Big Tax Changes Coming? Creative Planning Ideas

Jul 31, 2020 | Tax

On this week’s show, Karl welcomes guest John Eadie, founder and CEO of Covenant. John discusses the Joe Biden tax proposal. In addition, John gives listeners several planning tips and techniques to help reduce potential tax liability.

 

Karl Eggerss:                      Hey, good morning, everybody. Welcome to the show. This is Creating Richer Lives, the podcast. The show is brought to you by Covenant. Lifestyle. Legacy. Philanthropy. Our telephone number (210) 526-0057, and the website creatingricherlives.com. In just a few minutes, we’re going to have in studio, John Eadie, who is the founder and CEO of Covenant, and John’s got a lot of experience in the tax world.

And of course, we have a huge election coming up and there could be some big, big changes depending on how Congress goes, depending on who the president is. And so we’re going to ask John, what exactly is in the Joe Biden proposal and what changes could be coming if he gets elected and is able to do some of this. There are some things you might want to consider in 2020. There are some things you might want to consider regarding 2021. And of course, it’s fluid, right? There’s a lot of things in motion, but he’s going to give you some very practical things to think about.

All right, before we get to John. I did just want to touch on the markets quickly that this week we didn’t hear as much talk regarding vaccines and all of that. We’re still seeing spikes of corona around the world. The deaths spiked up a little bit, but perhaps we’ve peaked in certain areas, and it seems to be that we’re going to have these rolling types of outbreaks, if you will, or spikes around the country, geographical. And we’re just going to kind of muddle through until it dies off or we get a vaccine or something changes. We’re dealing with that. And the economy still seems to be rebounding, but we will probably see still some weakness. I’m sticking with my backward square root recovery, not a V.

Our investment committee just met this past week and we came out with some good information for you that we’ll bring to in the next few weeks. We’re going to put a video together as well for that, so stay tuned for that and you’ll get a lot more specific thoughts. But basically, we are still seeing that this economy recovering, but it’s still going to take some time. And you saw it with interest rates this week as they stayed very low, and all the talk was more about what type of fiscal stimulus do we need?

And the Fed came and said, “Hey, we’re not changing rates. And we’re really hitting the snooze button, if you will, but we are here if you need us.” And the markets kind of took that in stride, a little weaker going into the latter part of the week. Really tech was the main thing that shined again because their earnings were so good as they benefited from this pandemic, whereas a lot of companies of course are struggling.

They were really the highlight, but the overall market was fairly heavy this week and we continue to see some of the precious metals shine, no pun intended. We continue to see money going into bonds as interest rates hit lows. The bond market’s still telling you that there’s still some issues going on with the economic situation, but it is recovering. It’s just still takin a while and it’s going to take a while, and there’s going to be winners and losers. But at the end of the day, there’s some changes you may need to make coming up as the market gets into a new phase of this recovery since March.

All right, let’s get back into our guest. All right, as I mentioned at the top of the podcast, we have a guest today in studio. His name is John Eadie. He’s the founder and CEO of Covenant here. And of course, we’ve had him on before to talk about taxes, and that’s not obviously all he does. But we do have a big election coming up, and not just in terms of what the market might or might not do. We know Congress can change. We know how the markets react to a potential candidate can change. Really what I want him to talk about is the tax side of it and why you might want to get with your advisor now or in the next couple of months, because they may be booking up as things could change, especially from a tax perspective. Joe Biden did recently release his tax proposal. And so I asked John to come in a little bit about all of this. And John, welcome back to the podcast.

John Eadie:                        Thanks, Karl. Thanks for having me back. Look forward to the conversation.

Karl Eggerss:                      Yeah, so you recently wrote an article for a magazine and it was titled, Your Advisor May Be Unavailable Come November. And first of all, tell me about the title and then we’ll get into kind of the different parts and why you wrote what you did.

