The First 3 Steps to Life Insurance Serenity

Life insurance and serenity are seldom paired, but if you have life insurance or have been thinking about purchasing some, knowing what you’ve got and what it does can raise your sense of financial preparedness and calm.

We live in a world of risk, always seeking the balance between risk and security, and life insurance is a fantastic tool when applied appropriately. Life insurance may not always be the right tool for the task, but when it is, it performs loyally and with great potency.

The following information introduces three of the eight steps you and your financial planner should consider to ensure that your life insurance is ready for the unexpected. Having your life insurance policy or policies in satisfactory order confirms your policies are structured to suit your circumstances, helps you avoid unnecessary taxes, determines whether premiums can be reduced and still provide sufficient coverage, unearth potentially significant errors, and evaluate the balance of price and performance. The cost for this exercise is minimal, especially when considering the substantial damage from errors.

Step 1: Locate All Your Policies

Before starting the review, identify all the life insurance policies in your family. You and your spouse or partner may have different policies, and you may also have policies issued by professional associations or through your employment. Many professionals also have term life insurance policies, so collecting all your insurance policies helps organize your files for clarity for better understanding the total effect of your coverage.

Step 2: Conduct an Inventory

Each policy should be reviewed for:

a. The insured’s name

b. The insurance company’s name and address

c. The type of policy, whether term, whole life, universal, or variable

d. The policy number

e. The policy owner

f. All beneficiaries

g. The death benefit amount

h. The annual premium

I. The cash value

j. The anniversary date

k. Outstanding loans

l. Riders, if any

Furthermore, a calendar should be created that identifies the premium due dates for increased efficiency by setting reminders.

Step 3: Review the Insurance Company’s Ratings

Just as you would evaluate various elements of a stock before purchasing it, so also should you confirm that the insurance company has a strong financial rating. You should review the long-term ability of the company to pay its claims and evaluate the long-term cost of your policy. When a company is struggling financially, there are likely to be increased mortality charges or decreased dividends and interest rates that help the company protect itself from rating downgrades which further damage the insurance company.

Company ratings are available by checking with highly reputable rating services like A.M. Best, Fitch, Moody’s and Standard & Poor’s. They have specific categories for rating the current and future financial strength of an insurance carrier. A rating check can be conducted by your financial planner if you choose.

Should you and your financial advisor decide to replace a policy, consider the following before making a change:

a. Is the insured in good health so a new policy can be acquired at reasonable rates?

b. What are the surrender charges on the policy you wish to terminate, and what are the sales load fees on the desired policy? If costs are too high, making a change may not be financially appropriate.

c. Identify the annual premiums and determine if they are going to be much higher than the existing policy because of the age change of the policyholder.

d. Are there tax implications for surrendering an existing policy?

e. A new policy triggers a new two-year period that precludes payout for suicide and includes a number of other incontestable clauses. These clauses give the insurance company permission to void the policy, so be sure to read the fine print.

Our next blog post will continue this conversation about reviewing your life insurance policies. We hope this initial article about protecting yourself and your family by conducting a detailed review of your life insurance policies has been helpful.

Synergy Financial Management welcomes your inquiries and is available to discuss your insurance needs. We are also available to review your investment portfolio’s capacity to preserve your wealth from undue risk while also generating sufficient revenue to meet your retirement lifestyle’s needs. We are delighted to offer a free introductory discussion about how we can reduce your investment risk while accelerating your portfolio’s performance. Thank you!


Synergy Financial Management, LLC

13231 SE 36th Street, Suite 215

Bellevue, WA 98006

ph: 206.386.5455

fx: 206.386-5452

This article is for general educational purposes only. Nothing should be construed as individual tax advice. Please consult a tax advisor to see if this information is right for your situation.

Let Insurance Protect Your Family’s Lost Income

Life insurance is an amazing fiscal tool when used properly. The good news is that life insurance has multiple applications which can make a huge difference to you and your family’s financial well-being. Few people realize the versatility of life insurance and how it can be a powerful solution in different scenarios.

In the following scenario, a family decides to inquire about how to use life insurance to protect the family in case the primary wage earner is either incapacitated or dies prematurely. The purpose is to provide sufficient resources for an appropriate length of time for the surviving spouse and children.

This requires an analysis to calculate the “human life value” of the primary earner, the person being insured, as a way of understanding how much tax-free money the family will need each year. The calculation will determine the minimally necessary guaranteed income to sustain the surviving spouse and children should their life be financially disrupted with the death of the insured. Once this minimal sum is known, the family can then decide whether they want to insure the primary provider’s life for an even higher amount. The process starts by first knowing the minimum insurance the family should purchase.

As odd as it may sound, insuring the value of a human life uses the same risk management principles as when insuring assets. The insured has an economic value that is equal to his or her present and future income stream adjusted for inflation. This is the same concept the courts apply when judging the amount of damages, for example, in a car crash that creates economic havoc for a family that loses a wage earner.

In this example Mark is 37 and has a wife and two children. Mark is an engineer with an annual compensation of $100,000 and an income tax rate of 30%. We assume Mark will retire in 28 years, at age 65, inflation will average 3% per year, and the family’s investments will earn 5% per annum after-tax.

