#capitalgains Archives

Steve Pitchford May 8, 2023 No Comments

RSU and stock options | What is an RSU? 05.08.2023

Restricted Stock Units (RSUs) can be a significant component of an employee’s compensation package. But what is an RSU? Do you have an RSU strategy? How are they treated for tax purposes? How should you consider RSUs taxation? What are stock options, and why do employers offer RSUs vs stock options? How do you plan most effectively when your RSUs vest? Net worth means what in regards to an RSU selling strategy?

The 411 on Restricted Stock Units (RSU) tackles these questions and more.

What is an RSU?
RSU vs Stock Options – What are stock options?
What Is the Taxation of Restricted Stock Units?
RSU Strategy
How Can I Most Effectively Plan
How can we help
Learn more

What is an RSU?

RSUs, also commonly known as restricted stock units, or restricted stock shares, are a form of stock based 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 rights. (1) 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). Learn more about What are RSUs.

The lifting of 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.

RSU vs stock options | How Are RSUs Different Than Vested Stock Options?

When most people think of stock based compensation, vested 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, vested stock options have been the most popular form of stock based 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/restricted stock shares, aka units, emerged as the preferred form of equity compensation.

RSUs and stock options have some notable differences:

Net Worth Means — Rsus vs stock options | This table lists three areas of difference between rsus and stock options: risk, term, and taxation.

Two scenarios illustrate RSUs vs stock options:

Scenario 1: An employee is granted 1000 RSUs 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 1000 stock options with a strike price of $10. During the window to exercise these vested 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 RSU and Stock Options and are not a focus here.

What Is the Taxation of Restricted Stock Units?

RSUs taxation is based upon delivery of the shares, and taxes must be paid upon vesting (i.e., when the restriction has been lifted).

The shares’ fair market value is included in an employee’s taxable income as compensation at the time of delivery. The taxation of restricted stock units is identical to normal wage income and as such, is included on an employee’s W-2. (3)

Taxation of Restricted Stock Units and RSU vs stock options — Taxation of restricted stock units. It’s important to have an RSU tax strategy and know if you will need to sell to cover tax

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

Companies provide employees with either one uniform withholding method or several options to pay the taxes on their restricted stock units. They may offer:

Net-settlement: a company “holds back” shares to cover the RSU’s 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 it results simultaneously in a more concentrated equity allocation and lower cash balance (less money 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, hopefully based on their well-constructed RSU selling strategy, they will pay capital gains tax on any appreciation over the market price of the shares on the vesting date. The sales proceeds will be taxed at the more favorable long-term capital gains rate if the shares are held longer than one year after vesting. (4)

What is an RSU? | Restricted Stock Units Stock Options | rsu taxed — An example timeline of an RSU strategy shows hypothetical stock price at vesting

Taxation of Restricted Stock Units Example:

Here’s an example of an RSU selling strategy: An employee is granted 750 RSUs 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:

Taxation of Restricted Stock Units : RSU strategy

RSUs and stock options — **Taxation of Restricted Stock Units** – RSU Stock prices may go up or down. This is hypothetical.

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.

Taxation of Restricted Stock Units is dependent on price and timing of sale

The employee held each share of his RSU stock options 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.

RSU Strategy | What Are the Risks of Holding RSUs?

Utilized correctly, restricted stock units/restricted stock shares can be a wonderful complement to a traditional compensation package and can contribute substantially to an employee’s net worth. (5) 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 one individual company.

Restricted Stock Units | RSU strategy — RSU strategy – You can have too much vested interest in one company with restricted stock units.

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 1.

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 may see Jim as foolish, but his predicament is a common one. We often see employees dealing with the hesitation to sell the shares for reasons that can be more emotional than rational.

How Can I Most Effectively Plan for Restricted Stock Units, RSUs?

We recommend you discuss how to effectively plan for RSU 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?
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 with your RSU and stock options?

While we at Towerpoint Wealth continue to believe in the importance of a diversified portfolio, we also understand every individual situation is unique, what growing net worth means to each individual is different, 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 what is an RSU vs stock options, or need an RSU strategy (or have questions about any nontraditional compensation for that matter), I encourage you to call, 916-405-9166, or email Steve Pitchford (Certified Financial Planner) email spitchford@towerpointwealth.com.

