Nobody wants to be surprised when tax time rolls around.

It’s important to keep in mind your contribution limits and federal tax bracket as you plan out your 2021 financial year.

Download this handy reference guide to use which includes a quick summary of:

• Tax advantaged accounts
• Education accounts
• Federal tax brackets

This resource, "The Math Behind Riskalyze" is a deep dive into Prospect Theory and the mechanics that power the Riskalyze Platform.

We are making this white paper available as a directly downloadable resource for the convenience of those interested in the research. You can download a PDF copy directly from Strong Valley, or you can register to download the original white paper directly from Riskalyze here.

You can learn more about Strong Valley's use of Riskalyze on this page:

Let's Talk About Risk.

This resource, "Age, Markets, and Personality: What Really Influences the Risk Number^®" is a research white paper from Riskalyze.

We are making this white paper available as a directly downloadable resource for the convenience of those interested in the research. You can download a PDF copy directly from Strong Valley, or you can register to download the original white paper directly from Riskalyze here.

You can learn more about Strong Valley's use of Riskalyze on this page:

Let's Talk About Risk.

Whether you run a small, family–owned business or a large company, attracting and retaining key employees is challenging in today's economy. Businesses often compete for skilled and talented employees in the same way they compete for a customer's business. So, how can your business set itself apart with top performers?

Small businesses owners should conduct an annual assessment of their personal finances. Owners of small businesses have much the same concerns as everyone else, except they are personally responsible for the fortunes of their enterprise. In a sense, a small business is like a family. And these are important families in American economic life. After all, small business is vital to the U.S. economy, employing half of private-sector workers and creating two-thirds of net new jobs, according to federal data.

Here are 10 tips to follow in weighing a small business owner’s financial plan:

Budget/Saving. The general financial planning rule is that you should save AT LEAST 10% of your income on an annual basis. You should also review short-term and long-term goals to ensure you are saving enough to meet your objectives. 

Maximize Contributions to Retirement Plans. Depending on the size of the company and number of employees, there are many different methods to save for retirement. On an annual basis, business owners should work with their accountants/advisors to determine the most appropriate savings vehicle. Retirement plans include: 401(k)s, individual 401(k)s, individual retirement accounts, Simplified Employee Pension (SEP) IRAs, Roth IRAs, defined benefit and defined contribution plans. This will not only help achieve the goal of saving 10% of your income, but it also can help minimize taxes.

Create/Review Estate Planning Documents. It is important to create wills, living wills, medical and financial power of attorney documents. These documents should be reviewed annually as your personal goals and estate laws change.

Life Insurance. Various types of life insurance are available, including whole life, variable life, universal life, universal variable life and term policies. They provide a death benefit when the owner of the policy passes away. It is important to review your policies yearly to ensure the coverage is adequate to protect your loved ones. Also, financial situations may change, and you may no longer need the full amount or type of coverage you own.

Disability Insurance. Statistically, you have a greater chance of premature disability than premature death. Therefore, it is very important to own adequate coverage to provide for you and your dependents if you are not able to work. Annually, you should review your policy for the type and amount of coverage. 

Business Insurance. As a business owner, it is important to own insurance that will allow your company to run if you are unable to actively participate in its daily operations. This insurance may be used to hire a person to substitute for you, or to replace income from your business if the company no longer exists.

Long-Term Care Insurance. Due to the increasing costs of health care, long-term care insurance policies are evolving to deal with them. Many older policies have become more expensive to maintain or no longer provide enough coverage to meet long-term care expenses.  Each year, review the costs and necessity of these policies.

Education Planning: 529, Coverdell, Uniform Gift to Minors Act (UGMA), Uniform Transfer to Minors Act (UTMA) Plans. Much like health care costs, college education expenses have increased well beyond average inflation levels throughout the past decade.  Several college savings vehicles are available to provide tax advantages and an array of investment options for college saving. These savings plans require thorough annual review of performance and expense levels. 

Tax Planning. Annually, you should meet with your accountant to discuss tax-planning strategies. Tax laws frequently change. In addition, there may be changes to your business that could affect your taxes both at the business and individual level.

Investment Allocation. Review your entire investment portfolio to ensure it is allocated to meet your current and future goals. As your goals and needs change, your portfolio allocation should be readjusted accordingly.

For many affluent individuals, occasional gifts to a favorite charity may satisfy their charitable inclinations. The added incentive of an often substantial tax deduction, coupled with various estate planning benefits, can be the driving force behind such charitable gifts. However, for some individuals, philanthropy is a far more serious endeavor, often involving a successionof substantial gifts of at least $5 to $10 million, which may necessitate the need for control and general oversight. In such situations, a private foundation can be an ideal mechanism for managing a large, continuous charitable giving program.

Private Foundation Basics

In its simplest form, a private foundation is a charitable, grant-making organization that is privately funded and controlled. When properly arranged and operated, a private foundation is an income tax-exempt entity,[i] and tax deductions are permitted for individuals (donors) who donate to them.

Contributions to a private foundation are deductible for gift and estate tax purposes.[ii] The income tax deduction of gifts to a private foundation is a bit more complex.[iii] Generally, the deduction is based on the fair market value of the gift (at the time of the gift), and it is limited by the donor’s adjusted gross income. The charitable deduction will also be limited (to 20%, 30%, or 50% of AGI) depending on the type of charitable organization that is ultimately receiving the gift from the private foundation and the type of gift being made. Gifts that are not cash or publicly traded securities, and that are valued at more than $5,000, require adherence to additional rules in order to ensure deductibility.[iv]

In addition to the advantages of a tax deduction (which is generally not exclusive to private foundations), private foundations may also offer an array of other benefits. Because a private foundation is typically established to manage a long-term charitable gifting program, it may in turn highlight the philanthropic presence and identity of the donor within the community and/or a particular charitable cause. It can also serve to create a family charitable legacy while, at the same time, protecting individual family members from the pressures of other charitable appeals. Finally, a private foundation can serve as an appropriate mechanism for controlling distributions to charities, as well as determining which charities the foundation will benefit.