Mark’s annual income after taxes is $70,000 and after 28 years the value his earnings represent over that period of time is $1,530,460. This calculation includes the income-adjusted discount rate and other financial assumptions, but it shows that Mark should insure himself for at least $1.53 million. This value may need to be augmented based on the family’s immediate or short-term cash needs at the time of Mark’s death.

Obviously this calculation is made with assumed details and may or may not be applicable to your precise situation, but even so, it gives you an idea about how to start thinking about life insurance as a legitimate and welcome way to secure your family’s financial needs when the unthinkable happens.

You might also wish to inquire about Indexed Universal Life insurance which provides a death benefit for your family while also investing your annual premiums in an investment vehicle that can secure tax-free wealth on withdrawal. Insurance offers many variables that could be just right for you and your unique circumstances.

It’s clear that families must have adequate life insurance coverage, particularly when relying on a single wage earner. It is highly recommended that you take time now, at the end of this calendar year, to review your will, your estate plan, and your life insurance policies so you have the confidence of knowing your family’s future is secure through your forethought, planning, and love.

We hope this article about protecting your family with life insurance provided insightful information on how to start analyzing and planning for your family’s future needs. Synergy Financial Management welcomes your inquiries and is available to discuss your insurance portfolio as well as your investment portfolio’s ability to preserve your wealth from undue risk while also achieving your retirement lifestyle’s needs. Please give us a call for a free introductory discussion about how we can reduce your risk while improving your portfolio’s performance. Thank you!


Synergy Financial Management, LLC

13231 SE 36th Street, Suite 215

Bellevue, WA 98006

ph: 206.386.5455

fx: 206.386-5452

This article is for general educational purposes only. Nothing should be construed as individual tax advice. Please consult a tax advisor to see if this information is right for your situation.

Meeting Liquidity Needs at Death

It may be hard to believe, but it’s true: 30% of all American households don’t have life insurance. This calculates to about 37,000,000 American families that are unprotected when a death affects the family’s financial needs during an emotional crisis.

This is compounded by the admission that 62% of uninsured families expect to suffer financial vulnerability should a primary wage earner unexpectedly die. These unhappy statistics are a result of a 2016 study by the Life Insurance and Market Research Association (LIMRA).

Life insurance can facilitate this difficult time by providing funds to cover immediate or short-term cash requirements when a wage earner in your family dies. Your family may own assets that are not easily liquidated, such as a closely-held business, or property in the form of land, a vacation home, or your family home.

When a forced sale of estate property is required, economic loss is likely. This is why having cash available, such as in the form of life insurance, can preserve your family’s assets until a more circumspect financial review is conducted.

It’s important to estimate the amount of cash your family will need so your calculations can acquire sufficient life insurance coverage to meet those needs, and perhaps others. This is an exercise you should conduct at least once every three years and also whenever your financial situation and asset ownership changes. Adequate insurance coverage will make you and your family feel comfortable when the inevitable happens.

Here are a number of potential needs your family may face when the person who supports your family expires:

1. Ongoing Living Expenses. Sufficient funds should be available to maintain your family’s current standard of living for at least 6 – 12 months. Your family may also have special needs such as providing funds for the care of children if they are underage, or for family members who may need special medical care.

2. Administration Expenses. There will be probate expenses which may include legal costs as well as expenses for the executor and other business professionals. Also, the estate’s property may need to be maintained (leases and other obligations, for example) until probate is concluded and the property distributed.

3. Funeral Costs. These may be prepaid already, but if not, these expenses add up. There may also be final medical expenses not covered by medical insurance.

4. Debt. An accounting of debts may reveal the need to have sufficient cash to pay unpaid bills, mortgages, installment debt, and any court mandated payments. If your family decides not to pay these debts immediately, the cost of carrying these debts for a period of months should be estimated and included in your life insurance calculations.

5. Personal Income Tax. Federal and state income taxes will need payment for the year of death and any unsettled years. Include the payment of penalties or interest if applicable.

6. Estate, Inheritance, and Generation-Skipping Transfer (GST) Taxes. In addition to these, if your state also has death taxes, those should be included in your calculations.

7. Expenses and Taxes Related to the Family Business. Your family business may need to meet payroll or other operating expenses. Additionally, there may be a need for cash to fund a buy/sell agreement or to exercise stock options.

8. Educational Funds. Consider the value of making additional life insurance funds available to educate children or grandchildren, or to assist a surviving spouse who needs training to return to the job market.

This list of eight items is a starting point for the review and assessment of your family’s needs.

Obviously, there is no better time than now to meet with your financial advisor and discuss either purchasing a life insurance policy to ensure your family’s security, or to review your policy and confirm that it sufficiently provides for your family when you are gone. Purchasing life insurance is a relatively easy task with tremendous benefits for those you love.

We hope this article about protecting your family with life insurance provided useful information and guidance on what to consider when analyzing your family’s future needs. Synergy Financial Management welcomes your inquiries and is available to discuss your insurance needs as well as your portfolio’s ability to preserve your wealth from undue risk while also meeting your retirement lifestyle’s needs. Please give us a call for a free introductory discussion about how we can reduce your risk while improving your portfolio’s performance. Thank you!


