Fall Financial: Updates, Tax Tips, & Planning Pointers

Quick Financial & tax tips today! 10 minutes gives you:
- New IRS guidance on 401k contributions,
- changes to the FAFSA form,
- caveats from of Schwab/TD Ameritrade merger,
-interest rates,
-the job market,
- state tax deductions for small businesses,
- and more!

Tune in to get an overview of current events and strategies to help with your finances.

September 20, 2023

Transcript

 me three. I think we are just a few days before the start of fall. So all you folks out there stocking up on the Halloween candy, I'll allow it. But for those of you guys are starting like Christmas shopping, I'm not really a big fan of it. Thanksgiving maybe at best, but there's a lot for us to cover today.

I've been basically taking little snippets of financial planning information and some market information and I want to make sure that we share with you today. So thank you. Thank you for watching this today. And, so let's jump right into it. So, we've got some stuff about the IRS. We've got some stuff about the markets, specifically interest rates and stocks and what we might be seeing with that.

We've got some stuff with respect to FAFSA, the Financial Aid... Form that everybody's been filling out these days. I, and I'll get into that as well too. And then the media, a couple other things with regarding Schwab and Ameritrade and even,  some state income tax specific stuff. So getting right into it, the IRS did issue some guidance on this proposed limitation.

If you're a high wage earner, the IRS is actually granted a two year transition period for anybody who's making more than 145, 000. So you'll still be able to make. pre tax 401k contributions until 2026. And,  rather than not being able to, rather than being required to use, I should say, those Roth accounts too.

There's a new draft FAFSA form. So I, as some of you know, have two kids in college right now. And there's a, there's a time of year that I get kind of cranky. Everybody knows in my family, it's, it's FAFSA time. It's because you're gathering all this information there. None of these changes are going to make me less cranky.

Just FYI. In fact, I don't think it's going to make me more cranky. More of the crankiness is really more about just having to do the work. But I digress. So the new FAFSA has been discussed. This expected family contribution is being replaced with something called the Student Aid Index. And these calculations are going to be based on tax returns.

rather than W 2s. So that's pretty interesting. Also, and this impacts a lot of the people that we work with, a lot of the families, and probably a lot of you watching this, small business assets will also need to be reported rather than excluded. So that's kind of a, kind of a big deal because small business owners have generally had a little more flexibility in what needs to be put out there too.

Financial aid is not going to be split. Along when you have multiple Children in school at the same time, I have a freshman and a sophomore in college right now. So maybe it doesn't impact me as much because of wages, etcetera right now, but it could result in a lot of families seeing less increase in cost.

I'm sorry, less aid and possibly an increase in costs. So that's kind of a big deal. They also talked a little about grandparents contributions, cash gifts and distributions from 5 29. However, no longer going to be counted on the FAFSA. Mhm. So that's, that's kind of something for you to put up there too.

If you've been following this, around Labor Day or so, you saw that Schwab and TD Ameritrade have merged. A lot of people have been calling it Schwabitrade. And generally speaking, I think the general consensus is it went overall smooth. If you are impacted by this, we custody a lot of our clients accounts at either Charles Schwab or at Fidelity, so we weren't impacted quite as much.

But one of our partners... Yeah, I said that. So more on that later. But one of our partners does actually merge, sorry, does merge, does actually,  use their, use TD Ameritrade as their, as their custodian. So now everything kind of moved over to Schwab. What are we noticing? What are we hearing about out there too?

So there's a couple of things that you need to know about if you were a TD Ameritrade account holder and your account moved over to Schwab. The first is distributions and contributions earlier this year may not be reflected properly. So you got to verify these things manually. Don't take for granted that what you're seeing on the app, what you're seeing on the online form is actually correct.

You need to verify some of these things like distributions and contributions, maybe with retirement accounts, maybe even with, with, not with taxable accounts. Cost basis information, like how much you paid for a stock, how much withholding elections that can also be impacted if they had different, if you had different setups.

between those accounts. And then what we're also seeing is that TD Ameritrade had these unique options, like allowing a 1 amount instead of percentages. Those are no longer available. So you basically are going to have to in Schwab, go back to the, do to basically a different, more traditional format of it too.

So if you were using that, if you were using any,  TD Ameritrade before, if you have questions about that, if you're not sure if things came quite over, certainly if you're a client, Reach out to us. We're, we're monitoring it already, but if you're not a client already, and you wanted to have some conversations about how this whole merger impacts you, whether or not things change for you.

What I have noticed primarily is a lot of it does come down to just preferences. Like some people are just comfortable and familiar. With, Schwab platform or the TD platform. So a lot of times the data is there too, but trust, but verify. So a couple of the quick things. So the federal reserves open market committee, it's meeting, soon.

And just about everybody expects them to hold these short term interest rates steady, the November meeting. is when a lot of analysts are expecting an increase. So that's when there's, if there's going to be one. Now, those same analysts are actually hoping for a drop in rates. And if that were to happen, maybe we see a boost in stock prices.

