your IRA funds to invest in real estate through a Limited Liability Company (LLC).





Synergy Financial Management, LLC

701 Fifth Avenue Suite 3520

Seattle, Washington   98104

ph: 206.386.5455

fx: 206.386-5452

Synergy: Holding Real Estate in Your IRA, Part 2 of 4

Yes, you can use debt financing to purchase real estate in a self directed IRA. However, to do so legally, you must use the IRA-purchased property, not the IRA itself, as security for the loan. This type of permitted borrowing is called non-recourse lending. A non-recourse loan is not like the loan on your personal residence. In fact, it is very different. Here, unlike your home loan, if the loan isn’t paid back as promised, the lender may take the IRA-owned property used to secure the debt, but may not take recourse against any of your other assets. Because of its unique nature, not very many banks or lending institution offer these types of loans, but they do exist, and your self-directed IRA custodian may be able to point you in the right direction.


Like other loans, non-recourse loans do have a monthly payment and some type of amortization schedule which will need to be followed. Therefore, your IRA property will need to be able to make the loan payments from its cash flow, its annual IRA contributions (within the 2016 limits – $5,500 or $6,500 if 50 or over), or some combination of the two. Simply put, you need to have more money coming into your IRA than is going out. This also means you need to have sufficient liquidity in your IRA for other real estate related expenses like property taxes, insurance, and other repairs and maintenance. Remember, the IRA itself must pay all expenses.

Let’s look at a simple example:

Loan Information:    Present Value of Loan                               $100,000

Term (amortization period)                                                           30 year Fixed

Annual Interest Rate                                                                       7%

Monthly Payment                                                                            $665.30

Annual Payment                                                                               $7,983.62

Taxes:                        Annual Property Tax                                   $1,500

Insurance:                 Annual Insurance Premium                      $400

Repairs/Maint:         Annual Repairs                                            $150


Total Annual Cost of Property:

Payment        $      7,983.62

Taxes             $      1,500

Insurance      $         400

Repairs          $         150

Total              $    10,033.62

The amount of $10,033.62 is the amount of money going out each year, and so your property would need to have more than this amount coming in each year. So, for a person under the age of 50, you could subtract the $5,500 annual IRA contribution from the $10,033.62 annual expenses and you would need ($10,033.62 – $5,500 = $4,533.62) $4,533.62 of cash flow from the property.

In addition to annual operating expense, in accordance with Section 511 of the Internal Revenue Code, if your IRA property has debt, or if a mortgage was incurred with its acquisition, you must pay annual taxes on any income produced. This special tax is called Unrelated Business Taxable Income (UBTI). Please note that this tax does not apply to every property purchased with an IRA but only to those that have related debt. Here is an example of how it works. Please be advised that I am not a CPA and that the following calculations are for illustrative purposes only. I advise you seek tax advice from your own CPA when it applies to your individual situation.

First, your income is taxed only after deductions are made for expenses and for other items that are deductible. Then, the first $1,000 of your net income from the property is not subject to tax.

Using our previous example you will remember that we had a loan of $100,000. Let’s also say that you put down $100,000 so that the total purchase price was $200,000. Finally, let’s say you found some good renters and your net income after expenses is $1,500.

Since the first $1,000 is not subject to tax, only $500 will be used in the UBTI calculation. ($1,500 – $1,000 = $500).

The tax is based on the relationship between the average amount of debt on the property during the preceding twelve months and the property’s average tax basis. Here tax basis is the purchase price, increased by improvements or decreased by depreciation, during the same period.

In our example our ratio looks like this:

Debt                                        $100,000

Basis (purchase price)        $200,000

Ratio equals                         $100,000/$200,000 = 50%

We then apply the ratio to the income that is subject to the UBTI tax.

$500 x 50% = $250

The $250 is then taxed at the current rate for trusts. The trust tax rates, like other tax rates, are a moving number.

Here we will use a trust tax rate of 37.5%.

$250 x 37.5% = $93.75

The $93.57 is your tax liability.

You should notice that as the debt is reduced, the UBTI tax is decreased proportionately.

In our next article, we’ll present information on how you can use your IRA to establish a Tenancy-in Common (TIC) allowing the concurrent ownership of property between two or more parties. Stay tuned!


