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Restricted Stock Units – RSU 05.01.2021

Restricted Stock Units (RSUs) can be a significant component of an employee’s compensation package. But what exactly is an RSU? How are they treated for tax purposes? How do you plan most effectively when your RSUs vest? The 411 on Restricted Stock Units will tackle these questions and more.

What are Restricted Stock Units?

RSUs are a form of stock compensation whereby an employee receives rights to shares of stock in a company that are subject to certain restrictions. These units do not represent actual ownership or equity interest in the company and as such hold no dividend or voting right. (While RSUs hold no automatic dividend rights, companies may choose to issue dividend equivalents. For example, when a company pays cash dividends to common stock holders, RSUs can be credited dividends for the same amount. These credits may ultimately be used to pay the taxes due when RSUs vest or can simply be paid out in cash.) However, once the restriction is lifted, the units are converted to actual company shares and an employee owns the shares outright (same as traditional stock ownership).

The restriction on the units is generally based on a vesting schedule. Most vesting schedules will fall into one of two categories:

  • Time-based: based on the period of employment. Common time-based vesting schedules are between three to five years and are either pro-rata or “cliff” based. For a “cliff” based schedule, all shares vest fully at the end of the schedule.
  • Performance-based: based on the company achieving a performance goal. Common performance-based vesting schedules are based on a company achieving a particular stock price or a return on equity, or earnings per share.

*There is a hybrid-approach between time-based and performance-based known as time- accelerated. Vesting is on a time-based schedule but may be accelerated by the company achieving a performance-based goal.

How are RSUs different than stock options?

When most people think of stock compensation, stock options, or the right to buy a company’s stock at some future date at a price established now (the strike price), are typically what first comes to mind.

Historically, stock options have been the most popular form of stock compensation. And up until 2004, stock options merited favorable accounting treatment as a company could avoid recognizing compensation expense by issuing the options.

In 2004, this loophole was eliminated and subsequently, RSUs emerged as the preferred form of equity compensation.

RSUs and stock options have some notable differences:

Restricted Stock Units RSUs Stock Options Towerpoint Wealth

Scenario 1: An employee is granted 1,000 Restricted Stock Units when the market price of the company’s stock is $10. When the RSUs vest, the stock price has fallen to $8. The shares are still worth $8,000 to the employee.

Scenario 2: An employee is granted 1,000 stock options with a strike price of $10. During the window to exercise these options, the market price of the stock is always below $10. These options will expire worthless to the employee.

*There are many other forms of nontraditional compensation, such as Stock Appreciation Rights (SARs), Phantom Stock, and Profit Interests. None of these are as widely used as RSUs or Stock Options and will not be a focus in this paper.

How are RSUs Taxed?

RSUs are taxed upon delivery of the shares (i.e. when the restriction has been lifted).

At time of delivery, the shares are included in an employee’s taxable income as compensation at the fair market value of the total shares. The tax treatment is identical to normal wage income and as such, is included on an employee’s W-2. (When received, dividend equivalents are subject to the same tax rules as RSUs.)

The shares are subject to federal and employment tax (Social Security and Medicare) and state and local tax as well.

For paying the taxes due on delivery, companies will provide an employee with either one uniform withholding method or several options as follows:

  • Net-settlement: a company “holds back” shares to cover the taxes and then the company pays the tax from its own cash reserve. This is the most common practice.
  • Pay cash: an employee receives all shares and covers the income tax burden out of their own pocket. This is a riskier strategy than net-settlement, as the result is a more concentrated equity allocation in their portfolio while at the same time reducing their cash balance by the amount needed to pay the taxes.
  • Sell to cover: an employee sells the shares needed to cover the income tax burden on their own. This method provides no real advantage over net-settlement and places the additional burden of selling the shares on the employee.

When an employee ultimately sells their vested shares, they will pay capital gains tax on any appreciation over the market price of the shares on the vesting date. If the shares are held longer than one year after vesting, the sales proceeds will be taxed at the more favorable long-term capital gains rate. (Important to note that the shares must be held more than one year for long-term capital gains treatment. If sold exactly one year from the vesting date, they will be taxed at the higher short-term capital gains.)