John Eadie:                        Yeah. Because we have a lot of potential outcomes with the election this year. No matter what outcome happens, it could change the way you’re planning for taxes and other things before year end. And so, because we won’t know what Congress and what the presidential elections will look like until that first Wednesday in November, that won’t leave a lot of time to react and start planning. If you can get ahead of that and get out and meet with your advisor or advisors between now and November, I think you’ll be way ahead of the game. And at least have some scenarios that you can fall back on and then take your CPA, your financial advisor, your lawyer, whoever it may be in November and December, and get some things wrapped up before year end.

I think the other thing just to be certain is that while we may get an administration change in November, we don’t know when tax law will change. Rarely does it happen as fast as the beginning of the year after a turnover. You may actually have more time, but I wouldn’t take that chance. Be ready and be prepared for what may be coming.

Karl Eggerss:                      Yeah. That was going to be my question is, what’s the practicality and the logistics of this is that we get an election, let’s say it’s a blue sweep across the board and so we know taxes would probably change, what’s the likely timeframe of this. I mean, is this from what you’ve seen and read, is this something at the top of the priority list for Biden?

John Eadie:                        It depends on where COVID is by that point in time, I think. I think we’ll see a lot of things, priorities go up and down, what happens in the economy over the next several months. I think it’s going to be hard to tell. And so doing what you can to be prepared, I guess, maybe from a conservative perspective, that you really just should be prepared to make changes before the beginning of next year if you possibly can, because while tax rules won’t be changed on January 1st, that’s obvious. If they change in July or September, will they be retroactive back to the beginning of the year, is a question that we just can’t answer right now. And so it’s hard to get things done on a retroactive basis. You’ve probably got a little leeway, but nobody knows. And so I would just be really prepared to do anything you can before year end if that’s the appropriate thing or postpone things until next year, because that could be part of your tax planning as well.

Karl Eggerss:                      That’s an excellent point that just because they may not make a change on January 1st, they could make a change in July. And whether it’s retroactive or not, even if it goes into play in September, October, November, there still could be things you need to do in 2020, right? For example, we know that you don’t have to take a required minimum distribution in 2020. That doesn’t necessarily mean you don’t take one. It may be advantageous to go ahead and take one while you may be in the lower bracket or the tax law is more conducive to that in 2020.

John Eadie:                        No, that’s exactly right. There’s a lot of things that we’re looking at for our clients, and others ought to be thinking about. And general rule, because the perception is that tax rates will go up, and so general planning is accelerated income into 2020 and deferred deductions into 2021. But that’s a little too generic on the planning side, and so we just need to be ready no matter what happens.

Karl Eggerss:                      In your article, you talked about this isn’t just about getting with a financial advisor. It’s not just about getting with a CPA. It could be attorneys as well, your lawyers, because it may involve your estate planning just as much as your taxes, right?

John Eadie:                        That’s right. It’s everybody on your financial team. I would encourage you to touch base with each of them. Because whatever comes about could impact income taxes, it could impact the way you look at your portfolio or other financial planning, and it certainly could impact your estate planning going forward.

Karl Eggerss:                      Let’s get into some of the meat here about it, and we’ll just start with Joe Biden unveiled his plan probably a couple of weeks ago. Can you give us some highlights and what things might change?

John Eadie:                        Yeah, sure. I think the main thing is just the change in the tax brackets that are out there. Right now, we have a 37% highest tax bracket, marginal tax bracket. That’s going to proposedly flip back to the 39.6

John Eadie:                        … 2.6, highest tax bracket that we have. I think the thing that we haven’t seen is how all of those other graduated rates are going to apply to different income levels. Is the lowest rate going to apply to a much bigger amount of income? Is the higher one going to apply to more? We don’t know that yet, or at least I have not seen those breakdowns yet. The rate brackets are the main thing that are changing.

I think one of the things for higher wage earners is this proposal to make Social Security-type taxes apply to all income over $400,000 as well. Today you pay payroll taxes on wages up to $137,000. Under the Biden proposal, those payroll taxes would kick back in for wages above $400,000, so you’re going to have this donut hole in the middle between 137,000 and 400,000. I’m sure those numbers will be adjusted for inflation every year, but you’re going to have this donut hole where you’re not subject to payroll taxes. That opens the window for a number of planning ideas that may be able to take place. One of the easiest things that I would tell wage earners or business owners that are subject to self-employment taxes, if you can accelerate some income into 2020, that may help reduce the impact of some of the Social Security and income tax planning.