Learn more about Maximize stock compensation and What are RSUs?

Visit Towerpoint Wealth’s YouTube Channel

Visit our library of white papers and checklists.

(1) 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.

(2) RSU strategy – Stock Options can either be Incentive Stock Options (ISOs) or Nonqualified Stock Options (NQOs). They are treated differently for tax purposes.

(3) When received, dividend equivalents are subject to the same tax rules as RSUs.

(4) 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.

(5) Net worth means the total value of all of an individual’s assets less their liabilities.

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.

What are RSUs taxation of restricted stock units explained

Towerpoint Wealth April 8, 2022 No Comments

How Restricted Stock Units Work | What are RSUs? | Video 04.08.2022

Restricted Stock Units | If you’re wondering how restricted stock units work, what is stock compensation, what are RSUs or what the taxation of restricted stock units looks like, we’re here to give you answers to your questions.

Restricted Stock Units, RSUs, are one type of stock compensation that companies can offer to their employees. This stock compensation allows your company to grant you shares, or RSUs. RSU compensation is different than the other common program many publicly traded companies offer to their employees, called an Employee Stock Purchase Plan (ESPP). ESPPs afford you an opportunity to buy shares of the company you work for at a discounted price.

What are RSUs?
How restricted stock units work?
Taxation of restricted stock units
RSUS vs ESPPs

What are RSUs?

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.

How restricted stock units work?

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 several 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.

Taxation of restricted stock units

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. For the taxation of restricted stock units, 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. You’ve got to have a plan if you’re working on minimizing taxes.

RSUS vs ESPPs

While RSU’s may not be as complicated as ESPP plans, the tax planning for them is just as important. Understanding how restricted stock units work and the taxation of restricted stock units—including when your shares will vest—gives you the opportunity to plan in advance to ensure you can limit your overall tax liability.

Download Towerpoint Wealth white paper on RSUs and stock options

Learn more about Restricted Stock Units

Trending Today The Better Build Back Better Bill Tax Changes

Towerpoint Wealth December 17, 2021 No Comments

Will You Pay More or Less? The Build Back Better Bill Tax Changes! 12.17.2021

The Build Back Better Bill tax changes – do you stand to pay MORE, or less?

''Everybody has a plan until they get punched in the face.''

Will the Build Back Better bill tax changes translate to an unexpected de-facto holiday bonus, or instead, an unwelcome lump of coal? Read on to find out more!

While Build Back Better is a good marketing slogan, it is obviously important to unpack and better understand what this 2,135 page (click HERE to read the whole thing!), $1.75 trillion piece of spending and legislation might mean for YOU. What exactly are the key provisions of this signature bill, and importantly, will the proposed Build Back Better Bill tax changes cause you to pay MORE or LESS to Uncle Sam if the proposed legislation passes?

Days versus Decades. Decide which to focus on...

Let’s briefly “unpack” the Build Back Better Act, discuss which provisions are NOW being negotiated in the Senate, and importantly, evaluate the potential Build Back Better bill tax changes, and the tax consequences of what a final package might look like.

First, a brief background. The Build Back Better Act is the third and most economically significant part of President Biden’s Build Back Better Plan. Originally an immense $3.5 trillion social spending package, lawmakers in the House of Representatives have scrambled and negotiated over the past six months, finally ending up here – approving and sending to the Senate a “slimmed-down” (but hardly modest) $1.75 trillion (!) version of the plan. Now, the REAL debate and negotiations begin.

With two noteworthy holdouts…

Stick to your investment strategy - Do not turn temporary declines into permanent losses.

…Senate Democrats are mostly united in passing this major legislation, but haven’t yet been able to agree on what should be kept and what should be scrapped to obtain the two needed votes from the aforementioned holdouts. On the flip side, and unsurprisingly in today’s partisan political atmosphere, all 50 Senate Republicans are aligned against it.