Synergy: Holding Real Estate in Your IRA, Part 1 of 4

For many years now, people have been using non-directly owned real estate in their IRAs and other retirement plans. These intangibles are investments like REITs and real estate mutual funds. Most people didn’t know they could use the retirement plans to purchase directly owned real estate such as raw land, commercial buildings, condos, residential properties, empty lots, trust deeds, or real estate contracts.

In general, the Internal Revenue Code (IRC) section 408 does not prohibit the holding of real estate in an IRA, provided the transaction is not prohibited under IRC Section 4975.


Code section 4975 covers what transactions are prohibited between an IRA or retirement plan and a “disqualified person”. Generally, “disqualified persons” are defined to be the account holder, other fiduciaries, certain family members, and businesses under the account holder’s control. In essence, the prohibited transaction rules prohibit an IRA or qualified retirement plan from owning a piece of property which will be purchased from or use personally by the account holder, family members, or businesses under the account holder’s control. Simply put, the property must be used for investment purposes only and cannot be used personally while maintained in the IRA. In addition, properties that are individually owned outside of the IRA cannot be transferred or purchased by one’s individual IRA.

Remember, the IRS will not let you use your IRA to purchase your home or vacation home. Nor will they let your business lease property from your IRA. You cannot have personal use or benefit from the property. If you did, it could cost you plenty in taxes and penalties

However, it may make sense to take the property out of the IRA as a distribution and live in it during retirement. Make sure not to move in until the distribution is complete. The distribution would need to be at the current market value as of the date of distribution, and taxes would be due unless your account was a Roth IRA. This may be a good reason to convert your IRA to a Roth. Further, if you are under the age of 59 ½, a 10% penalty may also apply.

Example: Convert your IRA to a Roth IRA and pay the income taxes now. Once the conversion is complete, use your new Roth IRA to purchase a residential rental property in a location in which you may want to retire. Rent the property until retirement. When you are ready to retire, take the property out of the Roth IRA as a tax-free distribution, assuming you follow the rules, and then you may live in the property.

For those of you who stopped reading and immediately called your basic IRA provider so you could get started investing in real estate right away, you probably were told that you were not allowed to do so and now think I’m crazy. So, now that you’re back, let’s find out how you go about doing this.

The first key step to investing tax-deferred or tax-exempt in real estate is to open a self-directed IRA with any one of the dozen or so independent IRA custodians that allow real estate investments. Remember, just because it may be okay with the IRS does not mean your local bank, stockbroker, or insurance company will provide this service.

A self-directed IRA is simply an IRA where you are in control of your investment options and are not limited to just stocks, bonds, mutual funds, and other traditional securities. In a self-directed IRA, you have access to all of these traditional investments plus real estate and even other alternative asset classes.

Because fees and other services may vary, it is a good idea to check out a few of the independent IRA custodians to find the one that fits best with your needs.

Now that you know how to open an account, let’s discuss how to fund the account. In 2016, the IRA and Roth contribution limits are $5,500 or $6,500 for an individual over the age of 50 and making catch up contributions. We all know that $5,000 or $6,000 is not enough to buy rental house, so how else can we fund the IRA?

One very popular way, if eligible, is to roll over your 401(k) plan into a new self-directed IRA or use a self-directed 401(k) that is allowable by both the IRS and the IRA custodian.

In many scenarios, the IRA holder will have sufficient funds to cover the real estate purchase, but what if you find a great investment property for your IRA, something really valuable, and your retirement account simply doesn’t have adequate funds? Luckily, there are a number of ways in which you can make the purchase and still keep the transaction both legal and profitable.

In our next articles in this series, we will review three ways in which you may want to pursue real estate investing with your IRA.

  1. Loans.
  2. Tenancy-in-common (TIC)
  3. Limited liability companies (LLC)

We hope this information is helpful for you and we invite you to read the next article in this interesting series.