Synergy Financial Management, LLC

13231 SE 36th Street, Suite 215

Bellevue, WA 98006

ph: 206.386.5455

fx: 206.386-5452

This article is for general educational purposes only. Nothing should be construed as individual tax advice. Please consult a tax advisor to see if this information is right for your situation.

You Might Be Eligible for a Tax-Free COVID-19 IRA Distribution

Despite all the mayhem that COVID-19 has caused, the pandemic could provide a benefit that’s helpful to you and your family. The Coronavirus Aid, Relief, and Economic Security (CARES) Act provides that an eligible IRA owner is entitled to withdraw up to $100,000 in 2020 and take up to three years to repay the funds without the imposition of federal tax.

This means that if you need cash to help you get through the financial burdens caused by the pandemic, this could be a resource and a solution.

These tax-favored withdrawals are called coronavirus-related distributions, referred to here as CRDs. CRDs have no restrictions on their use, which means the money you withdraw from your IRAs can be used to pay your monthly bills and help family members, but there are certain basics that need to be reviewed first.

If you are the owner of an IRA or IRAs, you can take a total of up to $100,000 for your personal use from one or several IRAs, and it doesn’t matter if you are under the age of 59½. Under normal circumstances you would be taxed with a 10% early withdrawal penalty, but this does not apply now because of the CARES Act. You must repay all the funds within a three-year re-contribution window that begins the day after you receive the distribution. You can make re-contributions either as a lump sum payment or through multiple re-contributions. Also, the re-contributions can be made to any of your IRAs and not necessarily to the IRA account from which the CRD originated.

In addition, if your spouse owns one IRA or more, he or she is also eligible for the same CRD opportunity, as are the beneficiaries of inherited IRAs.

A CRD may be made for any amount up to $100,000 from an eligible retirement plan if made between January 1, 2020 and before December 31, 2020 under the following conditions:

1. The IRA owner was diagnosed with COVID-19 by a test approved by the Center for Disease Control and Prevention.

2. The spouse or a dependent of the IRA owner was diagnosed as having COVID-19 by a similar test.

3. The IRA owner suffered negative financial consequences by being quarantined, furloughed, laid off, or having reduced work hours because of COVID-19.

4. COVID-19 caused the necessity of childcare, resulting in an inability to work and the subsequent onset of negative financial consequences.

5. The IRA owner owns a business that was forced to close or reduce operating hours because of COVID-19 and thereby suffered adverse financial consequences.

6. Other financial losses due to COVID-19 were suffered that are yet to be defined by future IRS guidance.

There is a potential but temporary fly-in-the-ointment that might deter you from taking advantage of this tax-free and interest-free loan, and it’s this: even though you are allowed to access $100,000 from the funds in your IRAs, and though you spread the taxable income across the three-year period of 2020, 2021, 2022, you will still incur an interim tax liability in each year the funds are not re-contributed. Ultimately, at some point in 2023, prior to the three-year window coming to a close, you’ll have to amend your returns for those three tax years and recover the taxes you paid. You will still have a zero-sum result, but having to accept temporary interim tax consequences might make this strategy unattractive.

Another item to consider is that even though the CRDs provide a tax-free loan from your IRA accounts, the tax rates for the money you are borrowing could be significantly higher in 2021 and 2022 than they currently are. After this year’s presidential election and with potential political shifts in the Senate and House of Representatives, tax rates could jump higher, especially for families in higher tax brackets. Even though you’ll eventually get your tax expenditures refunded, you should be aware that loans against your IRAs could cause unexpected cash deficiencies in the short term. Of course, if it makes the most sense, you can report all your taxable income from your CRD loans on your 2020 return before tax rates potentially increase.

Regard this tax strategy as a tool that may or may not be appropriate for your use. As always, your unique circumstances should be carefully reviewed to determine if accessing tax-free funds for a maximum three-year period is in your best interests. Consulting with your tax specialist is the best way to understand the value and applicability of this strategy for your finances.

Your tax advisor will probably inquire about your need for the immediate cash, if you are confident you can repay the CRD amount within a three-year period, and whether or not the CRD income could be sheltered with 2020 business losses, making re-contributing a choice rather than an obligation. Of course, should this loan be absorbed through business losses, the effectiveness of spending your IRA funds now, compared with the benefit of allowing them to remain protected and grow in value, must also be analyzed.

We hope this article about taking advantage of a temporary pandemic-related tax-free loan was helpful. We also offer many other strategies that can be useful and we invite you to give us a call for a discussion about your portfolio so we can consider how we might accelerate your growth and how your portfolio serves the retirement lifestyle you desire. Thank you!


Synergy Financial Management, LLC

13231 SE 36th Street, Suite 215

Bellevue, WA 98006

ph: 206.386.5455

fx: 206.386-5452

This article is for general educational purposes only. Nothing should be construed as individual tax advice. Please consult a tax advisor to see if this information is right for your situation.