Restricted Stock Units Stock Options Vesting Dates Towerpoint Wealth

Example:

An employee is granted 750 Restricted Stock Units on January 1, 2018. The market price of the stock at the time of grant is $10 and the RSUs vest pro-rata over three years:

January 1, 2019:Stock price is $12250 shares X $12 = $3,000 of ordinary income
January 1, 2020:Stock price is $15250 shares X $14 = $3,500 of ordinary income
January 1, 2021:Stock price is $20250 shares X $20 = $5,000 of ordinary income

Each increment is taxable on its vesting date as ordinary income. The total ordinary income paid over the three years is $11,500.

The employee then sells all 750 shares of stock three years after the last shares vest:

January 1, 2024:                                    Stock price is $30.              750 X $30 = $22,500 realized upon sale

The employee held each share for more than one year, so the gain is treated as long-term. The

employee’s long-term capital gain is $11,000 ($22,500 less $11,500) to be reported on Schedule D of their U.S. individual tax return.

What are the risks of holding RSUs?

Utilized correctly, Restricted Stock Units can be a wonderful complement to a traditional compensation package and can contribute substantially to an employee’s net worth. This can be, however, a double-edged sword.

The overlying risk is that an employee can have too much of their net worth concentrated in one individual stock and for that matter, one individual company.

Utilized correctly, RSUs can be a wonderful complement to a traditional compensation package and can contribute substantially to an employee’s net worth. This can be, however, a double-edged sword.

Let’s explore a scenario:

Jim has a net worth of $200,000, not including 2,000 shares of RSUs with his employer, Snap Inc. On January 1, 2019, 100% of Jim’s 2,000 RSUs vest at $50 per share.

Great news! Jim’s net worth, on paper, has now increased by $100,000 overnight. Jim’s overall net worth is now $300,000.

Jim decides to keep all his shares in Snap Inc. with the belief the stock price will continue to go up.

He also sees his colleagues choosing to hold most of their shares, and fears that if Snap Inc.’s price soars, he will have missed out and his colleagues will all become wealthier than him.

On July 1, 2019, Snap Inc. releases a weak earnings report and the share price drops to $20. Jim’s net worth is now $240,000, down 20% from January 1st.

Even worse, Jim paid taxes at his ordinary rate on the original share value of $100,000 when the shares are now only worth $40,000.

And finally, because Jim has a significant portion of his net worth in the company he works for, he faces an additional and potentially catastrophic risk. What if Snap Inc. runs into serious financial struggles and he loses his job? Not only will Jim’s net worth plunge from further declines in Snap Inc.’s share price, he also will now have lost his primary source of income.

You probably see Jim as foolish but his predicament is a common one. We often see employees dealing with the hesitation to sell the shares for emotional but not always rational reasons.

How can I most effectively plan for RSUs?

We recommend you discuss how to effectively plan for Restricted Stock Units shares with your financial advisor to ensure a decision is not made in a vacuum, but rather in the broader spectrum of your entire financial picture. Of course, we encourage collaboration with your tax advisor to determine the optimal strategy from a tax perspective as well.

In reality, when RSUs vest, you may be better off by immediately (or over a short-term schedule) selling a sizeable portion of the vested units and using the proceeds to add to or build a diversified investment portfolio.

Regardless, before you make any decisions, it can be helpful to explore the following questions:

  • How much of your overall wealth is tied up in RSUs?
  • Is your company growing quickly or slowly?
  • What is your current tax situation? Is it better to wait more than one year after the shares vest to sell them to receive the more favorable long-term capital gains tax treatment? (Reminder: If you sell RSUs one year or less after vesting, the difference between the market value at sale versus at vesting will be taxed at the less favorable short-term capital gains rate. However, a near immediate sale should result in a minimal gain and thus, a minimal tax hit.)
  • How long do you plan to be with the company?
  • What is your tolerance for risk?
  • If the market value of the stock was instead received in the form of a cash bonus, how much of this would you invest in the company stock?

How can we Help?

While we at Towerpoint Wealth continue to believe in the importance of a diversified portfolio, we also understand every individual situation is unique and understand emotions can play a significant albeit oftentimes problematic role in making sound financial decisions. This is especially the case for RSUs.

If you would like to speak further about RSUs (or any nontraditional compensation for that matter), I encourage you to call, 916-405-9166, or Steve Pitchford (Sacramento Certified Financial Planner) email spitchford@towerpointwealth.com.

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Towerpoint Wealth, LLC is a Registered Investment Adviser. This material is solely for informational purposes. Advisory services are only offered to clients or prospective clients where Towerpoint Wealth, LLC and its representatives are properly licensed or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Towerpoint Wealth, LLC unless a client service agreement is in place.