Synergetic Finance

701 Fifth Avenue Suite 3520

Seattle, Washington   98104

ph: 206.386.5455

fx: 206.386-5452




10 Steps to Retirement Freedom

Everyone thinks retirement is a long way off, but it’s not. People in their 50s know “the years have run like rabbits”, to misquote a line of poetry from W. H. Auden. Get married, have children, buy a house and before you know it, it’s time to think seriously about your retirement lifestyle.

balloons-287-x-218Retirement, of course, is a topic that has been on your mind since you first began your working life. The most important asset you have is time and its positive effect on accumulating wealth. There is never a better time than right now to assess your situation. As a financial professional, I can help you determine the retirement lifestyle you want to have, and also help you calculate your capacity to achieve it.

Step 1: Study Your Monthly and Annual Expenses

The first thing to do is to look closely at how you’re spending your money. If you’re not exactly sure, my advice is to keep a log for two months and jot down every expenditure, no matter how small. You may be surprised to see how much you spend every month on such things as coffee, lunch, cable services, etc. While these expenses may provide a pleasant quality of life, they may also be draining your ability to have a more enjoyable lifestyle in retirement.

Step 2: Consider Cutting Back and Saving the Difference

Since time is your ally, use it to your advantage by reducing some of your unnecessary expenses and depositing these saved funds in the investments that will fund your retirement. Remember the story of the “Unnecessary Refrigerator”: Mary wanted to buy a new refrigerator and it would only cost $1,000. The old refrigerator was just fine and still had a long, useful life. When Mary began to calculate the effect of this expense through the next 20 years she realized that the $1,000 she wanted to spend on the refrigerator would become $8,000 in 21 years at a 10% rate of growth. Her decision became clear: did she still want a new refrigerator, or would she rather have another $8,000 when she retired? It’s the same choice for you. The more money you can set aside now in a well-planned portfolio, the more likely you’ll feel secure when it’s time to retire.

It’s important to realize that most people struggle with cutting back on their lifestyle when they enter retirement. They are very used to the lifestyle patterns they established when they were working and are reluctant to shift into a new pattern of living. This can become a serious problem when income is reduced but the expenses remain at their “working life” level. Challenge yourself to seriously consider what you can cut now so you can enjoy many satisfying retirement years.

Step 3: Estimate Your Costs in Retirement

This is not as difficult as it sounds, but you may need a financial professional to show you how it’s done. The first thing to do is establish goals for your retirement years. Do you intend to live where you live now, or are you thinking about moving closer to your children and grandchildren, or to a warmer region? Does the idea of travel appeal to you; do you want to volunteer your time and talents; do you want to start a new business? Whatever it is you choose to do, a financial professional like me can help you convert these interests into dollar values. I’ll also be able to calculate such expenses as your monthly needs for food, medicine, entertainment, etc. In essence, we’ll build a budget for your future lifestyle.

Step 4: How Much Revenue Will You Receive?

We’ll also need to identify the sources of your income. Perhaps you are in an employer-sponsored retirement plan like a 401(k), or a pension plan. You may have an IRA, and your investment portfolio may be a source of income for you in later years. You may own property that provides rental income, or might decide to buy some when you are retired as a way of offsetting taxes, investing in appreciating property, and hiring a management firm to run this “business” for you. If you’re married, your spouse’s retirement accounts should be included in your revenue calculations. There is also Social Security, and you and your spouse’s retirement benefits can be calculated, giving you a good idea of the monthly income you can expect.

You or your spouse may decide to turn your hobby into a source of income, or you might be interested in working part-time. If you have expertise, you may want to offer your services as a paid consultant. If you’re able to bring in additional revenue, this will preserve the funds in your investments, allowing them more time to appreciate.

Step 5: How Do Your Projected Revenues and Expenses Match Up?

Now that you have a great idea about how much income you can expect when you’re in retirement, and you also know what your monthly and annual expenses are likely to be, are you in the black? If not, then it’s back to the drawing board to look more closely at the possibilities for increasing your revenue or decreasing your expenses.

Remember, your best ally is the use of time. Consulting with a professional financial advisor like myself can help you find ways to improve your future circumstances. Together, we’ll calculate your Required Rate of Return (RRR) which will give us an insight on how to structure your investment portfolio and other financial assets so you can annually achieve the return you need to live the lifestyle you want. There is no magic in any of this; a financial advisor can mathematically calculate the best array of investments to achieve your retirement goals while controlling risk.