Is This the Perfect Time for Your Roth IRA Conversion?

You may have a traditional IRA you’ve been thinking about converting into a Roth, but either you never got around to doing it or the timing was wrong because the conversion would have created extra taxable income and a higher tax bill. Guess what? In either case, luck might now be on your side and this could be the right time to make lemonade with a sweet lemon.

If the impact of COVID-19 on your business and finances has resulted in decreased revenue and income, converting a traditional IRA into a Roth IRA now could make conversions an affordable tax cost for this year while also giving you an advantage against the higher tax rates most analysts are expecting to see in the next few years. Before we explore those details, here’s some necessary background.

Roth IRAs offer two advantages … Qualified withdrawals receive tax-free treatment, and they offer an exemption from the Required Minimum Distribution (RMD) rules. Let’s take a closer look at each of these advantages.

Tax-free Withdrawals

Roth IRAs are free of federal income tax, and usually exempt from state income tax as well. In order for a withdrawal to be qualified for tax-free status, the owner of the Roth must have had the IRA for over five years and must either be 59½ years old, become disabled, or deceased. The five-year clock begins on the first day of the tax year in which the initial contribution to the Roth was made. This initial contribution may be either a regular annual contribution or a conversion from a traditional IRA.

Required Minimum Distribution (RMD) Exemption

As you know, at age 72 the holder of a traditional IRA must begin taking RMDs, and these are at least partially taxable if not fully taxable depending on the owner’s circumstances. However, with a Roth IRA, distribution is not required at any age, and the account can remain untouched for the rest of his or her life if desired, even as this asset continues to grow. Because this account can be left undisturbed, it can be a wonderful legacy the owner can leave to heirs.

Should the owner die and leave the Roth IRA to a spousal beneficiary, the surviving spouse inherits the account as though it was his or her own Roth IRA account. This means the account can continue to remain untouched for the rest of his or her life as well, earning tax-free income and gains.

The account can then be passed on to a new spouse, or to a non-spousal beneficiary or beneficiaries. If the Roth IRA goes to a nonspousal beneficiary, the nonspousal beneficiary can leave the account undisturbed for about 10 years after the death of the prior owner. At the end of the 10-year period, the Roth IRA must be terminated with all funds withdrawn.

Consider if This is the Perfect Time for You

There are three reasons why this may be the perfect time for you to convert your traditional IRA into a Roth IRA.

1. Tax Rates are Low. The Tax Cuts and Jobs Act (TCJA) reduced tax rates for 2018 – 2025, but higher rates are likely to return in 2026. There is also much discussion about the potential for increased taxes to help the economy recover because of the COVID-19 health crisis. Shifting your account from a traditional IRA into a Roth IRA now, before new potential taxes are established, means you could preserve more of your wealth by paying lower taxes now rather than higher taxes later.

2. Your Income was Reduced This Year. If it’s likely that your 2020 income will be less this year because of the effect of the health crisis, your federal income tax rate could be lower than usual. If this is the case, you may have a lower tax bill, so it might make sense to switch from a traditional IRA to a Roth IRA now when your tax rate is temporarily lower.

3. Lower Balance in your IRA. Another unpleasantry is that your IRA may have suffered a loss in value because of stock market declines. Depending on how your traditional IRA was invested, your IRA account may have a lower balance. However, a lower balance may translate into a lower tax bill should you convert from a traditional to a Roth IRA. Transferring the money into a Roth IRA now will allow the money to grow tax-free when the market picks up.

This is a good time to take a moment and consider if transferring your traditional IRA into a Roth IRA is an opportune move for you before the year ends. If it is, you could preserve your wealth by mitigating it from the taxation your account might otherwise experience in the future.

As always, consult with your tax advisor for a carefully considered decision on which course is best for you and your unique circumstances.

We hope this blog post about potentially reducing your tax responsibilities by taking advantage of current financial circumstances was helpful and provided some ideas for a discussion with your tax advisor. If you would like to have a conversation with us about your portfolio’s performance, your plans for retirement or other topics that could benefit you and your family financially, please contact us. Thank you!


Synergy Financial Management, LLC

13231 SE 36th Street, Suite 215

Bellevue, WA 98006

ph: 206.386.5455

fx: 206.386-5452

This article is for general educational purposes only. Nothing should be construed as individual tax advice. Please consult a tax advisor to see if this information is right for your situation.

Tax Planning for Your Business During COVID-19

While every year is different, this year is more different than most. Nations around the world are still dealing with the effects of COVID-19, and it appears this will be a continuing experience for some time to come.

Something that has not changed is the importance of considering money-saving strategies that may minimize this year’s tax bill. A mid-year tax plan review gives you sufficient time to employ one or more of these four tax-limiting strategies.

1. Net Operating Losses (NOL)

Acting in your favor, the CARES Act has temporarily limited the Tax Cuts and Jobs Act (TCJA) of 2017 by removing restrictions on NOLs. Under the authority of this new law, you are permitted to retroactively move losses you suffered between 2018 – 2020 back as much as five years, meaning you could shift a 2018 business loss as far back as 2013. Because 2017 tax rates were higher then and in previous years, moving a NOL retroactively could prove beneficial to your bottom line and increase your cash flow, which is a much better option than taking a loss in 2020.

