Bourke Wealth, Author at Bourke Wealth Management

9 Questions to Ask Your CPA

January 5, 2015 by Bourke Wealth

As you meet with your CPA this tax season, I suggest you give them the following list of questions. Some CPAs may be too busy to do comprehensive tax projections as part of the tax-preparation appointment, but that should not preclude you from asking the following:

1. Will a life event or major purchase affect my taxes?

Tell your CPA about any births, adoptions, marriages, separations, divorces or deaths. Have your children reached a milestone like 18 or 21? Have they left school and started jobs, possibly changing their deductibility status?

Death in the family is especially important: Does an inheritance trigger a federal or state estate tax? If an inheritance includes an IRA or 401(k), the tax rules are strict, and failure to properly manage the inheritance could have major tax consequences.

2. What will my tax bracket be in 2015?

A tax bracket is the rate at which the last dollar of income will be taxed. Knowing your tax bracket can help me calculate the tax efficiency of various investment or financial planning proposals.

3. Can you help me estimate my income for 2015?

Go beyond salary. Bonuses, freelance assignments, investment income, alimony, winnings, and more all play a role. And it’s not enough to know gross income. It’s also important to have an estimate of adjusted gross income, modifications to adjusted gross income, and taxable income. Each of these types of income is dependent on various deductions or credits that need to be estimated in order to come up with projections for the new year.

4. Do I have any remaining loss carryforwards going into 2015?

Loss carryforwards are tax losses as a result of selling investments at a loss. The IRS only permits deducting investment losses to the extent that they are offset by gains of up to $3,000 a year. Any losses in excess of this can be carried forward to future tax years, hence the name “loss carryforwards.”

5. Am I eligable for a Roth conversion? Is it recommended?

A Roth IRA conversion allows workers to convert traditional IRA assets to a Roth to avoid taking required minimum distributions in retirement and avoid paying tax on any distributions taken. A Roth conversion also involves paying taxes on the assets converted, since contributions to traditional IRAs are made on a tax-deferred basis. A CPA can estimate the tax that would be due on a Roth IRA conversion.

The CPA is likely to have an opinion on whether a Roth conversion is a good idea or not.

6. Should I increase my retirement plan contributions?

The IRS has increased the contribution amounts for some types of retirement plans in 2015, so there’s incentive for making contribution increases.

7. Do you have any recommendations for reducing my 2015 taxes? What about 2016 and beyond?

CPAs can recommend a number of strategies that might help reduce tax liability in the future.

8. Should I change my tax withholding for 2015?

Various situations may mean that you need to change the amount you withhold from your paycheck. If you’ve gotten married, divorced, or had a baby, you’ll need to make changes on your W-4 form. Also, if you’ve been getting large tax refunds, it may make sense to increase the number of exemptions you take on the W-4 to match up what you pay with your actual tax obligation.

9. Is there anything my financial advisor can do to help my tax situation?

There’s a close relationship between financial planning and taxes. That’s why it’s good for you to ask this question of your CPA and then pass the answer back to me. The better informed I am, the more effective I can be in planning and managing your investment and financial affairs.

Research in Focus: How Much Income Do You Need in Retirement?

November 25, 2014 by Bourke Wealth

How much retirement income is enough? In this video, Marlena Lee, PhD, explains that the answer should be customized based on each individual’s lifestyle and income prior to retirement.

The Big RV

October 10, 2014 by Bourke Wealth

Several friends of mine camp, boat and waterski regularly at a nearby lake and invited me to accompany them one weekend not too long ago. They all have large, fancy recreational vehicles (RVs) that cost from tens to hundreds of thousands of dollars. Beautiful, amazing vehicles.

I rented a 14 foot pop-up camper.

It made me a little defensive when someone asked me, “You’re the financial planner, why aren’t you in the biggest vehicle here?” My gut reaction was to say, “Yes. I should get something to keep up with these guys. After all, I think these big RVs are amazing and hope to own one someday.”

But for now, I have a retirement to plan, children to put through college, charities to support, investments to accumulate…you get the picture.

I’ll keep renting my camper.

Is there something wrong with purchasing items you enjoy? Absolutely not. Do I sit in judgment if someone doesn’t feel the same way I do? No, in fact one of the things I like best about life is that we each get to make our own decisions – and live with the consequences.

But before making a large purchase, here are the questions I ask myself:

Will I go into debt?

Is this large expenditure a depreciating asset?

How much will it cost me to insure, maintain, store, or otherwise keep this asset?

Am I buying this item because it’s my dream? Or someone else’s?

What am I giving up if I make this purchase?

Will I have buyer’s remorse?

Many years ago, a financially successful friend said to me, “Kevin, people don’t like money.” This made no sense to me until he followed up with, “You can tell they don’t like money because as soon as they get some of it, they trade it for stuff.”

Wow, what a revelation. So before that next purchase of a big screen TV, an expensive car or something similar, ask yourself, “Am I just trading my money for stuff?” I encourage you to look carefully before you leap.

If you have any questions about this or other financial questions, please call me at 805.966.2122. I welcome your questions and comments.