Matt Regan No Comments

Restricted Stock Units | RSU 04.28.2021

Restricted Stock Units | A common program many publicly traded companies offer to their employees is an Employee Stock Purchase Plan. But ESPPs aren’t the only stock plan out there. Many companies have a different type of stock compensation program that allows them to grant you shares, called Restricted Stock Units, or RSUs for short. 

Restricted Stock Units are a way for an employer to compensate employees by granting them actual shares of company stock. The grant is “restricted” because it is subject to a vesting schedule. Therefore, the employee typically only receives the shares after the vesting date. Once the shares are delivered, the grant is considered compensation income and your taxable income is the market value of the shares.  

When you later sell the shares, you will also recognize income on any appreciation over and above the market price of the shares back on the vesting date. Your holding period will determine whether the gain is subject to short-term ordinary income rates, or lower long-term capital gains rates. 

Watch this video from our Sacramento Wealth Advisor and CPA, Matt Regan, to learn the taxation rules associated with RSUs, and the importance of planning to limit your overall tax liability.

Sacramento Certified Public Account, Matt Regan
Sacramento Wealth Advisor | Sacramento Financial Advisor

Restricted Stock Units, RSUs | Last week, I spoke about a common program many publicly traded companies offer to their employees, an Employee Stock Purchase Plan, or ESPP for short. If you recall, these plans afford you an opportunity to buy shares of the company you work for at a discounted price. But ESPPs aren’t the only stock plan out there. Many companies have a different type of stock compensation program that allows them to grant you shares, called Restricted Stock Units, or RSUs for short. 

Hi Everyone, Matt Regan here from Towerpoint Wealth, and today I am going to discuss the basics of RSUs.

As I just mentioned, RSUs are a way for an employer to compensate employees by granting them actual shares of company stock. The grant is “restricted” because it is subject to a vesting schedule. As you would expect, the employee typically only receives the shares after the vesting date. 

Vesting schedules are often time-based, requiring you to work at the company for a certain period before your RSUs begin to vest. A common schedule is a “graded” vesting schedule, which means the vesting of the grant occurs in serial portions. Vesting schedules can also have “cliff” vesting, which means 100% of the RSU grant vests after you have completed a specific stated service period of say three or four years. And finally, the vesting schedule can also be performance-based, meaning tied to company-specific or stock-market targets.

With RSUs, you are only taxed when the shares are delivered, which is almost always at vesting. Your taxable income is the market value of the shares upon vesting. The grant is considered compensation income, and is subject to mandatory federal, state, and local income and employment tax withholding. The most common practice of paying these taxes is by surrendering the necessary amount of newly delivered shares back to the company. This holds or “tenders” shares to cover your tax obligation. When you later sell the shares, you will also recognize income on any appreciation over and above the market price of the shares back on the vesting date. Your holding period will obviously determine whether the gain is subject to short-term ordinary income rates, or lower long-term capital gains rates. 

So, there you have it. While RSU’s may not be as complicated as ESPP plans, the tax planning for them is just as important. Understanding when your shares will vest gives you the opportunity to plan in advance to ensure you can limit your overall tax liability. Feel free to contact me on LinkedIn, Facebook, or Instagram to discuss the taxation of RSU’s in greater detail. Thanks, and have a great day.

Matt Regan No Comments

Employee Stock Purchase Plan 04.21.2021

Employee Stock Purchase Plan | If you are an employee of a publicly traded company, it most likely offers an #employeestockpurchaseplan, or #ESPP for short. These are excellent plans to take advantage of as they allow employees to purchase company stock at a #discount. However, what most people do not fully understand are the #tax consequences of selling the stock.

With an ESPP, you are not taxed at the time the shares are purchased, but instead only when you sell. As you may expect, the tax consequences of the sale will be different, depending specifically on how long you have held the shares. This holding period will determine if the sale is a #qualifyingdisposition or #disqualifyingdisposition.

Watch this video from our Sacramento Wealth Advisor and CPA, Matt Regan, to learn the taxation rules associated with ESPP plans, and the importance of having a “disposition strategy” that will produce the best economic result for you.

Sacramento Certified Public Account, Matt Regan | Sacramento Wealth Advisor | Sacramento Financial Advisor

If you are an employee of a publicly traded company, it most likely offers an employee stock purchase plan, or ESPP for short. These usually are excellent plans to take advantage of, oftentimes allowing employees to use after-tax payroll deductions to purchase company stock at a discount, which can be as high as 15% off the actual market price of the stock! However, what most people do not fully understand are the tax consequences of selling the stock acquired through these plans. 