Karl Eggerss:                      Yeah. Here we are beginning of August, and of course we know that we have some time left to do some of these things. You probably already have your taxes done. If you do, you already know how COVID affected you. You kind of got a better idea of going into the new year, what it’s going to look like. If you haven’t done the planning, you haven’t done some cashflows, it is hard to get inside that donut hole, as you stated. Now, just to be clear for those that don’t understand, we’re not talking about the taxes on Social Security. We’re talking about how much is deducted from your paycheck to go towards social security. And right now it’s capped at, is it 137 currently?

John Eadie:                        It is. Medicare tax applies on all wages, but we’re talking specifically the FICA portion of payroll taxes.

Karl Eggerss:                      There’s some planning that can be done there. The other thing is under the current tax law, one of the big benefits was not only was it simpler for most people, but the tax brackets as you talked about got really wide. Again, there’s some gray area here. We don’t know what this is going to look like. It’s easy to say tax brackets on the highest will go from 37 to 39.6. There’s a lot of stuff in between that can change. It can either hurt certain people on the lower end depending on what those brackets look like, or can maybe not be as bad for people on the upper end depending on what those brackets look like, so we don’t know some of that right now.

One thing that’s concerned me is capital gains and what that could look like, because if we get a blue sweep and people know there’s a good chance that capital gains rates may not be as favorable in 2021, could that lead to some stock market selling where people are locking in capital gains at the end of 2020 to get those lower rates?

John Eadie:                        Yeah, it seems kind of silly to provide advice that says go out and sell all this stuff and recognize all your gains and pay all this taxes in 2020. But that may make a ton of sense, particularly for higher bracket taxpayers that are maybe moving from kind of a 20, 23% capital gains rate all the way up to a 40% capital gains rates because the Biden plan essentially says that capital gains and dividend income will be taxed as ordinary income, and so no differentiation between the type of things. That could really impact not only the beneficiaries of dividend income or capital gain income, but it could change company dividend policies on how they decided to pay out dividends. So it is going to be interesting because if you went ahead and sold stocks that did have some appreciation and then recognize those gains here at the end of the year, maybe you did some tax loss harvesting when the market went down so much earlier in the year, so you may come out in a net neutral tax position.

So that could be good planning, but it all, even if you didn’t have those losses, selling and paying taxes at a 15 or 20% capital gains rate versus 30, 40% ordinary income rates next year may not be as crazy as it sounds. You just have to be careful with a lot of that because there are some things like a step up in basis at death issues that we’ve got to look at and be considered of. So it’s going to be a challenge, but it’s not just an income tax thing like you talk about. It could be a portfolio adjustment thing.

Karl Eggerss:                      Besides the brackets getting wider, the current tax law we’re in now, it made things definitely simpler for most people in terms of not having to itemize the standard deduction. They took away the exemptions, and so some people benefited from the tax cuts and some people didn’t. It just depended on how many kids you had, you had the child tax credit, all of those things. Have you seen anything in regards to the meaty part of the curve as far as most taxpayers, what the Biden plan would change as far as the standard deduction or the exemptions and things of that nature?

John Eadie:                        Yeah, particularly people who live in states that have an income tax in their state as well. A lot more of those people, if they are working and pay state income taxes, are going to probably fall back under the itemized deduction rules, which will make things a little more complicated over the last several years where the standard deduction has been doubled to $24,000 for a married couple. A lot of people either have not had to worry about itemizing deductions because things like taxes, and whether it be income, property sales, all of those things, are limited to a $10,000 deduction. And unless you have a mortgage that creates mortgage interest or are very charitably inclined, you may not be able to have enough deductions to exceed the standard deduction, which has actually been a nice little benefit for a lot of people. It created some unique planning opportunities in itself to kind of move deductions from one year to the next, or bunch deductions is a technique that is used by a lot of advisors out there.