Step 6: Control Taxes

Another tactic you should employ is minimizing your taxes during your retirement years. When building wealth, you must not only find ways to increase your revenue, but also find ways to preserve your capital. In a conversation with your financial professional, a discussion can determine whether it’s better to draw from taxable accounts when you’ve retired, or your tax-deferred accounts instead. Exploring how part-time work might result in taxable Social Security benefits is another important consideration. Assessing the effect of local and state taxes on your property or income is necessary. If you decide to downgrade the size of your home to purchase a smaller property, tax issues will arise that could be mitigated with thoughtful planning. As your financial advisor, I can work with you and your tax professional to ensure that as much of your wealth is preserved as possible.

Step 7: Pay Off Existing Debt

Now that you have a fairly accurate idea of what your income and expenses will look like during retirement, the next task is to study the debts you’ve incurred and make a plan to diminish and extinguish them.

By being debt-free, you’ll be more in control of your monthly expenses in retirement. A debt analysis may reveal the value of implementing this strategy. Under certain conditions, it may be more sensible to enter retirement with an on-going mortgage…yet it may not. Because you don’t know which choice is better for your unique circumstances, a debt assessment will satisfy this question and improve your planning process. Debt can serve a purpose, but it has to be a purpose that best benefits you.

Step 8: Ramp Up Your Savings

As you near retirement age, it’s likely that you are now drawing the largest salary of your career. By increasing your investments, you can add a burst of value to your future financial security. If you have an employer-sponsored retirement savings plan or Individual Retirement Accounts (IRAs), make sure you are taking advantage of the annual maximum allowable contributions. Remember that the ceiling is higher if you’re 50 years old or older; as catch-up contributions allow you to invest additional funds to your employer-sponsored plan and your IRA in 2016.

Step 9: How Does Your Home Contribute to Your Retirement?

As mentioned above, it may be advisable to sell your home and acquire more suitable lodging. If your home and property require a lot of physical work like mowing lawns, emptying the gutters, etc., or the house is too big and no longer suits your personal needs, it may be a good idea to find more suitable housing. You could save money on your annual property taxes, move to a location that’s more appropriate to your new lifestyle, doesn’t have stairs, or saves you the hassle of shoveling snow in the winter.

As your financial advisor, we could also look into the idea of a reverse mortgage which could secure your housing needs for the rest of your life while also providing additional monthly income to maintain your chosen lifestyle. You may have many choices available to you which are yet unknown…and which could resolve your financial concerns.

Step 10: Planning for Health Care

As you plan your transition into retirement, you will need to become familiar with Medicare, and with supplemental insurance to cover the expenses Medicare won’t. There are a variety of supplemental insurance policies available for different lifestyles and needs. If you’re entering retirement as a healthy individual, you might choose a supplemental policy that requires lower premiums than someone who has medical issues. I’d be happy to look into this with you, and together we can consider the impact of deductibles, copayments, and supplemental insurance. There’s also value in having having a long-term care insurance policy, or acquiring a life insurance policy to offset medical expenses, and for other purposes.


Preparing for retirement with enough time to carefully assess your choices and maximize your current potential for improving your retirement lifestyle in the years to come is critically important to your future financial well-being, security, and peace of mind. The greatest fear people have is outliving their resources and being at the mercy of the government or their loved ones. By being proactive now and building a realistic plan, you can enter your retirement years with the confidence that comes from prudent foresight and wise choices.


Have You Checked Your Estate Plan Lately?

Hopefully you already have an estate plan, and if not, you should make this an immediate priority. Though it may be uncomfortable to think about, legal instructions must be clearly stated to direct your personal and financial affairs in case of death or your inability to care for yourself. An estate plan helps you control how your property will be managed when you are no longer able to do so yourself.


Estate Planning

When to Review

Without question, the best time to review your estate plan is immediately after a major life event, as listed below. Major changes to your life or lifestyle must be mirrored in your legal documentation. Too often we hear about families that live through the heartache of legal confusion and lost intentions. You can make it so much easier for your loved ones, both family and friends, when your wishes are clearly described.

In addition to reviewing your estate plan after a major life event occurs, you should also make it a regular practice to review your documentation each year, refreshing some of the details affected by changing economic and tax related issues. While a quick review may be sufficient once a year, a more thorough review every five years is a wise protocol.