Now, regardless of whether you are a Democrat or a Republican, and regardless of whether you agree or disagree with the need to pass this IMMENSE bill, at Towerpoint Wealth we believe that it is a when, and not an if, some version of this legislation ultimately DOES pass and become law, even if it isn’t until 2022. And while the final terms are obviously still unclear, the bill is proposing to make MAJOR changes to four main areas:

1. Social services and programs
2. Clean energy
3. Immigration
4. Build Back Better bill tax changes

And as Joe Manchin, Senator from West Virginia and one of the two Democratic holdouts who is squarely in the middle of this debate, said earlier about the bill, “We should be very careful what we do. We get any of these wrong, we’re in trouble.”

If you are interested in a deeper breakdown of the first three areas (as well as Build Back Better tax changes highlighted below), we encourage you to click the thumbnail below and watch our newly-produced educational video:

Today’s Trending Today is specifically focused on the proposed Build Back Better bill tax changes, which would raise a SIGNIFICANT amount of tax revenue from the very wealthy and corporations, and also offer a proposed tax cut for those who live in high income and mostly blue tax states.

The Congressional Budget Office (CBO) estimates the bill will cost a total of almost $1.7 trillion, and add $367 billion to the federal deficit over 10 years. Adding in $207 billion of revenue that is estimated to result from increased tax enforcement in the bill, and the net total increase to the deficit is projected to be $160 billion.

Originally, President Biden’s initial Build Back Better plan was to raise taxes on families earning more than $400,000/year, which would have overturned the Tax Cuts and Jobs Act passed in 2017. However, this provision was dropped in the final version of the bill passed by the House of Representatives on November 19, as holdout Democratic Senator Kyrsten Sinema of Arizonabalked at it, saying she wouldn’t accept any additional higher tax rates: not for individuals, not for capital gains, and not for corporations.

Instead, a significant and updated House-passed Build Back Better bill tax change imposes surtaxes on taxpayers with extremely high incomes. When would this surtax kick in? When adjusted gross income eclipses $10 million, a 5% surtax on income would be applied. Additionally, taxpayers would be subject to an additional 3% surtax on any income over $25 million. Clearly these proposed Build Back Better bill tax changes would only be punitive to very high income earners.

Something else to keep in mind – the new surtaxes applicable to the $10 million and $25 million adjusted gross income thresholds INCLUDES capital gains taxes. So, if you have owned highly appreciated securities (think Apple or Tesla or Amazon stock) for a long time, and then sell your shares and realize a large capital gain, that income is also included when calculating whether or not you would be subject to them.

Additionally, another major Build Back Better bill tax change would be to INCREASE the state and local income tax deduction, commonly known as the SALT deduction.

The SALT deduction is a tax deduction that allows taxpayers of high-tax states to deduct local tax payments on their federal tax returns. Before 2017, there was no limitation on the SALT deduction. However, under the Trump administration’s Tax Cuts and Jobs Act, the SALT deduction was CAPPED at $10,000. The Build Back Better bill tax change to SALT proposes a new INCREASED deduction limit of $80,000, benefitting wealthier residents of high-tax blue states like California, New Jersey, and New York.

This change would cost the government $229 billion in revenue, and was not part of Biden’s original BBB plan – it was added later in the House negotiations.

Backdoor Roth IRA conversions, a popular technique oftentimes used to fund a tax-free Roth IRA without being subject to the Roth IRA income limitations, would also be eliminated as another Build Back Better bill tax change.

And lastly, income recognized on cryptocurrency transactions would be subject to 1099 reporting by crypto brokers and custodians.

Here is a visual summary of the Build Back Better bill tax changes:

Head spinning yet? Obviously the myriad of proposed Build Back Better bill tax changes is a lot to keep track of. However, at Towerpoint Wealth, that is exactly what we continue to do on a regular basis.

Considered by some to be the most consequential economic legislation in the past 50 years, negotiations on the Build Back Better bill are far from over. And any tweaks to this massive legislation will then require another vote in the House. However, regardless of how and when this situation plays itself out, we feel it is safe to say that YOU WILL feel the effects of at least one component of the proposed Build Back Better bill tax changes, and encourage you to contact us (click HERE to do so) to have an objective conversation about how you will be positively or negatively affected by the tax changes you will personally see from this bill.

What’s Happening at TPW?

A huge thank you to Ascent Builders for the AMAZING holiday wreath, and perhaps an even better gift, the personal delivery from their esteemed controller, Patty McElwain (holding the wreath and standing next to our phenomenal Client Service Specialist, Michelle Venezia)!