But if we go back to allowing uncapped state-related taxes or income taxes, you may see a lot more people having the opportunity to itemize. The challenge with that for higher bracket taxpayers is that your benefit under the Biden plan may be limited to only 28%. For example, general tax planning would say, okay, if I’m going to be in a 40% tax bracket, I’d rather push deductions into that year because I’ll get a 40% benefit from those deductions, kind of ignoring any phaseout that may come back into play. But under the Biden plan, if I had deductions, and I’m in a 40% tax bracket, I would think I’d get a 40% benefit, but under the Biden plan, I’d only get a 28% benefit. And so, even though all these deductions may come back into play, they may not be as powerful from a tax reduction standpoint is as they once were, and that just is going to make just tax compliance and planning much more complicated going forward.

Karl Eggerss:                      Part of what Covenant does is we talk about lifestyle legacy philanthropy all the time, and the philanthropy part is because people want to give, and yes, there’s tax benefits to that. There are a lot of people, though, that give because it is tax advantageous, and if it’s not, they may not give. It seems like with the tax changes the last few years, put COVID aside, but with the tax changes, I would imagine charities have seen a negative effect because of the current tax law. And so that could, if taxes get higher, more complicated, itemized deductions are more popular because they’re needed, charities may benefit from that in a weird sort of way.

John Eadie:                        I think that’s absolutely right. I know here at Covenant, a lot of our people are involved with boards or other charities here in the community, and we’ve just gotten the feedback from those that are involved with those nonprofits that it’s been a real challenge over the last several years to continue to get those kind of more, anywhere from a couple of hundred dollars to a few thousand dollars, charitable deductions. People that make big charitable deductions, those haven’t really impacted the nonprofits. They’re still making them, they’re still getting tax benefits from those, but the smaller deductions just aren’t coming in as much as they once were, and so this could incent people to give once again and the nonprofits will benefit from that.

Karl Eggerss:                      This isn’t anything new, but it’s a good reminder that if you’re somebody that does give to charity, we were just talking about appreciated assets and do you sell those coming into this year or this year and into 2021, simply giving those to the charity, keeping the cash in your pocket, and even if you reinvest in securities, similar securities and get a new fresh basis, that’s advantageous. I still don’t think a lot of people do that. It’s not anything new. It’s not rocket science. It’s just if you have an appreciated

Karl Eggerss:                      … appreciated stock, you give those shares to the charity, it’s valued, you don’t know what it is. You get the deduction. The charity doesn’t have to pay taxes on it. And then instead of, let’s say it was $10,000, you take the $10,000 and go invest it again. It’s the same thing except you don’t have to pay the capital gains on that stock. And so that’s another thing people can be doing right now. It doesn’t matter what bracket you’re in or what situation you’re in, that’s a fairly easy one that I still don’t see a lot of people doing when I talk to them.

John Eadie:                        Yeah I think there’s so many people that give, particular kind of in that, I’ll just call it $2,000 and below level, where somebody says, “Hey will you help us out?” And they just right a check or drop cash in the bucket or what have you. And that may make sense for the very small deductions but you’re right, for some of these things if you have cash of $10,000 in your example and you have securities valued at $10,000 that have a basis of only five, give the securities. Get the full $10,000 deduction, just like you would with the cash. And if you like the security, take your cash and go rebuy the security and you get basically a tax free step up in basis and you get a nice charitable deduction along the way.

Karl Eggerss:                      Yeah I have a client that I work with that was giving to his church, whether it was weekly or monthly, and he had to take out of his IRA because he was at the time, over 70 and a half, it’s now of course 72 going forward. And what we told him was, “Hey listen, you have to take that money out, you don’t need it, do the qualified charitable distribution so you take that IRA distribution and give it to the church annually, and then you don’t give on a weekly or monthly basis, the church gets what they need, and instead, you’ve got extra cashflow in your pocket that you can reinvest, do whatever you want with.” So similar type of action on your required minimum distributions just as much as appreciated stock as well. And those are things you could be doing now, they may or may not change going forward under a Biden plan, I wouldn’t think they would.