Review Your Estate Plan Now If…

  1. Your marital status changes, or the marital status of any of your children or grandchildren changes.
  2. An executor, trustee, or guardian dies or is unable to continue in their role.
  3. Your family increases through birth, adoption, or marriage.
  4. One of your family dies, becomes seriously ill, or is unable to properly care for themselves.
  5. A family member becomes dependent on you.
  6. A significant change has occurred to your assets, or to your intentions for their disposition.
  7. You are the beneficiary of a large inheritance, or the recipient of a substantial gift.
  8. There has been an increase to your income, or your spending and saving requirements have changed.
  9. You have reached retirement age.


Important Details to Consider

When you conduct a periodic review, these are some of the essential items to assess:

  1. Have you considered what your family’s financial needs may be immediately after your death? Do you have sufficient life insurance to meet those needs if probate takes months to resolve?
  2. Have you and your financial advisors discussed the effect of state and federal income tax on your estate, and made plans to minimize the effect?
  3. Do you have a living trust or a testamentary trust? Review the named beneficiaries of these trusts and confirm that the designated beneficiaries are correct.
  4. Reflect upon your family members and friends and determine how you feel about them. Are they deserving? Is anyone left out who should be included?
  5. If you have a retirement plan or a life insurance policy, confirm that the beneficiaries are correctly named.
  6. Make sure that any property you own is correctly titled so the transfer of property is efficient and without ambiguity.
  7. Have you made plans to provide lifetime gifts to any of your family or friends? If so, are these gifts still gifts you intend to make?
  8. Are you considering making charitable gifts or bequests? If so, review them for accuracy or to make adjustments.
  9. If you are the owner or co-owner of a business, provisions should exist for the transfer of your business interest. If you have a buy-sell agreement, check to make sure it is adequately funded.
  10. Carefully review your will to make sure it still reflects the outcomes you desire. Confirm that the people or organizations named as beneficiaries will receive exactly what you wish.
  11. Reaffirm that your choice for an executor, or the guardian of your minor children, are still appropriate and prepared for the task.
  12. If you became incapacitated, are your living will, durable power of attorney for healthcare, and your Do Not Resuscitate order in the hands of those you trust to carry out your requests?
  13. Have you prepared the legal documentation that authorizes the management of your property should you become incapacitated?

As you see, it’s important to spend some time periodically reviewing your estate plan. Not only are people counting on you to have done this well, but it also gives you peace of mind knowing your personal and business affairs have been carefully and properly assigned.

If you would like to discuss your estate plan with me, please give me a call. I would be delighted to discuss your preparations and willing to assist you with making good choices for your unique circumstances.


Playing by the Rules and Saving Money with Accrued Interest on Bonds

27857550566_65c88f3883 Bonds


You’re Kidding Me!

How would you like to limit your capital gains, and therefore limit your capital gains tax, as well as increase the basis of your bonds, which also decreases your capital gains tax?



Did You Know?

When bonds are sold between interest payment dates, part of the cash you receive includes the interest that accrued up until the date of sale. In essence, the cash from your sold investment contains three elements:

  1. The principal
  2. Capital gains on the principal, if any
  3. Interest earned

Here’s How You Do It

If You Are the Seller:

Have your accountant report your accrued interest as gross income. By doing this, you are removing the interest earned as only being capital gains. At the same time, you are increasing the bond’s basis which raises the floor on the bond, also limiting capital gains tax.

Here’s how it looks in an example:

A bond costing $5,000 is sold for $5,300 on May 31. The sale price includes $200 of interest the bond accrued from January 1 through May 31.

Normally the $300 of increased value would be accounted as capital gains, but not this time. Have your accountant report interest income of $200, and capital gains income of $100. By dividing the earned interest and allocating the two portions as shown, you have limited your capital gains income and lowered your capital gains tax accordingly.

If You Are the Purchaser:

As the purchaser, you can deduct the accrued interest from the next interest payment. Use Schedule B to report the total interest payment, and on a separate line list “Accrued Interest”. You can now subtract this amount from the total interest, limiting your tax obligation. By parsing these funds, the basis of the bond does not include the amount of accrued interest.

