Client Axiom | Vol 275
Low Jobs Number Puzzles Some Analysts As Earnings Season Looms
Meet The Axiom®’s Guest Editor: Rick Kula, CFP®
I’m Rick Kula, one of the Wealth Managers and CFP® professionals with Annex Wealth Management. I’ve been a Wealth Manager for almost 8 years, which means I work with clients and prospective clients to help them create and maintain a plan. Often, we’ll use tools and planning strategies available through our team. I also help lead our Annex Ignite service, where we work with clients interactively by phone and web.
My family and I enjoy the outdoors spending our free time boating, fishing, and golfing. My wife and I are regular blood donors and have helped coordinate dozens of blood drives in our respective workplaces in the past. My son and I are active in Boy Scouts, and I coach most of my son’s youth sports teams.
I believe that being a positive role model and mentor to our youth has exponential benefits over time. Being present is critical, since kids have been impacted so profoundly through the pandemic and the changes we’ve seen in their school and daily lives.
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“One of the things I really appreciate about the Axiom is the summary of some of the headlines we see or hear about. It’s a no-nonsense approach on those headlines, avoiding a lot of the ‘spin’ that is out there. I know that many of the clients I work with appreciate this as well. Thanks Axiom team, keep up the good work!”
– Guest Editor: Rick Kula, CFP® | Wealth Manager
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Low Jobs Number Puzzles Some Analysts As Earnings Season Looms
Jobs growth underperformed expectations, which stumped some experts, who expected much stronger numbers. Earnings season will underperform past record growth, but will we see some negative earnings? Annex Wealth Management’s Derek Felske and Deanne Phillips discuss.
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Drivers, Start Your Engines: Revisited
In response to a recent Exclusive, client Jack Hanrahan shares more about his knowledge and passion for the world of racing.
Jack Hanrahan, a longtime client of Annex, has always been a fan of racing. That’s why when we wrote a client exclusive about Formula 1 racing in a past Axiom, Jack was eager to join in on the conversation!
Excited about the opportunity, Jack shares his expertise in the sport – and wants to steer us even closer to the magnetic intensity of the F1 racing. Jack agreed to participate in an interview with us so we could learn even more from our best resource: our clients!
Take a look as we asked a few questions about Jack’s history with racing and his thoughts on our previous Formula 1 piece.
When did you first become interested in racing, and particularly Formula 1?
I became a fan of racing at 13 years old listening to the Indy 500 on radio. I spent many a Thursday night at the Milwaukee Mile watching local dirt track modifieds in the mid-60’s along with the late model asphalt cars on a few select Sundays there also. My friends and I had many good times up at Road America in Elkhart Lake watching everything from sports cars to Can-Am to Indy cars on their famous road course. Once cable TV wired up the metro area, I began to follow NASCAR religiously. Formula 1 coverage started shortly thereafter, and I was instantly hooked.
What is it about the sport that has you so interested?
I was always interested in the automotive world as a kid, building model cars as a hobby. My friends were interested as well, and we began to tinker a little with Dad’s old station wagon. My folks didn’t steer me towards higher education after high school, so I followed my brother into the Air Force and became an automotive mechanic and continued on to a civilian career of 40 years as a truck mechanic. I have always been intrigued by the engineering aspect of race cars as well as the strategy of the teams in competition.
In our previous F1 Exclusive, we were off on some of our facts. Can you help set the record straight?
Formula 1 cars are hybrids with a gas engine and electric motor with a combined 1,000 horsepower, not 10,000 like originally mentioned. They are allotted 110 kilograms of fuel for each race (240 lbs.) which is approximately 30 gallons. The average fuel mileage at full speed is 6 miles per gallon, and most F1 tracks are between 2.5 and 4 miles long. So, they burn about .5 gallons per lap on a 3-mile track at an average speed of about 120 mph clocking it at about 6 minutes per lap. One lap would burn 64 ounces of fuel in 6 minutes, so it would be 10.6 ounces per minute rather than 65-80 gallons per minute. The exhaust temperatures are also much lower in Formula 1. It’s clear to me that all those specs are referring to a jet dragster rather than a Formula 1 car, which run much hotter and much faster, but for a shorter amount of time.