2. Excess Business Losses

The CARES Act also provided another tax-saving opportunity for businesses by retroactively eliminating the limits imposed on Excess Business Losses (EBLs) by the Tax Cuts and Jobs Act. Starting in 2018, the TCJA mandated that sole proprietorships and business organizations like S corporations or partnerships could no longer deduct business losses in excess of $250,000, or $500,000 for married joint filers. Excess losses are now temporarily re-categorized as NOLs and subject to those limitations. With this retroactive law adjustment, you should consider asking your accountant if you were subject to limited losses in 2018 or 2019. If a tax return for those years has already been filed, it could be an advantage to submit an amended return that now qualifies you for a refund.

3. Business Interest Expense

Another potential gift made available by the CARES Act involves changes to the limits imposed on deducting business interest expenses. Here, too, a provision in the Tax Cuts and Jobs Act was rolled back. In this instance the limit on deducting business interest expenses, set at 30% of Adjusted Taxable Income (ATI), has been reset to 50% of ATI for 2019 and 2020, though separate rules apply to business partnerships. There may be a tax refund waiting for you.

4. Real Estate Qualified Improvement Property (QIP) Depreciation

Finally, another CARES Act adjustment that could be a tax benefit for your business is the accelerated depreciation for real estate QIP that’s been operational after 2017. Real estate is considered QIP if the interior of a nonresidential building has been improved after the building was first made available for operations. This benefit, however, does not apply if the improvement was for enlarging the building, or if an elevator or escalator was installed, nor does it include changes made to the internal structural framework.

Assuming your property is eligible, you are entitled to claim a 100% first-year bonus depreciation on the expenditures if the improvements occurred between 2018 – 2022. You also have the choice of depreciating the expenditures over a 15-year period by employing the straight-line method.

Should this be the case and your tax advisor recommends amending your 2018 or 2019 return to claim the 100% first-year bonus depreciation, the adjustment may result in a NOL that can be shifted to a previous tax year for the recovery of taxes paid in that year. Another tactic that might serve you is to file a change in the accounting method instead of amending the returns.

The information in this blog post is intended to suggest possible tax-saving strategies that could benefit you and your company financially during the relaxation of Tax Cuts and Jobs Act rules, but in all cases you should seek the advice of your tax advisor for the specific particulars relating to your unique business circumstances.

Thank you for reading this blog post about possible ways to decrease your taxes and increase your cash flow during the unusual circumstances created by COVID-19. We welcome the opportunity to review your tax situation with our specialists, and also recommend consulting with us about the potential opportunities of pursuing a tax-advantaged investment policy. As always, Synergy Financial Management is primarily focused on building your wealth and preserving your estate. We look forward to serving you.

Thank you!


Synergy Financial Management, LLC

13231 SE 36th Street, Suite 215

Bellevue, WA 98006

ph: 206.386.5455

fx: 206.386-5452

This article is for general educational purposes only. Nothing should be construed as individual tax advice. Please consult a tax advisor to see if this information is right for your situation.

Mid-Year Tax Planning in the Year of COVID-19

2020 is a year like no other.

In the last six months our nation has seen the passage of three major pieces of legislation that made tax planning opportunities available and provided financial relief during extreme economic uncertainty. The COVID-19 pandemic is likely to change business practices at all levels and force the closure of many local businesses. In addition, 2020 is a national election year with the possibility of a presidential change.

All of these unusual conditions make this year’s mid-year tax planning novel and extremely important for correctly positioning your finances and reducing your tax liabilities.


These three significant legislative Acts may have an effect on the taxes you pay this year.

1. The Taxpayer Certainty and Disaster Tax Relief Act (Disaster Act). Passed in December 2019, this Act provided an extension of tax benefits that had either expired or were about to expire.

2. The Setting Every Community Up for Retirement Enhancement (SECURE) Act. Also passed in December 2019, the SECURE Act significantly changed many tax-saving retirement rules.

3. The Coronavirus Aid, Relief, and Economic Security (CARES) Act. The CARES Act became legal on March 27, 2020 and provided immediate economic relief as well as a variety of tax saving opportunities.

It’s also worth noting that if President Trump loses his office after this year’s election, there is a strong likelihood of considerable changes to tax law.

Five Income Tax Opportunities for Individuals

1. Reexamine Your Tax Withholding or Estimated Payments. It may be possible to improve your cash flow by adjusting the withholding on your W-4 so you are not overpaying.

2. Consider Amending Your 2018 or 2019 Returns. Normally permitted only if an error or omission is discovered, amending your returns is now possible because the three major Acts each contain provisions allowing retroactive amendment. This could put tax money, which you’ve already paid, back in your pocket.