Here’s a good example of how this works:

The purchaser of the $5,300 bond mentioned above receives $450 in total interest for the year, from June through December. The purchaser’s accountant uses Schedule B to report $250 of taxable interest income ($450 total interest – $200 accrued interest). This reduces the purchaser’s capital gains, siphoning off $200 into the taxable interest income category.

The other advantage is that the bond’s basis remains at $5,100 (the $5,300 purchase price minus the $200 accrued interest), also limiting capital gains taxes.


Limiting the amount of taxes you pay can significantly add to your wealth appreciation, your family’s financial well-being, and an ever-improving lifestyle. Consulting with a Certified Financial Planner® (CFP®), providing you with quality financial information and advice, can be very rewarding.



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Keep Your Investment Vehicles Out of the Tax Man’s Garage

5 Mid-Year Tune-ups You Should Do Right Now

Taxes clearly represent the proverbial two-edged sword: they pay for the necessary services our society requires such as good roads, hospitals, schools, etc.…but taxes also create limitations on lifestyle choices and the growth of investment portfolios. Reviewing tax strategies and selecting those which are applicable to your situation can meet your obligations while simultaneously preserving more of your wealth for your own personal and business needs. Planning for the inevitable now, at mid-year, can make a big difference at the end of fiscal 2016. Here are five strategies that may help increase your bottom line in a big way.

  1. Take a Close Look at Your Investments

This year’s federal income tax rates on long-term capital gains and qualified dividends are 0%, 15%, and 20%. The maximum rate of 20% affects taxpayers with taxable income above $415,050 for single taxpayers, $466,950 for married joint-filing couples, and $441,000 for heads of households. Individuals with high income can also be subject to the 3.8% NITT (Net Investment Income Tax) which can result in a marginal long-term capital gains/qualified dividend tax rate that could reach as high as 23.8%. Though high, this is still substantially lower than the top regular tax rate of 39.6% (or 43.4% if the NITT applies). What can you do?

Tax 2

A. Lower Your Taxes by Holding Your Securities Longer. If your taxable accounts hold appreciated securities, owning them for at least one year and a day will make them qualified for the preferential long-term capital gains tax rates. Your short-term gains are taxed at your regular rate, which could be as high as 39.6% (43.4% if the NITT applies), so it might be smart and in your best interests to hold these securities a little longer. Whenever possible, consider meeting the more-than-one-year ownership rule for appreciated securities in your taxable accounts. (Tax consequences are not the only consideration for making a buy or sell decision; other factors are involved as well, of course.)

B. When You Sell Your Shares, Sell the Right Ones First. As a general rule, when you decide to sell stock or mutual fund shares, the shares that were purchased first are the ones that are sold first. This would be good news if you are intentionally trying to qualify for the long-term capital gain rate. However, situations sometimes arise when it could be better to sell shares you’ve held for less than a year. Deliberately selecting the shares you wish to sell can make a big difference at tax time. When you decide to sell shares other than those that were purchased first, you must properly notify your broker.

2. Tax-Free Income Might Be a Good Choice For You.

A. Retirement Plans Offer Great Benefits. Most retirement account earnings are tax-deferred, meaning your account grows without the burden of taxation; as you withdraw these funds later in life, when you are likely to be in a lower tax bracket, the deferred and reduced tax is paid then. Time is a valuable resource, providing a continuing opportunity for increased growth; the sooner you fund such an account, the sooner your account grows with its tax advantage. If you have the cash, there’s no need to wait until year-end or the April 15 tax filing deadline to set aside your 2016 contributions. The only reason to delay is if your employer offers a 401(k) or SIMPLE-IRA plan at work; it’s smart to first contribute enough to your employee retirement plan to receive the full employer match before making an IRA contribution. Also, as you probably know, a Roth IRA is normally tax-free.

B. Invest in Tax-free Securities. Tax-exempt securities, owned outright or through a mutual fund, is an obvious source of tax-free income. Whether or not these provide a better return than the after-tax return on taxable investments depends on several factors such as your tax bracket and the interest rates. Since these factors change frequently, it’s a good idea to compare taxable and tax-exempt investments periodically.