Hi Everyone, Matt Regan here from Towerpoint Wealth and today I am going to discuss the taxation rules associated with ESPP plans, understanding the importance of having a “disposition strategy” that will produce the best economic result for you.

With an ESPP, also known as a qualified Section 423 plan, you are not taxed at the time the shares are purchased, but instead only when you sell. Employees can generally sell shares at any time, which is great if you have immediate cash needs, or want to reinvest the money into other assets. However, the tax consequences of the sale will be different, depending specifically on how long you have held the shares. This holding period will determine if the sale is a “qualifying disposition” or “disqualifying disposition,” which governs how much of the gain will be taxed at capital gains rates, or at less favorable ordinary income rates. 

A qualifying disposition occurs when you sell your shares after holding them for at least one year from the purchase date, *and* at least two years from the offering date. The rules say that you will pay ordinary income tax on the lesser of either 1) The discount offered based on the offering date price, or 2) the gain between the actual purchase price and the final sale price. The remainder of the gain, if there is one, will be taxed at the more favorable long-term capital gains rate. 

If you don’t meet the holding period requirements for a qualifying disposition, then by default you end up with a disqualifying disposition. You will pay “regular” ordinary income tax on the difference between the actual purchase price and the purchase date market price, and you’ll pay capital gain tax rates on the difference between the purchase date price and the final sales price.

A little complicated, I know. As you can see, it is incredibly important you understand the ESPP tax rules and how they can impact the amount of money you end up keeping in your pocket, if and when you decide to sell any shares you own in your plan. Feel free to contact me on LinkedIn, Facebook, or Instagram to discuss a disposition strategy that is best for you given your circumstances and financial goals. Thanks, and have a great day.

Matt Regan No Comments

Trading vs. Investing 04.15.2021

Trading vs. Investing | These two terms Trading vs. Investing are often used interchangeably by many, understanding the goal of both is to generate profit in the stock market. However, they represent two very different philosophies in how you approach the market. 

Oftentimes when we watch movies and TV shows about the stock market, we see a Gordon Gekko-type of character, quickly buying and selling stocks, making the big bucks, and living an opulent life. They make trading look seductive. But, as you would expect, it can be a very risky enterprise.

Investing, on the other hand, involves strategically buying an asset you expect to rise in value over time, independent of any shorter-term movements in its price. Investors usually have a longer-term time horizon, and look to build wealth through *discipline*, gradual appreciation, and compound interest.

Watch this video from our Sacramento Wealth Advisor and CPA, Matt Regan, to learn the pros and cons of both investment philosophies and how you can incorporate both approaches into your own portfolio.  

Sacramento Certified Public Account, Matt Regan | mregan@towerpointwealth.com
Sacramento Wealth Advisor | Sacramento Financial Advisor | Trading vs. Investing

Trading vs investing | Two terms that are often used interchangeably by many, understanding the goal of both is to generate profit in the stock market. However, they represent two very different philosophies in how you approach the market. Depending on your level of market expertise, time availability, risk tolerance, emotional discipline, and goals, one of these approaches may be better for you than the other.

Hi Everyone, Matt Regan here from Towerpoint Wealth, and today I am going to discuss the differences between Trading vs investing, and why you would want to incorporate either of these philosophies into your investment strategy.

Oftentimes when we watch movies and TV shows about the stock market, we see a Gordon Gekko-type of character, quickly buying and selling stocks, making the big bucks, and living an opulent life. They make trading look seductive. Trading focuses on timing market moves and buying and selling individual stocks within a short period of time to generate quick profits. As you would expect, it can be a very risky enterprise. If a trade doesn’t go your way, you can lose a lot of money in a very short period of time. The costs of short-term trading are also greater. The more trades you execute, the more fees or commissions you might have to pay. Also, any quick gains that are made will be subject to higher ordinary income tax rates, and not the lower long-term capital gains tax rate. These two costs can be a huge drag on overall portfolio growth.