Spreading cheer is an Ascent Builders specialty, and they are a firm we feel very fortunate to have such a long and productive partnership with.

Our President, Joseph Eschleman, spent some time earlier this month celebrating Christmas (yes, that is a Griswold Family Christmas t-shirt he is wearing!) with close Towerpoint Wealth friend and business partner, Niki Dawson. Niki is the President of TaylorMade Web Creations, and she is absolutely amazing if you have any web design and/or digital marketing needs!

Graph of the Week

Tesla’s market value is now more than General Motors, Ford, Volkswagen, and Mercedes-Benz, COMBINED!

The below chart indicates that electric vehicle sales will exceed gas-powered vehicles by 2040 – do you agree? Disagree? Click HERE and message us – let us know your opinion!

Cartoon of the Week

We came across this gem that provides a different and unique “take” capturing the essence of what perseverance means, and felt compelled to share!

Illustration of the Week

Surprisingly, in the wealth management industry, there are two different standards of care for clients:

The fiduciary standard – a legal obligation requiring a financial advisor to act solely in a client’s best interest, 100% of the time, when offering personalized financial advice, counsel, and planning
The suitability standard – a much lower legal hurdle to clear than fiduciary, not obligating a financial advisor to put their client’s best interests first, and instead only requires a reasonable belief that a recommendation is “suitable” for a client

While we believe that consumers and clients are harmed with the absence of a uniform fiduciary standard that applies to ALL financial professionals, this is the world we live in. A non-fiduciary is legally allowed to sell you a product or investment that pays the highest commission, as long as it is considered suitable.

Click HERE for a full list of the major Wall Street firms and banks. If you have an advisor who works for any of these firms, he or she is NOT a fiduciary to you. Conversely, if you are working with an advisor at a fully-independent, SEC-regulated investment advisory firm (such asTowerpoint Wealth), he or she IS a fiduciary to you!

Put differently…

Trending Today

As the 24/7 news cycle churns, twists, and turns, a number of trending and notable events have occurred over the past few weeks:

As always, we sincerely value our relationships and partnerships with each of 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 unsettled and complicated place, and we are here to help you properly plan for and make sense of it.

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

We love social media, and are always actively growing our social media community!

Follow us on any of these platforms you use, and then message us with your favorite charity, and we will happily donate $10 to it!

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Towerpoint Wealth October 1, 2021 No Comments

Will Your Portfolio Fall to Pieces Due to Federal Income Tax Increases? 10.01.2021

Lots of talk. Lots of posturing. Lots of sound bites. But not a lot of action (so far, at least). A familiar refrain? It is, when it comes to our elected officials in Washington D.C.

washington gridlock Bipartisan Infrastructure Bill Summary

In today’s Trending Today newsletter, we are going to explore the $1.2 trillion bipartisan infrastructure bill, the $3.5 trillion infrastructure plan details, and, perhaps most importantly to investors, the potential federal income tax increases that may occur if and when either, or both, of these massive bills become law.

Legislators are taking a two-step approach in their efforts to pass President Biden’s ambitious jobs and infrastructure program, some provisions being Republican-friendly, and some Democrat-friendly. This two-track plan to pass this legislation works as follows: Put the GOP-friendly items in a $1.2 trillion bipartisan infrastructure bill that could pass on a bipartisan basis, and then put the rest in a much larger $3.5 trillion infrastructure bill that would attempt to pass on a party-line vote, via what is known as budget reconciliation, which only requires a simple majority to pass it.

The $1.2 trillion bipartisan infrastructure bill, known as the Infrastructure Investment and Jobs Act, already passed the Senate by a vote of 69-30 on August 10. Many people have asked: “What is the bipartisan infrastructure bill, and what’s in it?” Focusing on the traditional definition of infrastructure, the bill focuses on roads, bridges, rail, and water. It is truly a monumental measure, with an equally monumental 13 digit price tag!

What’s in the bipartisan infrastructure bill?

what is the bipartisan infrastructure bill

However, the bipartisan infrastructure bill cannot become law until it also passes the House of Representatives, and that is where things begin to become tricky.