On the Technical Side

When a private foundation is established, there are two issues that need to be addressed. First, what type of private foundation should the donor establish? And second, how should the private foundation be structured? There are generally three types of private foundations: 1) nonoperating, 2) operating, and 3) company-sponsored. Each type of foundation has specific characteristics that make it appropriate for a particular situation. There are also strict requirements and guidelines that must be followed for each type of foundation.[v]

The most common type of foundation is nonoperating. Essentially, a donor, or group of donors, makes contributions to the foundation, which in turn, makes grants to a charity. In this case, the donor has no direct participation in any charitable work. There are several variations of this type of foundation.[vi]

On the other hand, in an operating foundation, the foundation may have direct involvement in charitable causes (e.g., an inner-city youth center) while retaining the tax benefits of a “private” foundation (although, in some respects, operating similarly to a “public” charity). To qualify as an operating foundation, a foundation must also meet several requirements and tests.[vii]

In addition, a company-sponsored foundation can be used when the majority of contributions are from a for-profit corporate donor. Generally, this type of foundation operates similarly to a nonoperating foundation. It is usually managed by corporate officers, and it has the added benefit of allowing some contributions to accumulate over time. This can help the foundation make continual grants when corporate profits are low (at a time when, ordinarily, contributions would be otherwise forgone).

After careful thought is given to the typeof foundation to be established, the foundation’s structureshould be taken into consideration. There are three ways in which a foundation can be structured: 1) a nonprofit corporation, 2) a trust, or 3) an unincorporated association.

There are a number of factors to be weighed when deciding on which structure is best. Generally, if the donor intends to keep the foundation in existence permanently, a nonprofit corporation or trust may be a better choice. Additional considerations include state and local laws governing private foundations, the type of foundation, the type of donor, the need or desire to make future changes or delegate responsibilities, and personal liability issues.

Complex, Yet Effective

Creating and maintaining a private foundation is much more involved than the use of more traditional charitable giving mechanisms (e.g., CRTs). Therefore, legal and accounting professionals who have experience with private foundations must play a significant role in such an endeavor. In addition, due to the added complexity and need for highly specialized legal and tax expertise, the expenses for design, set-up, management, and grant administration in a private foundation will generally be substantial. Typically, a private foundation is only viable for individuals who intend on making periodic gifts in excess of $5 million.

Certainly, the private foundation allows today’s philanthropist the opportunity to manage substantial charitable gifts, as well as the ability to actually become involved in charitable work if he or she so chooses. It also affords the donor the opportunity to be recognized for charitable giving, while solidifying his or her philanthropic legacy. Like all advanced planning issues, appropriate counsel should be sought in order to meet the goals and objectives of all involved parties.

[i] IRC Secs. 501(c)(3) and 509(a).

[ii] IRC Secs. 2522 and 2055.

[iii] IRC Sec. 170.

[iv] Treas. Reg. § 1.170A-13.

[v] As described under IRC Sec. 508(e).

[vi] IRC Secs. 170(b)(1)(E)(ii) and 170(b)(1)(E)(iii).

[vii] IRC Sec. 4942(j)(3).

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Invest early. Invest often. Invest for growth. These are the basic principles of saving for your child’s college education. The earlier you begin a savings program, the more time you have to benefit from the power of compound interest. For example, if you start saving $200 per month when your child is an infant with a 7% rate of return, you could accumulate as much as $86,000 by the time he or she reaches age 18 (assuming no taxes or inflation). These savings can go a long way toward helping your child get a solid start in life.

It is also worth remembering that you need not amass the total cost of a college education by your child’s freshman year. You can continue to add to your investments, allowing time for potential growth until your child’s final year.

Even if you begin investing later in your child’s life, it is still worthwhile to “think growth.” Many parents invest too conservatively to obtain the capital they need in the number of years available. However, there are growth strategies for all planning horizons. Let’s look at a few of them:

Infancy to Age 10. If your child falls into this age group, you have eight to 18 years to save the funds you need. More aggressive investments, such as stocks and stock mutual funds, may offer the potential for a greater return over time. Although equities are generally considered higher risk than certain fixed-income investments, with time on your side, you are more likely to experience greater portfolio growth over the long term.

Ages 10 to 14. If your child is in this age bracket, you have four to eight years to invest. A balanced portfolio combining growth stocks, stock mutual funds, limited maturity bonds, and bond funds may offer the best of both worlds¾the benefit of potential equity growth, along with the reduced risk of bonds and bond funds.

Ages 14 to 18. With less than four years to enrollment, you may want to consider investments that offer both income and liquidity. Securities, such as Treasury bills, limited maturity bonds, and bond funds, offer the potential for relatively conservative growth, reduced risk, and liquidity.

Regardless of your planning horizon, a well-diversified portfolio will help you spread your investment risk. As your child nears college age, consider reducing your stock holdings and shifting the funds into short-term bonds or fixed-income securities that will mature when tuition is due. Bear in mind, you may not want to pull out of growth investments completely. Remember, you have three years to go until you receive the senior year tuition bill. For assistance in optimizing your child’s college fund, consult a qualified financial professional.

*Note: Investment returns and principal values of stocks and mutual funds will fluctuate due to market conditions. Therefore, when shares are redeemed, they may be worth more or less than their original cost. The principal value of bonds may fluctuate due to market conditions. If redeemed prior to maturity, bonds may be worth more or less than their original cost.