John Eadie:                        Well Karl, they actually might a little bit. If they bring back the phase out of itemized deductions, and that phase out is usually based on the amount of income you have, so if you can not have your required minimum distribution show up in income because you did a qualified charitable distribution, that may reduce your phase out and do some things. It’s not big dollars, but there are little things like that that add up and can really save some tax dollars over a multi-year timeframe.

Karl Eggerss:                      Well you bring up a good point, because if you’re not doing kind of a comprehensive plan, you can pull a lever over here which looks good in isolation, but it has an effect somewhere else. That happens with when to take social security, that happens when you change an investment, it can affect the overall portfolio, and it happens in tax planning if you think, “Well, I’ll do this because it benefits me.” But it could negatively impact you somewhere else, that’s why you have to look at everything not in a vacuum. You have to look at it comprehensively and do some forecast and do some planning. And some of it’s fairly easy to do, it’s just most people haven’t put it all together to… Again, you have to forecast and say, “What do I think I’m going to earn next year and where is it coming from, and how much do I want to give to charity?” And then what we do, is we help people optimize that to reduce their taxes and still accomplish what they want.

John Eadie:                        Right and I think helping coordinate them with all of their advisors is a big part of what Covenant brings to the table because, having, whether it be an outside CPA, or an attorney on the estate and trust side, or other legal issues, all at the table at once just puts multiple heads together and can really bring great value to the client.

Karl Eggerss:                      We’re going to touch on business in a minute, but before we do, in regards to estate planning, we know that during the 2016 election there was rumors that Hillary Clinton wanted to take the estate tax exemption I think back to a million. I remember it was at 600,000, then it jumped to a million, and then of course now it’s 11.5 million or so. So most people in this country don’t have estate taxes to worry about. Most of their estate planning is more about the logistics of who’s going to take care of the kids, do I want to be kept alive on a machine, those types of things. What do you know about the Biden proposal that could change estate taxes?

John Eadie:                        Well I think everybody ought to be aware of, even if we don’t have an administration change, what is going to happen to the estate tax in 2025. That’s going to seem like a long way out but it’ll be here before you know it. And the way the rules were set up today is that at the end of 2025 that exemption will go back to five million dollars a person, and so ten million for a couple. So it’s still a big number and most people will stay outside of the estate tax regime. But, it is a much different number, it will bring a lot of people back into that if planning isn’t done. And so, we can probably from that kind of infer that that’s probably close to what a Democratic change would bring, would be maybe a five million exemption, maybe it goes back to three and a half, I’d be shocked if it went back to a million but, who knows?

But it will potentially be a much lower exemption. The primary part of the Biden plan that I’ve seen up until this point, is the elimination of step-up in basis at death. And that just causes my head to explode quite frankly. To think about the administrative burden on families that will need to keep up with that. For somebody that just works and has a portfolio and all their basises tracked in their custodial statements and all that, that’s not overly complicated. But for all you business owners out there that have real estate or family businesses, and the issues around those things, getting evaluations done to accommodate the rules under a no step-up in basis world, will be a challenge.

And essentially what step-up in basis does is, when someone passes away, if they have an asset, and let’s call it a business, that they’ve poured their heart and soul into over their lifetime and really don’t have any basis in it because they just made money, poured that money back into the business, and so they have zero basis and maybe that business is worth five million dollars today. When they pass away, for estate tax purposes, the basis in that business now becomes five million dollars from zero. And so if they go out and sell it at that point in time, they may have a much, much smaller gain on the sale of that business then they otherwise would have. And so it’s a real benefit that’s in the current laws. And if that goes away and if there is a transfer tax at death, so for example, in that example, that business owner passes away and even if his kids inherit that business they would have to pay capital gains taxes on the transfer from mom and dad down to their generation.