The Fiscal Cliff’s Role in Tax Season

September 22, 2014 by Bourke Wealth

Originally Published April 22, 2014

Now that tax day has arrived and 2013 tax returns have been filed, we can assess the impact of the fiscal cliff. Remember the fiscal cliff: the deal in Washington that raised taxes and averted the fiscal cliff at the beginning of 2013? Though it may have been a big story a year ago, it may be having a big impact in 2014.

Tax collections from individuals in the first quarter of 2014 were up 15% – totaling an additional $35 billion. This higher tax burden may have weighed on consumers and investors this year, as they may have had to forego purchases or sell stocks to cover their tax liability. This is a big contrast to 2013, when tax refunds were up a whopping 15%, amounting to a record share of after-tax income and may help to explain the better pace of consumer spending and market performance in the first quarter of last year.

The fiscal cliff was resolved with a rise in payroll taxes for all workers, higher marginal rates for high-income earners, the resumption of the phase-out of exemptions and deductions, and an increase in the maximum tax rates on capital gains and dividends. Much of that was felt last year. But, historically, most taxes that are not withheld during the year from paychecks are paid in the following year in the weeks leading up to tax day. That means that this year we may have seen a significant portion of the fiscal cliff deal impact on the economy and markets with a one-year lag.

Now that tax day has arrived, perhaps any drag at stores or in the markets due to the higher tax burden may fade. Already, there are signs the consumer is spending again. The recent report from the Commerce Department surprised with a strong jump in sales at American retailers with a pickup in categories ranging from cars to furniture and clothing. Clearly, more favorable weather and other factors are helping boost the confidence of consumers, too. The recent reading from the Bureau of Labor Statistics on first-time filings for unemployment benefits fell to the lowest level in seven years. As the economic outlook improves and any selling to fund tax payments subsides, stocks may continue their upward trend.

Paying your taxes is no fun, but doing them may be even worse. Does it feel like filing your tax return has become more complicated than ever and you get fewer and fewer breaks? You may be right. After all, 100 years ago the Form 1040 was short and, after a simple income section, it had only seven lines of deductions to complete. Check out this line from the good old days of 1913, when things like losses due to shipwrecks were considered a General Deduction:

“4. Losses actually sustained during the year incurred in trade or arising from fires, storms, or shipwreck, and not compensated for by insurance or otherwise”

I am hoping you didn’t have any shipwreck losses in 2013. And I think it is likely, with help from rebounding economic strength, that the economy and markets will avoid disasters in 2014. As always, if you have questions, I encourage you to contact me.

Spring is a Time of Renewal

September 15, 2014 by Bourke Wealth

Originally Published March 24, 2014

As this wonderful season approaches (and hopefully brings milder weather), we believe the stage is set for renewed growth in the U.S. economy.

The seeds of growth in the economy have taken root underneath all the snow and ice. Several recent data points underlie our optimism. The latest edition of the Federal Reserve’s Beige Book, which is essentially a “window on main street,” provided a positive assessment of the U.S. economy and still characterized growth as “modest to moderate,” despite significant weather impacts. In fact, the word “weather” showed up 119 times in the report, far more than it appeared when SuperStorm Sandy struck in October 2012. Many Beige Book comments pointed to optimism once the weather normalizes.

Despite the slower, weather-affected start to the year, we continue to expect economic growth, as measured by real gross domestic product (GDP), to reach 3% in 2014, based upon many of the drags of 2013 fading, including U.S. tax increases and spending cuts and the European recession, and growth accelerating from additional hiring and capital spending by businesses. We expect some bounce back from the severe winter weather, propping up near-term growth as postponed economic activity takes place.

Additionally, underlying fundamentals in the labor market suggest that the job market may be thawing. Businesses are directing more of their profits into spending on growth, with the private sector creating 162,000 net new jobs in February, despite weather-related power outages and transportation disruptions. Initial claims for unemployment insurance fell to 315,000 during the week of March 7, a level last seen on a sustained basis in mid-2007, prior to the onset of the Great Recession. Hiring expectations by small businesses have been moving higher as tracked by the National Federation of Independent Business.

We believe that this better growth should provide the foundation for attractive stock market returns this year. Despite recent stock market volatility, primarily driven by ongoing concerns about the Ukraine conflict and slowing growth in China, the S&P 500 is still near its all-time high. As we look towards the remainder of the year, we continue to expect a 10 – 15% gain for U.S. stocks, as measured by the S&P 500 Index (based on earnings per share for S&P 500 companies growing 5 – 10% and a rise of half a point in the price-to-earnings ratio).

Of course, it’s always important to be mindful of risks, despite the positive indicators in the economy and the markets. One of the most noteworthy right now is the conflict in Ukraine, which may continue to impact the U.S. markets after driving a more than 20% decline in the Russian stock market. Even following the secession vote in Crimea and sanctions imposed against Russia by the West, we believe it is unlikely that the conflict will drive a significant stock market decline in the U.S. Also, the slowdown in China, the world’s second largest economy, is worth watching, though we continue to discount the probability of a “hard landing.” We will be watching these geopolitical events closely as we continue to follow key economic indicators.

As we look to spring for renewed economic growth, and hopefully more potential gains for stocks, we believe the foundation is in place for you to pursue your financial goals in 2014. As always, if you have questions, I encourage you to contact me.