Nancy Pelosi Federal Income Tax Increases

Speaker of the House Nancy Pelosi promised that the House would vote on the $1.2 trillion bipartisan infrastructure bill yesterday, but that vote was again delayed. The problem? Pelosi faces pressure from progressive Democrats, who say they will not support the “skinny” $1.2 trillion bipartisan infrastructure bill unless the much bigger $3.5 trillion infrastructure bill, focusing on human infrastructure and social spending such as climate change mitigation, increased child care funding, and health care expansions, also moves ahead.

We truly feel it is amazing that we live in a world where spending $1.2 trillion on a bipartisan infrastructure bill is considered “skinny,” but it is when compared to the $3.5 trillion infrastructure bill!

Financing such social programs as universal pre-kindergarten, extended childcare, and expansion of health insurance coverage provided under Obamacare, the $3.5 trillion infrastructure bill, known as the American Families Plan (AFP), it represents the largest expansion of federal spending since the New Deal. And, with this enormous price tag comes the concurrent federal income tax increases to fund it. Here are the potential “highlights”:

Federal income tax increases – the AFP will restore the 39.6% pre-Trump, pre-Tax Cuts and Jobs Act marginal ordinary income tax rate. This current marginal rate is 37%.
Multimillionaire excise tax – the AFP places a 3% excise tax on income in excess of $5 million
Higher corporate tax rates – the corporate tax rate is set to increase form 21% to 26.5%, with a new minimum tax of 16.5% on offshore earnings
Higher capital gains tax rates – the federal marginal capital gains tax rate for those with incomes higher than $400,000 will increase from 20% to 25%, and will be retroactive to September 13, 2021

And the less-likely but still possible proposals:

Elimination of the step-up in cost basis upon death
Limitations on popular tax planning vehicles such as Section 1031 “like-kind” tax-free exchanges and IDC (intangible drilling cost) deductions

Additionally, the following indirect federal income tax increases are in the crosshairs:

Elimination of Roth IRA conversions for taxpayers filing jointly with incomes over $450,000, and for single taxpayers with incomes over $400,000
Elimination of “Backdoor” Roth IRA contributions, banned for ALL income levels
Mandatory taxable drawdowns of large IRAs – contributions to IRAs that have a total value of $10 million or more would be prohibited, IRAs and 401(k)s in excess of $10 million will have required minimum distributions of half of the amount over $10MM, and for retirement accounts over $20 million, everything over $20MM must be distributed immediately

Federal Income Tax Increases Explained

Still confused? Have more questions? Hungry for clear answers? Found below is a simple educational video we just produced, designed to break down the complicated topic of the $1.2 trillion bipartisan infrastructure bill, the $3.5 trillion infrastructure plan details, and the concurrent federal income tax increases that may occur, all specifically arranged in a digestible and easy-to-understand format.

Click HERE to watch the video!

Be sure to also click the SUBSCRIBE button to follow

Towerpoint Wealth on YouTube!

Importantly, and regardless of how things shake out, at Towerpoint Wealth we sincerely believe three things:

Taxes will be higher over the next few years, perhaps as early as January of 2022, and perhaps significantly for higher income earners
It is very reasonable to assume that this infrastructure legislation, in one way, shape, or form, will become law, and that trillions of dollars will soon be spent by our Federal government
The next three months represent the most important tax planning months in recent years, as potential federal income tax increases mentioned above could be effective as soon as 1/1/2022

These tax planning opportunities include:

Accelerate income into THIS YEAR, and defer tax deductions into future tax years, to leverage today’s low income tax rates and minimize tomorrow’s potential Federal income tax increases
Utilize a partial, or even full, Roth IRA conversion in 2021, for the same reason mentioned directly above
Evaluate gifting strategies, such as the utilization of a donor advised fund (DAF), to accelerate (or “bunch”) your charitable contributions to hurdle the standard deduction in 2021

Have a plan, and if you don’t, we encourage you to click HERE to message us and begin to discuss your circumstances further. With the high probability of federal income tax increases occurring in the near future, time is of the essence!

What’s Happening at TPW?

Our always-photogenic Director of Research and Analytics, Nathan Billigmeier, and his beautiful wife Jessica, post together prior to heading into the brand new Safe Credit Union Performing Arts Center in downtown Sacramento to see a stellar performance of Hamilton!

