KFM Newsletter: A Great Time To Be Thankful

Kemp Financial’s Annual Ladies Night Out

We recently held our annual “What Matters Most: Ladies Night Out” event at Cal State Fullerton’s Concert Under the Stars. We had a wonderful group of women attend and everyone had a great time. This year’s theme was very fitting for Kemp Financial: Lifelong Relationships. Click here to take a look at the photos from this year.

Taxes 2018

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Many of our clients have questioned whether or not there is any significant advantage to the new tax legislation effective the beginning of 2018. While there is not a standardized answer for the question, it really depends on your personal situation. With the reduced tax brackets came substantial changes with Itemized Deductions. We have always mentioned in most cases it appears to be a “wash”, but that may not be the case for all of our clients.

One area that we have seen increased interest in 2018 has been the tilt towards toward Charitable Giving. Due to the limitations listed below, many of our clients are electing to increase their itemized deductions over the standard deduction threshold through Charitable Giving.

In summary, the Standard Deduction for 2018 is $12,000 for individuals, $18,000 for heads of household and $24,000 for married couples filing jointly and surviving spouses. For 2018, the additional standard deduction amount for the aged (65 or older) or the blind is $1,300. (Source: IRS.gov)

Here is a summary of the new limitations on itemized deductions:

Medical Expenses: The IRS allows you to deduct qualified medical expenses that exceed 7.5% of your adjusted gross income for 2018. Beginning January 1, 2019, all taxpayers may deduct only the amount of the total unreimbursed allowable medical care expenses for the year that exceeds 10% of their adjusted gross income.

Property Tax and State Income Tax: The combination of personal property tax and State income tax is capped at $10,000.

Mortgage Interest: If you bought a new home after December 31, 2017, or plan to between now and 2026, you can deduct the interest on up to $750,000 in mortgage debt used to purchase or improve it as an itemized deduction. The new legislation wiped out the deduction for home equity debt, including on existing loans, beginning in 2018. The $1 million limit still applies for mortgages taken out prior to 2018. Be careful with this one if you plan to purchase a new home in the near future.

Miscellaneous Deductions: Under the old regulations, taxpayers were able to deduct qualified miscellaneous deductions in excess of 2% of their adjusted gross income. Miscellaneous deductions have been entirely eliminated for the tax years 2018 through 2025.

Charitable Deductions: If you are able to itemize your deductions, gifts of cash are now deductible up to 60% of adjusted gross income (up from 50%). Gifts of stock or highly appreciated assets remain deductible up to 30% of adjusted gross income (no change).

We have seen increased giving in two ways:

  1. Donating stock, mutual funds or other highly appreciated assets

  2. Donating cash distributions from an Individual Retirement Account (IRA) that is subject to minimum distribution requirements

One can usually deduct the full fair market value of appreciated long-term assets you've held for more than one year, such as stocks, bonds or mutual funds. In addition, if you donate stocks or other investments, you pay no capital gains tax.

Donating investments—especially highly appreciated securities—instead of cash can be a very effective and tax-efficient way to support a charity. Generally, if your assets have appreciated in value, it’s best not to sell securities to generate the cash you need for a donation. Contributing the securities directly to the charity increases the amount of your gift as well as your deduction.

For people older than 70½, up to $100,000 can be transferred per year from their traditional IRAs to charity, which can count as their required minimum distribution, but is not taxable if they follow the rules for a qualified charitable distribution (QCD). The gift stays out of your adjusted gross income only if you make a direct transfer from your IRA to the charity. It doesn’t count as a tax-free transfer if you withdraw the money first and then make a donation to the charity. Ask your tax advisor and IRA administrator what steps you need to take, because the procedures can vary from firm to firm.

During the fourth quarter, we will do our normal review and assessment of dividends and capital gains to determine if anything can be done to offset the gains prior to year-end. With the growth of the market over the past several years, candidly there may not be any options available for offset. We will also make sure all our clients have satisfied their minimum distribution requirements by year end. We encourage all of our clients to seek guidance from their tax consultants and CPAs as it relates to the information contained in this newsletter. 

ADV Part II Update Complete

Congratulations to Lissa Clarke for passing the Series 65 and Notary Public exams! Our ADV Part II has been updated accordingly and can be downloaded from our website (or by clicking here). If you would like to receive a copy by mail, please contact Wyatt at 714-257-0800 or by email at Wyatt@kempfm.com. (For clients utilizing our Virtual Vault, the updated ADV Part II has already been added to your Important Documents folder for your review.)