Investing, on the other hand, involves strategically buying an asset you expect to rise in value over time, independent of any shorter-term movements in its price. Investors usually have a longer-term time horizon, and look to build wealth through discipline, gradual appreciation, and compound interest. Investors typically own a well-diversified portfolio of investments, and only sparingly make major adjustments. Since investors are not constantly buying and selling, the overall costs and drag on the portfolio oftentimes is lower as well. So, while investing may not be fast paced, nor exciting, at Towerpoint Wealth, we feel it is the best way to gain the highest return at the lowest risk.

So, there you have it. Both ways of approaching the stock market have their pros and cons. If you’re comfortable with the risks, trading can be an exciting way to earn quick profits. If reducing risk and taking a more methodical approach to building your net worth are your main goals, then you’ll want to stick with a longer-term investment philosophy. Regardless, these philosophies don’t need to be mutually exclusive, and if you are interested in learning how you can incorporate both approaches into your own portfolio, feel free to contact me on LinkedIn, Facebook, or Instagram for some expert guidance and to have a no-strings-attached conversation. Thanks, and have a great day.

Matt Regan No Comments

Coinbase | Largest cryptocurrency exchange 04.15.2021

Today, Coinbase Global Inc., the largest cryptocurrency exchange platform in the U.S., went public on the Nasdaq exchange via a direct listing under the ticker symbol COIN. Coinbase is the world’s third largest digital asset exchange, and by far the most well-known cryptocurrency exchange platform in the US. COIN provides a service that helps its users easily secure direct ownership of cryptocurrencies.

For years, cryptocurrency has faced skepticism and resistance, but the floodgates appear to continue to be opening as banks and businesses have begun accepting Bitcoin for transactions or investing heavily into it with corporate cash. Many people see Coinbase’s arrival on the stock market as further validation for cryptocurrencies, and a great PR opportunity for the entire crypto industry.

Watch this video from our Sacramento Wealth Advisor and CPA, Matt Regan, to learn more about Coinbase, what it means for the cryptocurrency world, and what it means for individual investors like you and me.

Sacramento Certified Public Account, Matt Regan
Sacramento Wealth Advisor | Sacramento Financial Advisor

Over the past year, Bitcoin has been on a tear. On April 13, 2020, a single coin was valued at $6,879. At the close of yesterday, a single coin was valued at $63,291, an 820% increase in value in just one year, just remarkable. This is clear evidence of just how much cryptocurrencies have continued to be viewed as a legitimate asset. And cryptos received another boost today, as Coinbase, the largest cryptocurrency exchange platform in the U.S., went public on the Nasdaq exchange via a direct listing, under the ticker symbol COIN.

Hi Everyone, Matt Regan here from Towerpoint Wealth, and today I am going discuss what Coinbase is, what it means for the cryptocurrency world, and what it means for individual investors like you and me.

Coinbase is the world’s third largest digital asset exchange, and by far the most well-known cryptocurrency exchange platform in the US. “COIN” provides a service that helps its users easily secure direct ownership of cryptocurrencies. About 90% of Coinbase’s revenue is currently derived directly from retail trading, with most if that here in the U.S., and centered primarily on the two largest cryptocurrencies: 1. Bitcoin and 2. Ethereum. The benefits to owning shares of Coinbase? Revenue and profit increase as interest and demand in cryptocurrencies continues to increase. The risks? ONE: The possibility for stricter governmental regulations, and TWO: Business and financial conditions for Coinbase could be negatively affected if demand for Bitcoin and Ethereum declines and is not replaced by new demand for other crypto assets.

For years, cryptocurrency has faced skepticism and resistance. Just this past February, Warren Buffett said “Cryptocurrencies basically have no value, and they don’t produce anything. I don’t have any cryptocurrency and I never will.” But at least for now, Warren appears to be wrong, as the floodgates appear to continue to be opening. Banks, credit card companies, professional sports franchises, and even automakers have begun to make moves into the space, either by accepting Bitcoin for transactions, or by investing heavily into it with corporate cash. Many people see Coinbase’s arrival on the stock market as further validation for cryptocurrencies, and a great PR opportunity for the entire crypto industry.

As cryptos become more mainstream, we feel confident that it doesn’t mean volatility will decrease. Just like mainstream markets, news developments and speculation fuel price swings. Crypto markets are less liquid than traditional financial markets, so this heightened volatility and a lack of liquidity can create a dangerous combination, as oftentimes they both feed off of each other. As a result, it is very important investors have a long-term investment strategy and the ability to control their financial emotions during these expected wild fluctuations. If you are interested in discussing how cryptocurrencies can fit into your own financial plan, contact me, Matt Regan, on LinkedIn, Facebook, or Instagram. Thanks, and have a great day.