And so it could be really burdensome from an administrative recordkeeping standpoint more than anything. Doesn’t necessarily mean it’s a bigger tax or a smaller tax than the current estate tax rules but certainly complicating factor out there. But that’s probably the biggest thing in his proposal that will create some issues for people. So, figuring out what basis is may be your big challenge out there.

Karl Eggerss:                      By the way, given appreciated assets to a charity’s one thing. When you give it to a child, and I’ve worked with clients who are saying, “Why don’t I just give this stock to my child?” I’m like, “Because you don’t get the step-upped basis of course.” And so you haven’t really seen anything… Do you feel like the idea’s that the plan would be to let this sunset, the 11.5 million in 2025 you said, let it sunset? Is that what you’ve seen so far and it’s more about the stepped-up basis? Or has he addressed, Joe Biden, we’re talking about his, has he addressed changing the state tax exemption in anything you’ve seen?

John Eadie:                        No I think all of the changes would be sooner than 2025. Depending on when that is and what the exemption becomes, or if they just move to a pure transfer tax on death, and eliminate stepped-up in basis, there may not be an exemption in that world. It may be just that everybody pays a transfer tax at death. I’d kind of be surprised if that was what it was but we shall see. I don’t think we’ll make it 2025 though, if we get a new administration.

Karl Eggerss:                      So, wanted to talk about business just for a minute because one advantage business owners have that W-2 employees don’t have is, W-2 employees typically earn their money, they pay taxes on it, whatever’s left they live off of. In the self-employment world, you earn your money, you spend what you need, and you get to write-off a bunch of that. And then whatever’s left over you pay taxes and there’s a big advantage of course in that world. What have you seen in the self-employment world or business world, especially for business owners listening? Anything they should be, besides consulting with their advisors, anything that you’ve seen that may directly impact them on the business deduction side and things like that?

John Eadie:                        Yeah. So I think the biggest change for flow through type businesses like S corps or LLCs or partnerships, because that will flow to the personal side and if highest tax brackets are going up that could directly impact them because the flow through income from those type of entities will be taxed at an even higher rate than it is today. One of the things

John Eadie:                        … that the Trump administration did early on was significantly reduce the highest corporate tax rate for what are called C corporations, where the actual company is taxed as opposed to the earnings flowing through to the shareholders. That was reduced from 35% down to 21%, which is a huge change, and you saw a lot of people converting from those flow-through type entities to C corporations to only pay tax at a lower level. Now, the challenge with that is if you ever distribute a dividend out of those type companies, the individual’s still going to pay tax on that.

But under the Biden plan, what it looks like is raising that rate back up to about 28%. So it’s not going all the way back to the 35, but it is going back up, and there’s talk of a 15% minimum tax on certain corporations that they define as large. I don’t know exactly what large means quite yet. That’s a rule that was in place years ago, kind of like the alternative minimum tax for an individual, it’s more of a minimum tax for companies, as well, to ensure that everybody pays at least something.

Karl Eggerss:                      Yeah. One other thing that I don’t think a lot of people utilize enough is, if you are a C Corp, if you’re somebody selling widgets and you have your own company, and you retain earnings in there and you retain money in this corporation, you can have an investment account that invests in dividend stocks and you get a dividend tax exclusion that’s pretty hefty. So when you compare what a corporation pays on dividends compared to you individually, it’s a big difference, and that is something that I haven’t seen enough people do. Obviously, the tax code’s there to encourage companies to invest in one another, but I haven’t seen anything on that changing. But that’s just a little idea, if you have a C corporation, you may be missing out on some investment tax exclusions.

John Eadie:                        Yeah. I haven’t seen much more detail than just a rate change on the corporate side, but those are good planning things and things that, like we said, get everybody together, get the smart folks in the room, and see what you can figure out.

Karl Eggerss:                      Yeah, well, it’s like you said. I mean, this is still your money. You can always pay it out if you own this company, but sometimes leaving it in there and having an investment account, it’s the same thing as you owning it individually, but not from a tax standpoint.