3. Benefit from Lower Tax Rates on Your Investment Income. When you hold an investment for more than one year, you usually receive preferential tax rates on your capital gains. For most investments, those rates are now 0%, 15%, and 20%, and are based on your taxable income. When possible, reduce your taxable income so you are eligible for the 0% rate. If you find your income still too high, consider gifting some of your investments, such as appreciated stock, to your children or grandchildren. These individuals are likely to be in the 0% or 15% capital gains tax bracket. Should they sell the investments after a year of ownership, any capital gains will also have the lower tax rates applied. Be mindful of the “Kiddie Tax” which may limit the benefits of this strategy.

4. Beef-Up Your Retirement Plans. If COVID-19 has affected your cash flow, you’re in luck because the CARES Act permits several provisions for limited retirement fund distributions taken before December 31, 2020. This is also a good time to consider transferring your funds from a traditional IRA to a Roth IRA, should tax rates become higher after the national election.

5. Analyze Your Deduction Strategy. Itemizing your income tax deductions could be right for you if your personal expenses are significant. Do some calculations and compare your itemized deductions against the standard deduction to make a wise decision. The 2020 standard deduction for joint filers is $28,400, for heads of household it’s $18,650, and single taxpayers are entitled to a standard deduction of $12,400. If you’re considering itemizing your deductions, keep in mind that the Tax Cuts and Jobs Act (TCJA) of 2017 suspended or reduced a number of itemized deductions, so make sure the deductions you’re planning to take are still allowed.

Next month’s blog post will review several tax planning strategies for small businesses which may also help you reduce your tax bill in 2020.

Finding ways to reduce your taxes is always rewarding because taxes are the largest predator to your wealth. If you would like to review your tax situation with our specialists and wish to explore the possibilities of a tax-advantaged investment policy, please contact us for a conversation. Our primary focus at Synergy Financial Management is building and preserving your wealth.

Thank you!



Synergy Financial Management, LLC

13231 SE 36th Street, Suite 215

Bellevue, WA 98006

ph: 206.386.5455

fx: 206.386-5452

Crafting Your Portfolio

Your portfolio’s design is a reflection of your investment philosophy. Before you can begin to craft your portfolio, you must have clear investment goals and objectives. You must also have completed your investment policy statement, defining how you plan to identify and select the investments in your portfolio, as well as the actions you intend to take to achieve your required rate of return.

Two general investment strategies can be used:

1. Strategic decisions contemplate the investor’s investment horizon, risk profile, required returns and cash flow needs, available assets, tax brackets, inflation rates, and the average returns of different asset classes.

2. Tactical decisions are made by investors who believe one asset class will perform better than another, such as expecting stocks to outperform bonds, or international equities to outperform domestic equities.

Together, strategic and tactical decisions will result in a mix, or a weighting, of asset classes that are believed to maximize returns for the investor’s acceptable level of risk. These asset classes are also sector-weighted against an index that will be used to measure the portfolio’s performance, and/or with a bias toward a sector expected to outperform other sectors.

When examining securities, investors try to identify securities that appear to be mispriced. There are many methods for gauging the desirability of the security, but all these methods fall into one of two main classifications: technical analysis, and fundamental analysis.

Technical analysis involves the study of a security’s prices in an attempt to predict future value. Past prices are examined to identify recurring trends or patterns in price movements. Then, knowing the history of the price movements, recent prices are analyzed to identify emerging trends or patterns similar to past ones. This matching of current trends or patterns with previous ones is done with the conviction that these trends or patterns repeat, and thus results may be predictable and helpful with limiting risk.

Fundamental analysis asserts that the true value, or intrinsic value, of a financial asset equals the present value of all cash flows the asset owner expects to receive. The fundamental analyst attempts to forecast the timing and size of these cash flows, and convert them to their equivalent present value using a discount factor and dividend discount model. Once the true value of the asset has been determined, it is compared to the current market price to see if the asset is fairly priced or not.

Assets valued at less than their current market price are considered overpriced, while those with the true value greater than their current market price are considered underpriced. If an asset is overpriced, investors must determine if they are willing to pay the higher price, or wait for the asset to fall closer to its true value for purchasing. If underpriced. The asset may be a good investment, pending additional analysis.

At Synergy Financial Management, we employ four investment strategies which are unique to our firm; we work closely with each investor, selecting a proportionate combination of the four that best serves our individual client’s unique interests. Discussion with our client establishes the best combination of these four strategies, whether Active Strategy, Semi-Passive Strategy, Conservative Strategy, or the Alternative Investment Strategy.

We’ll discuss each of these more formally in our next articles, but for now it’s important to remember the following:

1. Technical analysis focuses on prices and patterns to predict future value.

2. Fundamental analysis focuses on aspects of the economy and industry conditions to determine an asset’s value.

3. Whenever you are preparing to invest, you must consider your time horizon, whether it is short term, medium, or long-term.

4. Always calculate the effect of taxes on your investment decisions before you invest.

5. Determine if the intended investment is sufficiently liquid or not. If you want to convert your assets into cash, is the penalty too high?

6. Also consider if you need the advice of an attorney because of any potential legal or regulatory constraints.

7. Be sure you understand the cost of management or participation fees that make the value of your investment questionable.

8. Reflect on whether or not the investment fits with your Investment Policy Statement and your intentions for being diversified in specific asset classes.