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Is There a Vax to Protect Your Portfolio From Tax?

2016 survey of 1,000 taxpayers, conducted by WalletHub, found that, if told they never had to pay income taxes again, 27% of respondents would brand themselves with a tattoo that says “IRS” and 11% would gladly drive to Chipotle every single day for three years to clean its toilets. You can’t make this stuff up!

And while there is credible evidence and research that suggests people actually like paying taxes (click HERE to read a Psychology Today article about this “phenomenon”), in our 23+ years helping clients properly build and protect their net worth and wealth, we have yet to encounter a single client, prospect, colleague, or friend who fits this category. While we may intellectually understand why we have to pay them, most of us seem to emotionally detest it.

At Towerpoint Wealth, we recognize (and embrace!) our bias in working with and helping our clients towards achieving the goal of growing and building their assets as intelligently and as efficiently as possible. Understanding there are a myriad of road blocks, speed bumps, and hazards to account for while on this journey, we also recognize and coach our clients to understand that there are two major, and unfortunate, “necessary evils” that stand in the way of accomplishing this goal:

  • Fees, costs, and expenses
  • Taxes

And while neither of these is completely avoidable, intelligently reducing the drag of either one directly helps your portfolio get better gas mileage. Below are two simple examples to illustrate that point:

To be clear, we have encountered those who let the “tax tail wag the dog” and seemingly focus more on tax avoidance than net-worth building; our preference will always be to help our clients maximize their after-tax wealth, which does pair with having a tax bill every year. However, it also pairs with being directly mindful about keeping your obligation to Uncle Sam to an absolute minimum whenever and wherever possible.

The 2020 tax season is right around the corner, and with it will come some inevitable surprises for those who didn’t properly plan, or who were ignorant of certain aspects of and/or changes to their global 2020 income tax situation. And understanding the interest, dividends, and capital gains that will soon be showing up on your 1099 forms, (all of which report taxable income to the IRS), we encourage you to use the resources found at the bottom of this newsletter to your advantage, and to contact us (click HERE) if you encounter any unwanted 2020 “tax surprises,” or feel you would benefit from a fresh perspective on how to leverage and maximize ideas and opportunities to make your portfolio, and your life, more tax efficient.

What’s Happening at TPW?

Our Wealth Advisor, Matt Regan, working hard as usual from home right now, along with little Mason and Stevie, his loyal friend!

Directly reflecting the firm’s culture, Towerpoint Wealth is a family both inside and outside the office, as our Partner, Wealth Advisor, Jonathan LaTurner, our Client Service Specialist, Michelle Venezia, our President, Joseph Eschleman, and our Director of Tax and Financial Planning, Steve Pitchford all enjoyed a fun day hanging out together and watching Super Bowl LV!

TPW Service Highlight – Tax-Managed Portfolio Management

In addition to investment expenses, income taxes are the second of the two necessary evils we face when helping you grow, and protect, your net worth and assets in the most effective and efficient way. Taxes can severely impact investment returns if not monitored, scrutinized, and controlled. And while we never let the “tax tail wag the dog,” at Towerpoint Wealth we do maintain a specific focus on helping our clients absolutely minimize the tax impact of their investments, portfolio, and overall financial decision-making.

Utilizing low-turnover mutual funds, ETFs, and separately-managed accounts, taxable versus tax-free bonds, strategic tax-loss harvesting, tax diversification, and the asset location strategies discussed in Steve Pitchford’s MoneySavage podcast featured below helps us help our clients significantly reduce the income taxes they pay on their investments.

Issuance of 2020 Charles Schwab 1099s 

A brief but important reminder for our Towerpoint Wealth family of clients: Initial Form 1099 production is based on two different waves at Schwab, with the vast majority (85%+) produced in the second wave:

Chart of the Week

The population exodus from high-tax states like California, New York, and New Jersey is very real, as a migration to other, oftentimes lower-tax states happens when individuals do not feel they are getting enough value for the taxes they are paying.

Federal and state income taxes are unfortunately a necessary evil when working to grow and protect your net worth, but working to manage and minimize your “obligation” to the taxing authorities is one of Towerpoint Wealth’s core competencies. Click HERE to message us and learn more about specific strategies to *reduce* your income tax pain.