So anything else that we didn’t cover in the Biden tax plan, that … or some tips that … things people could be thinking about in 2020? We already talked about things like maybe Roth conversions or capital gains of selling securities this year, giving them away. We also talked about pulling income into this year and taking an IRA distribution this year. Anything else people need to be thinking about in 2020 versus 2021, again, not knowing where we might be, but things to consider?

John Eadie:                        Yeah. I think a part of this, too, is it goes beyond the tax side of really looking at how your portfolio is positioned. I think that’s a big, big part of this conversation right now, too, because one of the things that, if tax rates go up, muni bonds are going to be much more valuable going forward. So simple little things like that are part of the planning process that people ought to be taking a look at, and some unexpected or unforeseen consequences, that you may not have to do anything, but you need to look at that.

If you’ve got a bunch of high dividend paying stocks or mutual funds, ETFs, in your portfolio, you might want to look to shift to things that are just much more capital appreciation oriented. So a lot of little things like that on the portfolio side. I’ll just flip back and try to keep it easy for everybody, and that general rule is still going to be, move money to this year and push deductions to next year, whatever that may mean for your personal situation.

Karl Eggerss:                      Yeah, no, that’s true. We talked about that recently in our investment committee this past week, about, even though rates are low and most listening would say, “Why do I need bonds? What are the expected returns?” bonds, definitely, our view is that they have limited upside potential over the next several years. However, they still have the benefit of having ballast in the portfolio to balance the risk of stocks. When stocks go down, bonds tend to go up, they have that.

Number two is that it’s something to pull from when you reallocate. But number three, and you just brought it up, is that even though rates are low, there are still bonds that are attractive in this world, in the mortgage area, but also, if people start sensing that we’re going to see taxes going up in the future, all of a sudden municipal bonds get a big premium, and so that’s a really good point of bringing that up.

So asset allocation is more than meets the eye, and also, if you’re somebody withdrawing money from your account, you don’t always have to match the income being generated from what you withdraw. It can come from capital gains. You can sell things to get that money out, and that may be a better tax way to do it on some of your portfolio, rather than just saying, “Well, if I take $5,000 a month out of my account, I’d better have income coming in of $5,000 a month from somewhere.” It can come in the form of capital gains and selling some things. As you mentioned, moving income to capital gains.

All right. I think we’ve covered a lot, John. I appreciate it very much. Again, this is John Eadie, founder and CEO of Covenant. And just a reminder, if you need help doing your cashflow planning, looking at doing tax planning, a lot of you have accountants or CPAs that are doing really more of a historian look-back, filing your taxes, but how much planning are you getting? You have to look forward, especially in this environment where things can change pretty dramatically.

As John said, to be able to pull income forward, push deductions back, cram deductions in one year or another because of the way you just have things structured, it takes a comprehensive 30,000-foot view, and of course we’re here to help at Covenant. You always go to creatingricherlives.com, or call us at 210-526-0057. We have a big staff, with a lot of people in a lot of different specialties, so we’d be glad to help you out.

All right, John, thanks for coming on. Appreciate it as always.

John Eadie:                        Thanks, Karl. I appreciate it. And for everybody out there, like we’ve said at the very beginning, reach out to your advisor sooner rather than later. They’re going to get really busy at the end of the year, potentially.

Karl Eggerss:                      Absolutely. Thanks again.

Speaker 3:                          Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product, including the investments and/or investment strategies recommended or undertaken by Covenant Multifamily Offices LLC, Covenant, or any non-investment related content will be profitable, equal any corresponding indicated historical performance levels, be suitable for your portfolio or individual situation, or prove successful.

                                             Moreover, you should not assume that any discussion or information serves as the receipt of, or as a substitute for, personalized investment advice from Covenant. To the extent that a listener has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with a professional advisor of his/her choosing.

                                             Covenant is neither a law firm nor a certified public accounting firm, and no portion of the newsletter content should be construed as legal or accounting advice. A copy of our current written disclosure brochure discussing our advisory services and fees is available upon request or at creatingricherlives.com.

 

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