9. Decide if the investment increases or reduces your portfolio’s level of risk.

10. Make sure the intended investment presents a good opportunity for the attainment of your required rate of return.

We hope this article about crafting your portfolio gave you some insights on how to proceed or how to evaluate your portfolio’s current performance. As your professional financial advisor, Synergy Financial Management can help you analyze risk before adding assets to your portfolio and can guide you with diversifying your vulnerability to risk. We enjoy working with you to maximize your portfolio’s rate of return while minimizing your exposure.

Please give us a call so we can discuss how our services can help you accelerate your growth while securing your wealth.

Thank you!



Synergy Financial Management, LLC

13231 SE 36th Street, Suite 215

Bellevue, WA 98006

ph: 206.386.5455

fx: 206.386-5452

Top Tax Planning Opportunities for 2019, Part 5

Top Tax Tip #9: Choose Your Filing Status to Skirt the 3.8% NIIT

Since married people can file either jointly or separately, this important financial decision might best be made, in part, on their vulnerability to the 3.8% NIIT (net investment income tax) they might have to pay.

As a reminder, the amount of unearned income subject to the 3.8% NIIT is the lesser of either the net investment income (NII) or the excess over an applicable threshold amount (ATA) of the modified adjusted gross income (MAGI).

Included in the NII is gross income from interest, dividends, annuities, royalties, and a trade or business considered a passive activity. Excluded from the NII are qualified retirement plans, wages and salaries, and self-employment income. Remember, too, that the ATA is $125,000 for married taxpayers that file separately, and $250,000 for married taxpayers that choose to file jointly.

While initially it may appear that the effect of the 3.8% NIIT would make no difference because of the similarity of ATA for filing separately or jointly, a closer analysis shows individual circumstances could sway the decision one way or the other.

Should one spouse have most of the NII and the other have less, filing separately might save significantly on the 3.8% NIIT tax.

Deciding whether to file separately or jointly also depends on the 0.9% Additional Medicare Tax as either one, or both, or neither of the spouses may be subject to this additional tax. Your tax accountant should do the calculations necessary to help you arrive at a conclusion that demonstrates the best tax-saving decision for you.

Example: Robert and Linda are married and Robert has $300,000 of salary income but no NII. Linda has $30,000 of NII but no other income. If they file separately, neither taxpayer will have to pay the 3.8% NIIT because Robert has no NII and Linda’s MAGI falls below her ATA. By filing jointly, they will have to pay the 3.8% NIIT.

Continuing the calculation by including the effect of the 0.9% Additional Medicare Tax, if Robert and Linda file jointly, they will not be subject to the 0.9% tax because their ATA is too low. However, by filing separately, Linda will not be affected by the 0.9% tax but it will apply to part of Robert’s income.

In addition, when contemplating which filing status is best for skirting the NIIT, the other considerations of how this affects the regular income tax brackets could result in the taxpayers paying more in regular income taxes because the filing status is affected by that choice.

Your tax consultant will need to do a series of calculations to determine whether it is better for you to file jointly or separately so a determination can be made about which filing is most tax beneficial for your particular circumstances.

Top Tax Tip #10: Saving Employment Taxes Through S-Election

Should you be in the position of paying employment taxes, you might find that a portion of your income might not be eligible for employment taxes, thus saving you additional cost.

Most businesses choose the S-election for their corporation to avoid the double tax inherent with being a C corporation. However, being an S corporation has additional advantages. As well, other business types, such as sole proprietorships, partnerships, limited partnerships, limited liability companies, limited liability partnerships, and limited liability limited partnerships can also make an S-election.

As an employer, there are several taxes that must be accommodated. That includes the Social Security Tax, the Medicare Hospital Insurance Tax, and the Additional Medicare Tax. With an S-election, a business owner may be able to save on these taxes because earnings can be separated into two categories, wages and distributions. While wages do incur employment taxes, distributions do not. This is a benefit to the business owner of a business organization operating under an S-election.

As you might expect, there are a variety of considerations that would need analysis. Even the courts are sometimes unclear on determinations. What is clear is that the wages paid to a business owner/employee must be “reasonable”, which means not too low with the obvious intention of avoiding taxation. Should that be the case, the IRS could adjust the figures higher to a more appropriate designation.

If you think this might be a strategy worth investigating, be sure to engage an experienced professional who can guide you with the subtleties and give you a reasonable expectation of a positive outcome for your circumstances. A good first step would be a careful examination about your business organization’s eligibility for an S-election, and an assessment about the amount of potential savings that could be available to your circumstances should you decide to make this decision.

Closing Thoughts

The strategies presented in this report represent outlines of information that could be especially helpful to you in the 2019 tax year. To determine which of these would be most beneficial, or to examine other wealth saving tax strategies, contact us for a more insightful review.

Thank you!