Again, this is not legal advice, tax advice, financial advice, cooking advice, marital advice, home ownership advice, but take it for what it's worth. But the Fed is going to have some pressure to hold these rates steady until we get closer and closer to the election next November. And, and there's a couple other things at play here too.

So the initial jobless claims, they actually edged up a little bit, but not a lot from 217, 000 to 220, 000. Unemployment is still at this historic low. It's a low of 3. 5%. So the Fed's going to have to basically toe the line between we want to fight inflation with higher interest rates, but we don't want to cause a recession that could damage the economy as a whole.

So it's, it's an unenviable task. So we'll, we'll kind of keep an eye on that too. Further exacerbating this stuff is that the markets have actually been a little worried because savings rates have been falling. And what's going to happen in October is a lot of student loan repayments are going to start.

So this Fed's decision is going to be a key one as we approach this time of year, because there's a whole lot of things on the lending side, right? And look, the stock markets, we don't know what's going to happen. We never know what's going to happen. The Dow gained a little bit, S& P and NASDAQ are all sort of, up for the year itself too.

But the expectations that I'm seeing so far is that no action on the committee this part and potentially a short term increase is, I guess, where we are too. So, you know, well, maybe they'll hold these rates for a little bit higher. How does that impact us? Well, I mean, look, conventional mortgages, right?

Conventional 30 year mortgages right now, they're still slightly higher. Now, that's not a direct impact to the Federal Reserve. My wife, Pinky, is an amazing, educator when it comes to these sort of things, so I would encourage you to check out her video, videos on this topic as well, too. But generally speaking, those higher government rates usually translate into higher mortgage rates.

And what you're seeing with that is sometimes the home buying process cools down a little bit, too. So, that's kind of it on the market side itself to speaking of homes, there's a little thing that called the Augusta rule, which some clients actually know about Augusta. And my uncle actually lives in Augusta.

So shout out to Murtabapa. Augusta is where the masters, takes place. The masters golf tournament in the spring. A lot of people see that as the beginning of the spring and the beginning of the summer. And, people who live in that place who may not be golf fans or maybe our golf fans, but they just want to make some money off of this will actually rent their home out for a period of time.

And the IRS actually allows you to rent for a short period of time. And there are some tax preferential treatment, or maybe not even realizing any income on the amount that you've rented out. So a lot of people call that the master's rule. Now, anytime there's a rule like that, there's going to be people who may quote unquote abuse it.

So the strategy of renting out residences from your business. Now you have to demonstrate a legitimate need and you have to use fair values to avoid it being deemed a tax avoidance scheme. So keep in mind if, if you're going to use, take advantage of this master's rule, you don't have to live in Augusta, Georgia for this.

You could be, anyone in the U S but you just want to make sure that you're actually have a legitimate need. fair values because you don't want to be tax avoidance scheme. If you're thinking about doing something like that, make sure you consult with us or your advisor to make sure that you're not running afoul of any of these rules.

Also, there's data limitations. And then finally, Speaking of taxes and state income taxes, I live in New Jersey. A lot of our clients are in New Jersey, New York, California, states with state income taxes. Now this is particularly for you small business owners out there or any business owners out there too.

When the federal government said, Hey, we're not going to let you deduct more than a certain amount. The state and local taxes. That you pay, there's gonna be a cap on how much you're actually gonna be able to deduct off of it to salt is what we call that to. Well, a lot of states actually implemented rules that said, you know what, we're gonna help our, our constituents, we're gonna help our residents out by letting them pay some of the state taxes.

from a flow through entity like a S corporation or an unlimited partnership. And that ultimately, without getting into all the mechanics of it, because we're getting a little long here, does wind up helping these small business owners with a little bit more of a deduction. But, as I'm seeing more and more of my clients corporate and business returns, that may not be the case in the sense that people aren't taking advantage of this rule.

So, if you're not feeling a little salty, and as we get closer into this fourth quarter of the year, time for you to start doing this. In fact, out of the 41 states, That have a state income tax, 36 of them actually have some income tax deduction for state and local taxes. Small business owners need to be taking advantage of this.

And they need to be taking advantage of it, because look, you need every little advantage you can get out there too, as long as it's within the rules. So we covered a lot of context today. I usually try to stick to one or two topics, but there was just a whole lot I wanted to share with you. A lot that I wanted you to have.

You might actually go back. And watch this one again if you're really up for it and you're not too sick of me yet. So I will see you back next week. If you have any topics, if you have any questions, if you have any concerns or anything you think you might want to see or hear about on these podcasts, don't hesitate to reach out.

But,  I'm Neel Shah from Shah Total Planning. Thank you for joining us again today. And I look forward to seeing you next week. Bye everybody. Be safe, be well, and enjoy those pumpkin spice lattes. Bye now.