Trending Today

In addition to tax drag and Super Bowl schwag, a number of trending and notable events have occurred over the past few weeks:

As always, we sincerely value our relationships and partnerships with you, as well as your trust and confidence in us here at Towerpoint Wealth. We encourage you to reach out to us at any time (916-405-9140, info@towerpointwealth.com) with any questions, concerns, or needs you may have. The world continues to be an extremely complicated place, and we are here to help you properly plan for and make sense of it.

– Joseph, Jonathan, Steve, Lori, Nathan, Matt, and Michelle

CLICK Here To Download Towerpoint Wealth PDFs
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“Will the Big Blue Wave Leave You Money to Save?”

It seems ridiculous in times like these to write a newsletter about finances and money, but we feel it is our responsibility at Towerpoint Wealth to do so, even if only to provide some respite from politics to our growing family of readers and Trending Today subscribers. We have heard from a few clients that, for a number of good reasons, you already feel like this: 

And while we understand that it has been a tumultuous week, let’s not be too quick to throw in the towel on 2021!


2020 ended with a record close for both the the S&P 500 (3,756.07, representing a +16.3% price gain for the year) and the Dow Jones Industrial Average (30,606.48, representing a +7.2% price gain for the year). So far in 2021, equity prices have continued their upward trend, even with concerns including:

  1. The economic implications of the Democratic wins in both Georgia Senate runoff elections and the tumultuous events in our nation’s capital on January 6th
  2. The likely trajectory of a resurgent third coronavirus wave
  3. Expectations of additional public health-driven economic restrictions and/or lockdowns
  4. A deflation of the currently high levels of investor optimism
  5. Growing levels of speculative activity in some quarters of the market (high volumes of options trading, a robust IPO calendar, and the popularity of cryptocurrencies)  
  6. An interval of market consolidation following such an annus mirabilis as investors have experienced over the past 12 months in the financial markets.

While recognizing the cogency and reality of these concerns, at Towerpoint Wealth we have maintained an essentially constructive view of equity prices, based upon the following factors:

  • Continuing monetary stimulus from the Federal Reserve, with ultra-low policy interest rates and $120 billion per month in “Quantitative Easing” money printing, augmented by significant growth in the M-2 money supply, which tends to produce a stimulative environment for consumer prices, GDP, and financial assets (as shown below, over the past year, the U.S. M-2 money supply has increased at +25.2%, the highest rate of growth in four decades!);

Although we believe stock valuations are elevated and investor optimism is high, equity prices were well aware of and already somewhat discounting the possibility of the outcome of the Georgia Senatorial runoff elections tilting Democratic. Additionally, after a possible short-term pullback/correction, the stock market can continue to move higher, with extra caution and care called for, and perhaps even with some cash raised that can stand ready to be invested on a disciplined basis during a market retrenchment.

Implications of the Georgia Senatorial Elections

In our opinion, assuming no defections from party lines, a Democrat-controlled Senate appears likely to produce:

  1. Higher Taxes: Tax increases may not necessarily materialize to the degree that markets may have feared earlier, given that the Senate is likely to feature essentially a 50-50 Democratic-Republican tie — with Vice President-elect Kamala Harris in a position to cast a tie-breaking vote in favor of the Democrats, and with Senator Joseph Manchin III (D, WV) and/or others possibly voting to weaken or reject the tax increases. With some delays and/or dilutions, higher corporate, payroll, income, capital gains, and estate taxes may eventually be on the horizon for many taxpayers (the proposed levies in the Democratic platform amount to $4 trillion, with something in the neighborhood of half that amount deemed likely to be passed). The essential tie in political power in Congress may limit the extent of any changes in tax policy, and an important consideration to be kept in mind is the effective date of any tax increases, including the possible likelihood of retroactivity to January 1st, 2021. 
  2. More Spending: With proposed spending increases amounting to $7 trillion stretched out over a decade, the new Administration favors entitlement expansion, healthcare, climate, and green infrastructure initiatives (to accelerate the use of clean energy in the power sector, building construction, and transit); hiking the minimum hourly wage to $15 (which could support household incomes and augment growth in consumption); housing; education; and infrastructure. President-elect Biden has several times expressed support for drug price reforms. 
  3. Increased Regulation: Through job appointments, executive action, and legislation where feasible, the Biden administration may favor increased restraints on the financial sector and some portions of the healthcare sector, with continued antitrust and market dominance scrutiny applied toward mega-cap technology and social media companies. Statements by President-elect Biden have indicated that his administration might limit pipeline approvals and curtail drilling activity on federal lands.
  4. Spotlight on Relations with the Judiciary: Although we deem such actions unlikely, President-elect Biden may possibly favor certain proposals from within his party to attempt to curtail the Supreme Court’s authority over specific laws by attempting to: (i) impose term limits; (ii) expand the size of the Court; or (iii) through legislative action, divest the Court of its authority over contentious social issues (referred to in academic circles as “jurisdiction stripping”). Any proposed limitation of the Supreme Court’s own powers will very likely spark intense and determined pushback via lawsuits by the Supreme Court as well as by battling parties on either side of the issues involved. 