Have you been to many races in the past or are you planning to attend any in the future?
Over the years I have attended races such as dirt modifieds, sprint cars, late models, dragsters, sports cars, NASCAR cup cars, and Indy Cars on several tracks throughout the country. I’m slowing down as far as attending live events but still watch as much as I can catch on T.V. these days.
Do you have any favorite races that you can remember watching/attending, or any drivers that stood out to you throughout the years?
My first NASCAR Winston Cup race I attended was in North Wilkesboro, N.C. After watching the cars and drivers on T.V. and being familiar with them, I was actually there in the stands as they roared toward the green flag to start the race. Heart pounding and the hair on my neck standing up, it actually brought a tear to my eye! I had the opportunity several years later to shake the hand of Richard Petty, albeit at a motorcycle rally. No real conversation, but a photo op with a driver and gentleman I always thought of as the ambassador of the sport.
In your opinion, why do you think F1 pulls the interest of so many people worldwide?
Formula 1 is the most popular form of spectator racing with a worldwide audience of 500 million per year. There are 32 countries that have hosted the series over the years putting it on the same level as soccer as a spectator sport. The cars are the most sophisticated, technical machines on Earth driven by world-class athletes with paychecks pushing the limits as high as $30 million per year.
I have to believe Formula 1 racing is so very popular because of the national pride of the spectators. Just watch a race and you will see scores of flags, matching shirts, banners, and even smoke bombs in the grandstands spewing the colors of their flags. So far, they have refrained from rioting like the fans of other sports!
Well, there you have it! We want to thank Jack for his time and thoughts on F1 racing and for sharing his own personal experiences with the sport. At Annex, we always want to support the interests of our clients and love to hear stories like this and more!
Have an idea you’d like us to write about, or a story to share? Send us an email at cl************@*********th.com.
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Poll Recap: Who do you think the tax legislation will affect most?
Last week we asked, “Congress is getting closer to passing new tax legislation. Who do you think the tax legislation will affect most?”
Most of our respondents believe all will be affected by the new tax legislation when it gets passed by Congress. Our readers aren’t wrong – current proposals, tax adjustments and potential increases will affect many businesses and individuals. The future may see both businesses and individuals seeking new strategies for a growing tax burden.
The proposed legislation may be targeted at certain groups of people, but most of our readers believe that there will be an overall effect on the nation and individual taxes in the years to come. We have our entire team focused on what will get passed, and how it will impact upcoming tax returns and financial plans.
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Planning for the end of the year is important.
We’re here to remind you of a few things you may want to consider, if you haven’t already, as the year begins to wind down.
Did you know there are financial moves you can make that depend on the calendar year for completion? Below, Financial Planning Team Manager Eric Strom explains a few strategies that have end of year deadlines, and how they work.
Though these strategies may not be right for everyone, they may be right for you!
Charitable giving.
There are different charitable giving strategies that can provide tax advantages, but what they all have in common is that the gift must happen during the calendar year. Two popular strategies are Qualified Charitable Distributions (QCDs) and Donor Advised Funds (DAFs). QCDs are distributions from individual retirement accounts (IRAs) that go directly from the IRA custodian to the charity. The account owner must be age 70½ or older to be eligible for QCDs and the maximum annual amount per account holder is $100,000. This strategy excludes the amount donated from taxable income and can be used to satisfy some or all of the required minimum distribution for those age 72 and older. DAFs allow donors to make a large charitable donation in one tax year and receive an immediate tax deduction. However, the donor is allowed to recommend grants to various qualified charities over time, even years down the road.
401(k) contributions.
This is the season to make last minute changes when there are just a handful of paychecks left this year. If you’re trying to stay in a certain tax bracket or qualify for a particular tax credit (such as the child tax credit), you may want to manipulate your 401(k) contributions to achieve that tax planning goal. Increasing your pre-tax 401(k) contributions for these last few paychecks could help lower your income if you are right at the cusp of the next tax bracket or just above the income cutoff to receive a certain tax credit. Those who are 50 or older by the end of the year can also contribute an additional catch-up amount of $6,500 in 2021.