Nathan Billigmeier Director of Research and Analytics

Most of the Towerpoint Wealth family (and extended family!) had a fun day of golf two Monday’s ago, directly supporting the Rotary Club of Arden-Arcade and the Rotary Club of Granite Bay to raise resources and money for homelessness, at-risk youth, and local schools and parks.

It was quite the “Around the World” golf tournament, specifically the craft beer, jello shots, and marshmallow drive on the TPW-hosted 7th hole!

Graph of the Week

Are you a nocoiner, or do you HODL?

A compelling chart below suggests that cryptocurrency does not appear to be going away any time soon!

What do you think is going to happen with crypto? Click HERE to message us and let us know your thoughts!

Trending Today

As the 24/7 news cycle churns, twists, and turns, a number of trending and notable events have occurred over the past few weeks:

As always, we sincerely value our relationships and partnerships with each of 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 unsettled and complicated place, and we are here to help you properly plan for and make sense of it.

Towerpoint Wealth Sacramento Independent Financial Advisor

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

Are Federal Income Tax Increases Looming? Infrastructure Bills

Towerpoint Wealth October 1, 2021 No Comments

The Bipartisan Infrastructure Bill and the $3.5 Trillion Infrastructure Bill 10.01.2021

Are Federal Income Tax Increases Looming?

Our elected officials in Washington DC are working diligently to pass a $1.2 trillion bipartisan infrastructure bill, and also a much larger $3.5 trillion human infrastructure bill.

Click below to watch our President, Joseph F. Eschleman, and learn more about:

1. The mechanics of both bills, and the current status of the soap opera in D.C., as the U.S. House of Representatives and the U.S. Senate continue to posture, grandstand, debate, and negotiate

2. Learn about the specifics regarding the looming federal income tax increases that may soon be coming

3. SPECIFIC ideas on 4Q, 2021 tax planning strategies that you can apply before the new year (and potentially, the new taxes) is upon us

If you think federal income taxes will remain low, then this video is NOT for you; if you think we are in for federal income tax increases, then click thumbs up and pay attention to these ideas!

electric vehicle stocks and capital gains tax

Towerpoint Wealth August 27, 2021 No Comments

Will EVs Rise Mean Combustion’s Demise? 08.27.2021

Big Oil. A somewhat-pejorative name used to describe the world’s six largest publicly traded oil and gas companies:

BP, Chevron, ExxonMobil, Royal Dutch Shell, TotalEnergies, and ConocoPhillips.

These “supermajors” are facing intense challenges, specifically to their oil reserves and production. Pressure to cut back traditional upstream spending and redirect capital into renewable energy projects is intense, which we believe will drive oil supply down and oil prices higher.

Oil production growth outside of OPEC+ has been extremely difficult to achieve, and recent ESG pressures have exacerbated these problems. In what the New York Times dubbed a “stunning defeat” for ExxonMobil, and a huge win for ESG proponents, activist investor Engine No. 1 secured three new directors (out of 12 total) to ExxonMobil’s board of directors, with a specific mandate to reduce the company’s carbon footprint by curtailing capital investments into its upstream oil and gas businesses. At about the same time, a Dutch court ruled that Royal Dutch Shell must cut its CO2 output by 45% by 2030 to align company policy with the Paris Climate Accord.

What will happen when the other supermajors are also forced comply with mounting ESG and governmental pressures and reduce upstream spending? We believe non-OPEC production will continue to decline, further paving the way towards increased capital expenditures for renewable energy projects. A Rystad Energy analysis forecasts renewable energy projects to set a new record in 2021 ($243 billion), narrowing the gap with oil and gas spending (projected to be relatively flat at $311 billion).

These facts all align with the multi-step strategy that President Biden announced just earlier this month: By 2030, half of all new vehicles sold in the US should be electric. And while this goal is a bit loftier than the EV sales projections found below, the transition from oil to electric is obviously no longer a trend, but instead a full-blown movement.

Underscoring this movement was the pledge made by executives from the three largest US auto companies: 40 to 50% of their new car sales would be electric by the end of the decade. Understanding that gas-powered vehicles are the single biggest source of greenhouse gases in the US (producing more than 25% of our total emissions), a rapid shift from combustion engines to EVs continues to aggressively take place. Need further confirmation?