“Blue Wave” Affected Sectors

Democratic control of the White House, the House of Representatives, and (even if by the narrowest of margins) the Senate (a so-called “blue wave”) could be deemed favorable to large managed-care organizations, renewable energy firms, and the ESG space (companies reflecting and/or supporting Environmental, Social, and Governance initiatives and ideals). Other perceived sectoral beneficiaries of a “blue wave” include, among others: the weakening of the U.S. dollar versus foreign currencies; tax-exempt state and local government municipal bonds; high-yield bonds, small-cap stocks; construction and engineering, manufacturing, materials, industrial machinery, and related firms focusing on the U.S. transportation, maritime, and aviation infrastructure; renewable energy (including wind farms, solar projects, and high-voltage direct current transmission facilities); healthcare equipment and supplies; and cannabis-related companies.

Sectors perceived to be less favorably affected by a slim-margin “blue wave” include: large firms that benefited from the 2017 corporate tax cuts; large-cap pharmaceutical stocks; content liability-protected social network companies (currently shielded by Section 230 of the 1996 Communications Decency Act); dominant technology antitrust targets; the oil and gas sector; tobacco companies; aerospace and defense firms; health insurance companies; student loan servicing companies, asset managers, credit rating firms, and stock exchange operators; precious metals and precious metals mining shares; and labor-intensive enterprises sensitive to minimum wage increases (e.g., retail and grocery companies, restaurant and fast food chains, for-hire ride-sharing companies, and courier and package delivery firms).

What’s Happening at TPW?

Our Director of Research and Analytics, Nathan Billigmeier, and Partner, Wealth Advisor, Jonathan LaTurner, slipped away yesterday to play a round of golf at the #1 public golf course in America, Pebble Beach Golf Links!

Our President, Joseph Eschleman, found a good (albeit chilly) lockdown activity to do with his family last week, watching The Croods: A New Age at the West Wind Drive-In in Sacramento!

TPW Service Highlight – Client Family and Culture

In addition to providing them with the economic peace of mind that comes with the suite of comprehensive wealth management services we provide, as “family members” Towerpoint Wealth clients have also come to expect us to host regular, fun, and unique client appreciation and education events, which we happily deliver on. If you aren’t currently a client, here is what you have been missing out on (!):

Chart of the Week

As mentioned above, the news yesterday of the Democrats taking control of the Senate led investors to believe that the government will boost fiscal stimulus, which would in theory boost consumption and economic growth, and in turn, inflation.

The chart below compares the relative performance of stocks that benefit from inflation (blue) vs. those that benefit from deflation (black).

Trending Today

In addition to history making and money making, a number of trending and notable events have occurred over the past few weeks:

As always, we sincerely value our relationships and partnerships with you, as well as your trust and confidence in us here at Towerpoint Wealth. We encourage you to reach out to us at any time (916-405-9140, info@towerpointwealth.com) with any questions, concerns, or needs you may have. The world continues to be an extremely complicated place, and we are here to help you properly plan for and make sense of it.

– Joseph, Jonathan, Steve, Lori, Nathan, Matt, and Michelle

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President Joseph Eschleman Cited As Expert

Our President, Joseph Eschleman, recently penned a white paper for Towerpoint Wealth that discussed 14 different strategies to consider during the coronavirus crisis. Joseph was cited as an expert by MutualFunds.com for his work and content on the subject, who published his commentary on their website on June 11.

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Steve Pitchford Cited As Expert, Published on MutualFunds.com

Our Director of Tax and Financial Planning, Steve Pitchford, recently penned a white paper for Towerpoint Wealth that focuses on strategies to manage the risk and income tax consequences of owing a concentrated stock position. Steve was cited as an expert by MutualFunds.com for his work and content on the subject, publishing his commentary on their website on June 11.