Kemp Financial Virtual Vault

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Over the summer, Wyatt has been busy organizing our “Virtual Vault” through the Kemp Financial Management website and ShareFile. The “vault” will include all of your paperwork, financial planning documents that we have on file, important documents (i.e. ADV Part II, Privacy Policy) as well as your Update Meeting Documents. All clients will have the ability to access their “Vault” from any of their personal devices and computers. Our “Vault” will be replacing the need to bring a flash drive to our meetings at the office. The flash drive technology is still available if desired.

The “Vault” can also be used to share documents in a secure environment as well. If you would like us to review information and/or if you request information that is “account specific”, we can share that information back and forth in a more secure environment.

If you have not signed up for the “Virtual Vault”, please contact Wyatt by phone or email for instructions.

If you would like to watch a short demo video on how to use the Virtual Vault through ShareFile, you can watch it here.

Kemp Financial Virtual Meeting

Time is free, but it’s priceless. You can’t own it, but you can use it. You can’t keep it, but you can spend it. Once you’ve lost it you can never get it back.” Harvey Mackay

Having just flew over the Los Angeles basin, it never ceases to amaze me how populated Southern California has become. The continued building of multiunit projects expanding horizontally versus vertically will only expand the ever increasing congestion in the Southland.

While we have become accustom to holding phone update meetings over the past several years due to clients moving out of State, we are hearing more and more from our local clients that travel to and from our office is beginning to take longer and longer.

While we can’t provide a good cup of coffee, we can provide a virtual experience as if you were sitting in our family room here at the office. Earlier this year we upgraded our technology to bring our family room to yours. Whether it’s on your phone, tablet or computer, we can have a more colorful conversation using technology to guide you through your Legacy Action Plan.

We can even answer questions and review statements with the help of this technology. Feel free to contact Wyatt so that he can assist you in getting set up for Virtual Meetings.

If you would like to learn a bit more about Kemp Financial’s Virtual Meeting Platform on your own, we have a few resources for you:

Video on how to use the Virtual Meeting Platform

GoToMeeting Guide for Windows

GoToMeeting Guide for Mac

Capital Markets Update

Discussions of trade still rule the day and the capital markets. That said, this quarter has been particularly strong in the capital markets over last quarter regardless of the trade talks. Most of the indices have advanced quite nicely regardless of trade negotiations, or lack thereof, that continues to produce headline news.

The advance has been for the right reasons: great earnings, expanding GDP, low interest rates, benign inflation, low unemployment, good consumer confidence and spending. The economic data that typically drives markets higher continues to remain strong.

In January of this year, the capital markets continued its surge from November, 2016 right through 2017 into the first month of the year. Many critics argued the markets were moving too fast and must be due for a correction. While technically we did not see a correction in February and March, we did see a fairly quick retreat after new highs were reached that was normalized by the end of the quarter. This quarter however, saw the capital markets return to the highs obtained in January.

The increase in market values has brought along the same question that was asked in January of this year, “when is this bull market going to end?”  It is true, we have now entered new territory with the current “bull” market being the longest “bull” market in recorded history. Having begun officially in March of 2009, as long as the markets continue to move higher, we will continue to add length to the new record territory.

While we will not attempt to answer the proverbial “crystal ball” question of when will it end, we do desire to put some perspective around this question. While we continue to be in a “bull market”, one must continue to remember the last 18 years in the capital markets have been highly unusual.

In the late 90’s, we had to remind our clients that stocks do not always go up. We reminded clients about the horrific time period of 1973 and 1974 where large and small company stocks declined 40% to 50% of value. Little did we know 2000 to 2002 the “internet bubble” would burst and stocks would experience a significant decline over that period of time. From then on, we no longer needed a reminder that stocks do not always go up. Six year later, it was proved once again when we experienced a financial crisis like no other. This crisis, deemed as “The Great Recession” drove stocks down to extreme lows easily surpassing the fears created by the earlier technology declines.  

So let’s be clear. We understand we are currently in the longest bull market in history, but let us not forget that we had two significant setbacks in the last 18 years. As mentioned earlier the last significant setback prior to 2000 to 2002 was 27 years prior. We are not suggesting this current bull market will last forever, nor are we suggesting the market is due for a significant setback. But we do not believe the only reason the market should or could go down, is connected to being in the longest bull market in history.

Regardless of the popular opinions in the media of what may occur going forward, our recommendations to our clients have always been about our client’s short and long-term desires. While we do not know what the capital markets will do today or tomorrow, we base our recommendations on your desires.

Throughout the remainder of the year, we invite you to revisit and discuss your short and long-term desires prior to your update meeting. While this is normal protocol for all of our meetings, we specifically would like you to be prepared in advance so that we can make sure we have a complete understanding of where you would like to be going forward.

As always, if you have any questions relating to the material discussed in this newsletter, please feel free to give us a call. We look forward to visiting with you in our family room, either in person or through our Virtual Meeting Platform or by phone. Wising you the very best of health, happiness and success in all you do!