The question certainly remains: Will consumers buy them?

At Towerpoint Wealth, we recognize there are obstacles: higher sticker prices, the lack of widespread charging stations (needed for longer-distance drivers), stress to the country’s power grid (if every American drove an EV today, the US could end up using about 25% more electricity than it does today), and pressure from labor unions (EVs have 30-40% fewer moving parts, and require fewer workers to assemble) are all headwinds to this movement. However, we also believe it is just a matter of time before combustion-engine vehicles take their place next to rotary phones, VCRs, and the folding maps.

rotary phones, VCRs, and the folding maps

What’s Happening at TPW?

Three generations of Eschleman men!

Our President, Joseph Eschleman, attended the Philadelphia Phillies / Tampa Bay Rays game on Wednesday evening at Citizens Bank Park in Philly, with his father Eric and his 11-year-old son, Henry.

The Phils blew the game in the ninth inning, but all three Eschlemans had a great time together!

President, Joseph Eschleman, attended the Philadelphia Phillies his father Eric and his 11-year-old son, Henry

In an effort to maximize our productivity as a firm, we were early to adopt Salesforce as our customer relationship management (CRM) software.

Salesforce forms the backbone of our operations, allowing us to efficiently administer and manage all of our interactions with clients, colleagues, prospects, and friends.

A huge thank you to Ryan O’Connell, Dynasty Financial Partners’ CRM specialist (in the photo, “sandwiched” between Michelle Venezia and Lori Heppner after lunch yesterday) for being on site this week to assist with a Salesforce instance upgrade, helping us to stay ahead of the curve and better interface and communicate with each of our clients!

Ryan O'Connell Dynasty Financial Partners Michelle Venezia Lori Heppner

Illustrations/Graphs of the Week

Have you heard that federal capital gains taxes may soon be increasing?

Although the final details of President Biden’s American Families Plan to potentially increase capital gains taxes (to pay for some portion of the various US Congressional domestic priorities such as education and child care) are not yet specified, they are likely to influence securities prices and financial market conditions.

Oddly, the chart below depicts the price return of the S&P 500 index six months before and six months after capital gains taxes were increased.

By far (and we feel, surprisingly), the six months BEFORE capital gains taxes are increased represent the periods of most risk to equity prices.

Trending Today

As the 24/7 news cycle churns, twists, and turns, there have been a number of trending and notable events that have occurred over the past few weeks:

As always, we sincerely value our relationships and partnerships with each of 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 unsettled and complicated place, and we are here to help you properly plan for and make sense of it.

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

Employee Stock Purchase Plan One Minute Tax Tips

Matt Regan April 21, 2021 No Comments

Employee Stock Purchase Plan 04.21.2021

What is an Employee Stock Purchase Plan?

Employee Stock Purchase Plan | If you are an employee of a publicly traded company, it most likely offers an employee stock purchase plan, or ESPP for short (also sometimes called a section 423 plan). 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, an employee is not taxed at the time they purchase shares, but instead only when they sell. As you may expect, the tax consequences of the sale will be different, depending specifically on how long the employee has held the shares. This holding period will determine if the sale is a “qualifying disposition” or “disqualifying disposition.”

Oftentimes, Employee Stock Purchase Plans allow 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.

Taxation rules of ESPPs

Understanding taxation rules associated with ESPPs means you have an understanding of the importance of a “disposition strategy” that will produce the best economic result for you. With an ESPP, or qualified Section 423 plan, as we’ve said, 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 depend 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. It’s a little complicated, we 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 section 423 plan.

Feel free to contact Towerpoint Wealth on LinkedIn, Facebook, or Instagram to discuss a disposition strategy that is best for you given your circumstances and financial goals. What are the taxation rules associated with Employee Stock Purchase Plans—ESPPs—and can you be sure you’re minimizing taxes? It’s important to have a disposition strategy that will produce the best economic result for you.

Trading vs Investing Sacramento Tax Planning One Minute Tax Tips

Matt Regan April 15, 2021 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.

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
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.

Coinbase Sacramento Tax Planning One Minute Tax Tips

Matt Regan April 15, 2021 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.

Towerpoint Wealth February 15, 2021 No Comments

Is There a Vax to Protect Your Portfolio From Tax?

A 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