C. Consider Making Charitable Donations from Your IRAs to Save on Your Taxes. If you’ve reached age 70½, up to $100,000 of taxable IRA money can be paid directly to your specified tax-exempt charities. Known as Qualified Charitable Distributions (QCDs), they are federal income tax-free to you. You aren’t allowed to claim any itemized deductions on your Form 1040 but the tax-free treatment provides a 100% write-off. The benefit to you is that you can count this charitable distribution as part of your legally required annual minimum distribution which you’d otherwise be forced to receive and pay taxes on in that year. To qualify for this special tax break, the funds must go directly between your IRA and the charity.

3. Use the Available Deductions to Your Best Advantage

A. Make Sure the Standard Deduction is Working at Maximum Power for You. The standard deduction rule allows you to make a deduction that is equal to the greater of either your itemized deductions, or a flat amount known as the standard deduction. Thus, itemized deductions only lower your taxable income to the standard deduction. For 2016, the standard deduction is $12,600 for married taxpayers filing joint returns. If single, the amount is $6,300 (unless you qualify as head of household, in which case it’s $9,300). If you’re at least 65, you receive an additional standard deduction of $1,250 if you’re married (plus another $1,250 if your spouse is also 65 or older), or an additional $1,550 if you’re single. In 2017, these amounts are likely to be slightly higher after an inflation adjustment.

If your total itemized deductions are close to whichever standard deduction applies to you, you may be able to leverage an additional benefit by “bunching” your deductions every other year. In this manner, you can time your itemized deductions so they are high in one year and low in the next, claiming actual expenses in the year they are bunched and taking the standard deduction in the intervening year. (Examples of deductions you might shift include charitable contributions, and state and local income and property taxes.)

B. Increase Your Participation in “Passive Activities”. The passive activity rules prevent many taxpayers from deducting losses from business activities in which they do not “materially participate”. These losses are from partnerships in which the taxpayer is not personally involved or does not participate to the extent required by the tax rules. However, taxpayers can satisfy any one of several tests (e.g., spending more than 500 hours per year in day-to-day operations) to meet the material participation standard. If you’re expecting a current-year loss from an activity or are carrying a loss from a prior year, with proper planning between now and year-end, you may be able to increase your involvement and deduct some of the losses, lowering your tax responsibility.

4. Carefully Review Your Business Deductions

A. Take Advantage of Section 179’s Deduction. Under Section 179, an eligible business can often claim first-year depreciation for the entire cost of new and used equipment, software additions, and eligible real property costs, like vehicles. Aside from Section 179, your business can also claim first-year depreciation equal to 50% of the cost of most new equipment and software placed in service by year-end.

B. Sell the Business Vehicles, Don’t Trade Them In. Tax rules limit the amount of annual depreciation that can be claimed on most cars and light trucks. When it’s time to replace a vehicle, it’s not unusual for its tax basis to be higher than its value. Should you trade-in the vehicle, the undepreciated basis of the old vehicle simply tacks onto the basis of the new one. However, if you sell the old vehicle rather than trading it in, any excess of basis over the vehicle’s value can be claimed as a deductible loss.

C. Employ Your Child. If you are self-employed, you might want to consider employing your child to work in the business. Income shifts from you to your child, who is in a lower tax bracket and who may avoid tax entirely due to your child’s standard deduction. There can also be payroll tax savings since wages paid by sole proprietors to their children age 17 and younger are exempt from Social Security, Medicare, and federal unemployment taxes. Employing your children has the added benefit of providing them with earned income, which enables them to contribute to an IRA. Children with IRAs, particularly Roth IRAs, have a great start on retirement savings since the compounded growth of the funds over many years can be significant. Remember that wages must be reasonable given the child’s age and work skills, and if the child is in college or entering soon, too much earned income can negatively impact the student’s financial aid eligibility.

D. Establish a Retirement Plan for Your Business. If your business doesn’t offer a retirement plan, now might be the time to benefit from one. Current retirement plan rules allow significant deductible contributions. Even if your business is only part-time or something you do on the side, contributing to a SEP-IRA or SIMPLE-IRA can enable you to reduce your current tax load while increasing your retirement savings. With a SEP-IRA, you can contribute up to 20% of your self-employment earnings, with a maximum annual contribution of $53,000. A SIMPLE-IRA, on the other hand, allows you to set aside up to $12,500 plus an employer match that could potentially be the same amount. In addition, if you’re age 50 or older by year-end, you can contribute an additional $3,000 to a SIMPLE-IRA.