Synergy Financial Management, LLC

13231 SE 36th Street, Suite 215

Bellevue, WA 98006

ph: 206.386.5455

fx: 206.386-5452

Top Tax Planning Opportunities for 2019, Part 4

Top Tax Tip #7. Intra-Family Loans

For families with estates that would otherwise have to pay the wealth transfer tax, intra-family loans have the capacity, when interest rates are low, to provide substantial tax-free transfers. The key to taking advantage of this benefit is when parents loan money to their children at a low interest rate and the children then invest the loaned money at a higher rate. In effect, the difference between the loaned rate and the new income constitutes a tax-free transfer of wealth to the children.

The minimum interest rate is defined as the applicable federal rate (AFR) for the month in which the loan takes place. If the loan is for three years or less, the short-term AFR is used; for loans with a length of 3 to 9 years, the midterm AFR is the right choice; and if the loan has a term that’s more than nine years, the long-term AFR is appropriate.

In January 2019 the semiannual AFRs were:

Short-term AFR 2.72%

Midterm AFR 2.89%

Long-term AFR 33.15%

Here’s a good example:

A father loans his son $1,000,000 in January 2019 with a 12-year, interest-only balloon note. The interest rate is 3.15%. The son invests the money and produces a 10% after-tax return. By the end of the 12-year period, the son’s investment has grown to $3,138,428. The amount due after 12 years is $1,450,878… but the difference of $1,687,550 is the amount of wealth that was transferred tax-free.

An intra-family loan can also be used to reduce interest payments on a mortgage. For example, a parent has a child with a $400,000 30-year mortgage at a 7% interest rate that permits prepayment. The monthly mortgage payment is $2,600. The parent loans the child $400,000 to pay off the mortgage, and the new loan has a 20-year term with interest at 3.15%, which is the required rate of the long-term AFR. This new intra-family loan reduces the monthly payment to $2,200 and decreases the loan term by 10 years, a significant advantage.

Of course, for this to be a valid loan in the eyes of the IRS, the family must obey all loan formalities such that this loan would be the same if the parties were unrelated.

Mortgage loans could be especially helpful for family by providing benefits for both the parents and the children. Children are likely to benefit from the following:

1. A lower interest rate for the loan

2. Probably more flexibility with the terms

3. Avoiding fees like ordination and other transaction costs

4. Able to borrow with a poor credit rating

5. Borrowing with a low interest rate even with a poor credit rating

6. The possibility of not having to make a down-payment

The lending parents may also have some benefits, such as:

1. Helping their children reduce costs

2. Retaining interest payment funds in the family

3. Creating returns for an income stream that might exceed the returns on CDs or bonds

If you think an intra-family loan could help your children and also be a benefit for your own financial circumstances, consider having a discussion with a financial planner who can look at your particular situation and give advice that precisely fits your circumstances.

Top Tax Tip #8. Opportunity Zones

The Tax Cuts and Jobs Act (TCJA) of 2017 was created to offer tax benefits to investors willing to invest in a qualified opportunity zone. A qualified opportunity zone is a lower income area that’s been designated by the government for the employment of capital that could help a community with funds that might otherwise be unavailable because of the asset holder’s reluctance to incur a capital gains tax.

The TCJA offers three incentives for allowing the shift of capital gains earned through the sale or exchange of property into a qualified investment in a low income community:

1. The deferral of gain recognition earned on the original investment: When an investor chooses to reinvest the capital gains achieved from another investment, any gain from that investment will not be included as income until the earlier of either the date in which the investment is concluded, or December 31, 2026. This incentive has no restrictions on the amount of gain that can be deferred.

For example, an investor sells stock with a basis of $300,000 and has a $100,000 capital gain. Rather than paying tax on the $100,000 gain, the investor uses the $100,000 as an investment in a qualified opportunity zone and can now defer all gains made.

2. A basis step-up for the original investment: An investor’s basis in the original investment begins at zero per the opportunity zone rules. When the investment is held for a minimum of five years, this basis increases by 10% of the deferred gain. If the investment continues for a total of seven years, the basis increases by 15%.

For example, an investor chooses to invest $100,000 of capital gains, and keeps the money in the opportunity zone investment for over five years. This reduces the gain to $90,000 and decreases the cost of the taxes on those gains. If the investment is held for seven years or more, the gains would be reduced $85,000 with even greater tax relief.

3. The permanent exclusion of gain on investments made in the opportunity zone: If an investment in an opportunity zone was held for a minimum of 10 years, there will be no gain eligible for taxation when the opportunity zone investment is finally sold.

Of course there are specific qualification requirements that must be met. Here are a couple of the key items:

1. The capital gains must be invested within 180 days of a sale or exchange that created the capital gains.

2. The capital gains cannot be the result of a sale or exchange with a related person.

3. If the gain came from an “offsetting-positions” transaction, gain deferral is not allowed.

If you would like to defer the taxation of your capital gains, investing in a qualified opportunity zone could be the right strategy for you and also benefit a low income area with your choice.

We always welcome hearing from you, and if you think one of these two strategies, or any of the other six strategies mentioned in previous months is a good opportunity for you, please give us a call so we can review how we can help you save tax costs, preserve your wealth, and accelerate the value of your estate. Thank you!


Synergy Financial Management, LLC

13231 SE 36th Street, Suite 215

Bellevue, WA 98006

ph: 206.386.5455

fx: 206.386-5452

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