Gain or Loss harvesting.
Intentionally creating gains or losses in taxable investment accounts is referred to as gains or loss harvesting. Realizing losses can provide a tax benefit by offsetting the tax consequence of gains taken. In addition, losses can potentially offset a small amount of ordinary income as well. On the other hand, harvesting gains could help you take advantage of the favorable capital gains rate, which is lower than ordinary income tax rates. The capital gains tax rate depends on your income but could be as low as 0% for investors with low income. Selling assets that have either appreciated in value or lost value must happen by the end of the year to impact your 2021 tax situation.
Flexible Spending Accounts & Health Savings Accounts.
Flexible spending accounts (FSAs) are usually described as “use it or lose it.” This means that you generally must spend the assets down by year-end or money you have in the account could be lost. Squeezing in a last-minute qualified medical expense will ensure your FSA savings will not be forfeited. Conversely, health savings accounts (HSAs) are not required to be used by the end of the year and are a great way to save pre-tax income for medical expenses in the future. HSAs are often referred to as triple tax-advantaged with pre-tax contributions that grow tax-free, and distributions are tax-free when taken for qualified medical expenses. Maximizing HSA contributions before the end of the year will reduce taxable income. Those who are 55 or older by the end of the year can also contribute an additional catch-up amount of $1,000 in 2021.
Roth conversions.
Converting tax-deferred dollars to Roth is a great strategy to use during low-income years. This allows you to lock in lower tax rates now instead of waiting to pay taxes upon withdrawal in the future when you may be in a higher tax bracket. If you decide to use this strategy, the conversion itself must happen before the calendar year end. Roth conversions can be used to accelerate income into a lower tax bracket now and to help create tax-free Roth assets for the future.
Contact your Wealth Manager if you have any questions, and they will be happy to discuss if these strategies could apply to you.
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“My favorite part of the Axiom is that despite having some genuinely brilliant specialists on our team, the content we deliver is fun and easy to understand. Rather than trying to make ourselves sound smart with complicated industry jargon, we aim to make all our readers smarter and more informed on issues that matter.”
– Guest Editor: Rick Kula, CFP® | Wealth Manager
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This week’s Ask Annex comes from Adam, who asks:
“What does harvesting gains mean and how do I use it?”
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We asked Annex Wealth Management’s Trevor Nargis:
In general, gains harvesting is the act of intentionally realizing long-term capital gains (LTCG). In other words, the goal of harvesting gains is to help reduce the tax liabilities that can come with selling the winners in one’s portfolio. Below are a few common scenarios where people may look to harvest gains.
Let’s say, for example, you have held ABC Co. stock long term, the position has amassed significant gains, and it has consequently become a large position in your portfolio. In this scenario, you might look to realize some losses from other areas of your portfolio while harvesting a similar amount of gains in ABC Co. stock. The goal here is to minimize the tax impact of the sales of ABC Co. by offsetting gains with losses. In addition to minimizing the tax burden from selling ABC, this process also helps reduce the risk that comes with being concentrated in one position.
Another scenario where gains harvesting could be a tax-efficient strategy is if you fall into the 0% long-term capital gains tax bracket. If this is the case, you could look to realize the amount of long-term gains that will still allow you to stay in that 0% bracket. The proceeds from these sales could then be used to rebalance your portfolio, as mentioned beforehand, cover expenses, or fund something such as a project around the house. Ultimately, the goal here is to realize some long-term gains while staying in that 0% bracket. It should also be noted that taxpayers sometimes find themselves briefly in a lower tax bracket due to a life event like retirement. In this case, there may be a small window of opportunity to harvest gains while in the 0% LTCG tax bracket before other income like pensions, social security, or IRA withdrawals begin.
Trevor Nargis
Investment Management Specialist
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KNOW THE DIFFERENCE MINUTE:
America’s CEOs Are Losing Confidence
KNOW THE DIFFERENCE MINUTE:
Record High Gas Prices Continue To Climb
ANNEX RADIO
Moving In Retirement: Residence Vs. Domicile
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