5. Also Consider Estate Planning to Save Taxes

The estate tax is a tax levied on an estate being transferred from the deceased to a beneficiary. Estate taxes can be severe, consuming as much as 49% of the estate’s value, or even higher with the tax your estate might have to pay from a combination of federal tax and the state estate tax levied by some states.

Your estate’s taxation can be influenced by various factors, among which are divorced partners, minor children, and below-market loans to family members. These are all excellent reasons to use a team of professionals who are trained to minimize the burden of your estate’s taxation.

The unified federal gift and estate tax exemption is a generous $5.45 million in 2016, and the federal estate tax rate is a historically reasonable 40%. Even if you already have an estate plan, it’s possible it may need updating to reflect the newest changes to current estate and gift tax rules.


Tax planning is an important but complicated task requiring a thorough analysis of your unique financial circumstances, or you could be paying too much in taxes and sacrificing too much of your hard-earned wealth. With the changes approved by Congress in late 2015 that made the long-favored tax breaks permanent, taxpayers can finally determine the impact of these tax provisions on their long-term financial and business planning decisions. For 2016, the top federal income tax rate is 39.6%, but higher-income individuals may also have to pay the 0.9% additional Medicare tax on wages and self-employment income and the 3.8% Net Investment Income Tax (NITT), which can both result in a higher marginal federal income tax rate.

The point is that tax laws remain staggeringly complicated and now, at mid-year, is the perfect time to enjoy the support of trained professionals who will review your situation in detail to see how the tax-reducing strategies mentioned in this report, as well as many other tax reduction ideas, can be used to save your money.

The summer is a great time to assess where you are and where you want to be. Evaluate your tax situation, set a plan, and implement strategic adjustments between now and year-end that preserve your wealth.

Investing with Chicken Little

There will always be people who prefer to look on the dark side of situations, believing the world is about to end. Chicken Little saw danger everywhere, each sign posing imminent destruction. Then there was Pollyanna who was excessively optimistic about everything, positive to a fault.

This same attitude of deep concern or exuberant enthusiasm voiced by economists and analysts gets old after awhile when the promised debacle or economic paradise doesn’t materialize on schedule…or ever.

The most recent example of gloom and doom in the markets has been the unimaginable horror of Britain’s exit from the European Union after 40 years of membership. Investors immediately responded with fear of the unknown, or with the expectation that the markets would fall…which they did…only to exceed their pre-Brexit performance levels a few days later.

British Phone freestockphotosBefore Brexit there was the crisis with Puerto Rico being unable to pay back its debts; before that there was the high price of a barrel of oil, jumping to about $140…though today it’s under $50. Before that there was the housing boom and bust, and before that there was… Each of these events was regarded by many as the End of Life as We Know It.

You must remember that as odd as it may seem, the lure of lucre creates two primary emotions: fear and greed. Fear, because no one wants to lose their hard-earned gains; and greed, because everyone wants to grab as much cash as possible while the treasure gates are open.

Believing that recession is just around the corner when some bad news hits the fan is the game that Chicken Little plays best. There are really only four threats to wealth creation, and that’s monetary policy, tax policy, trade policy, and burdensome spending and regulation. When these four factors don’t overly interfere with the free market, prosperity grows. When they interfere and confuse the market, it’s like jamming a stick in a bicycle’s spokes.

The important take-away is to base one’s decisions on facts, not fantasies. Synergetic Finance’s forecasts always derive from a clear analysis of real data. We do not jump from lily pad to lily pad on the winds of hot news stories or the fanciful imaginations of What Could Be. We are strictly data-driven.

Because of the industry we’re in, and the tendency for human emotions to jump to extreme viewpoints, there may never be an end to the warnings of a falling sky…but by the same token, we count ourselves among those who keep our head when others have lost theirs, steadily minimizing risk and maximizing return, serving our clients in a calm and professional manner that builds their ever-growing financial success and wealth.

Is your business worth enough to secure your retirement?