November 2019 Newsletter

Tax Planning Tips

  • Take the time to evaluate your paycheck tax withholding. The Tax Cuts and Jobs Act of 2018 caused a tremendous amount of confusion and frustration due to inaccurate projections. Those issues have been resolved and the IRS encourages everyone to use the Tax Withholding Estimator to help you make sure that you have the right amount of tax withheld from your paycheck. The estimator automatically links to Form W-4, Employee’s Withholding Allowance Certificate, which you can then fill out and submit to your employer.
  • Gather your records. Develop a recordkeeping system – electronic or paper – that keeps important information in one place. Add tax records to the files as you receive them. Having all the needed documents on hand before you start to prepare your return helps you file a complete and accurate tax return.
    This includes year-end Forms W-2 from employers, Forms 1099 from banks and other payers, other income documents, virtual currency transactions and Forms 1095-A from the Marketplace for those claiming the Premium Tax Credit. You should confirm that each employer, bank or other payer has your current mailing address. Typically, these forms start arriving by mail in January. Review them over carefully and, if any of the information shown is inaccurate, contact the payer right away for a correction.
  • Make sure you are up to date on estimated tax payments. For those who pay quarterly estimated taxes (self-employed or investment income), make sure that you are up to date in order to avoid any late payment penalties. If you have lost your payment coupons and need replacements, please let us know. And remember that we recommend paying your 4th quarter Oregon estimated tax payment by 12/31/19.
  • If there has been a change in your life circumstances that would impact your tax liabilities, now would be a good time to check in with us. If you’ve had a change in salary or job, a new source of income, divorce, retirement, inheritance, a large capital gain or loss, children starting college, don’t hesitate to call for an appointment.
  • Keep track of your deductible expenses. As part of the new tax bill that went into effect on January 1, 2018, the federal standard deduction for all filing statuses have increased significantly. This does mean that many of you will not need to itemize deductions on your federal tax return. However, the Oregon standard deduction did not increase, so Oregon residents should still keep track of deductible expenses, which include;
    • medical and dental expenses above 10% of your income
    • state and local taxes
    • mortgage interest
    • charitable donations
    • casualty and theft losses
  • Consider giving through the Oregon Cultural Trust. Charitable giving through the Oregon Cultural Trust offers a unique tax break for Oregon taxpayers. For those who have an Oregon tax liability, you can receive a tax credit of up to $500 (single) or $1000 (married filing jointly) for giving to the Oregon Cultural Trust. This is how it works. If you owe $500 in taxes to Oregon, and you’ve made cash donations of $500 to participating non-profits, you can donate $500 through the Oregon Cultural Trust and you will receive a $500 tax credit, and owe $0 in taxes to Oregon. Click here for more info.
  • Prepare to receive your Tax Organizer from us. In early January, your 2019 Tax Organizer will help you gather what we need to prepare your 2019 tax returns. It will provide you with a detailed breakdown of what we need from you, along with your 2018 numbers for reference.

What is an Enrolled Agent?

Jeremy Watson has now completed all 3 Enrolled Agent Exams to move forward in adding these qualifications to Davidson & Watson Financial.

The Differences Between Enrolled Agents and Other Tax Professionals.

Only enrolled agents are required to demonstrate to the IRS their competence in all areas of taxation, representation and ethics before they are awarded unlimited representation rights to represent taxpayers before IRS. Unlike attorneys and CPAs, who are state-licensed and who may or may not choose to specialize in taxes, all enrolled agents specialize in taxation.

Ethical Standards

Enrolled agents are required to abide by the provisions of the Department of Treasury’s Circular 230, which provides the regulations governing the practice of enrolled agents before the IRS. NAEA members are also bound by a Code of Ethics and Rules of Professional Conduct of the Association.

Year–End Tax Planning for Businesses

Business owners. For those of you who are Sole Proprietors, Partnerships, or S Corporations, make sure to schedule a November or early December meeting with us for some year-end tax planning. We will evaluate your 2019 income and expenses, let you know of any tax-saving moves that you should make before the end of the year, consider the retirement saving options that you may have, and answer your questions.

Please call our office or click this link to make an appointment.

Keep Your Eyes on the Horizon

To: Investment Clients of Davidson & Watson Financial

                We want to assure you that we are paying very close attention to the stock market and the increased volatility that it has shown in recent months and days. And we would like to reiterate our investment philosophy as well as address the recent market activity.

                Days like today are when it is important to remember the core principals of our investment philosophy.

First, we believe that it is vital to choose an investment philosophy and to stick with it for the long-term. Those who invest with a short-term horizon are betting on their ability to “time the markets.” Yet study after study has shown that those who attempt to do this end up getting inferior returns than those who stick with their investments through the ups and downs. This includes even the most sophisticated investment managers who employ teams of full-time analysts. We do not believe that it is wise to try and outsmart the market in this way, as no one can predict when the market will go up or down on a given day.

                Second, we believe that it is a mistake to make emotional decisions when it comes to investing. Many investors panic when they see the markets going down. That makes sense as it is not fun to see your account losing money. However, when investors act on this emotion, they inevitably end up selling after much of the loss has already occurred, and they end up missing the gains that come when the market recovers. When the market is doing well again, they end up wanting to jump back in, and the end result is that they have sold low and bought high. Their emotions cause them to invest in exactly the wrong way.

                Finally, we are always mitigating risks in other ways. A long-term investment horizon is the best way to avoid risk, as the stock market has always grown over time, for more than a century, even if it has lost money over shorter amounts of time. Diversification is the next best way to avoid risk, which is why we recommend stock funds instead of individual stocks. This is also why we recommend shifting your investments from the stock market into fixed-income (bonds and CDs) as you get closer to retirement. This lowers your overall risk as well as allows you to draw on that fixed-income percentage of your investments during a down market, so you have the time to let the market recover.

                So we believe that it is very important to avoid emotional investment decisions and to stick with your long-term investment decisions. That is why we are here. We will remind you of this, regularly.

                However, we are also tracking the market every day and paying attention to market indicators, with our eyes on the horizon rather than on the current day. Over the past year, the stock market has shown increasing volatility. Most of this activity has been centered around an impending trade war with China. The current administration has threatened or enacted tariffs a number of times, which has caused a drop in the market. In almost every case, the market has recovered these losses in the following days and has continued to grow. The most concerning example of this was last December when the markets dropped by roughly 9%. However, they rebounded by 8% in January and 3% in February.

                The other large factor in recent volatility has to do with the “inverted yield curve” which happened this morning and has been impending. You don’t have to understand the details of that, but here is what it means: Investors are growing concerned about the possibility of a recession. The past 7 recessions have been preceded by this “inverted yield curve.” So investors are panicking, and that is why the market dropped today by almost 3%.

                But this is what you most need to understand;  

  1. This “market indicator” is not certain, by any stretch of the imagination. Many economists believe that the changes in federal and global economic policies after the last recession (in 2007-2008) have caused this “market indicator” to no longer be reliable.
  2. This “market indicator” is not immediate, by any stretch of the imagination. These past 7 recessions have started an average of 15 months after the inverted yield curve. So you could lose up to 15 months of market growth by selling today.
  3. The inverted yield curve has already “un-inverted.” The inversion was very short-lived and not very dramatic.

We believe that now is not the time to panic. There is never a time to panic when it comes to investing. However, it is wise to look at the horizon. There are warning signs that a recession may be impending. It is worth paying attention to the “inverted yield curve.” The possible trade war with China has been kicked down the road but may still happen in the next year. And the next presidential election in 2020 could cause more short-term volatility.

We do not recommend moving out of the stock market at this time, especially if you have an investment horizon of 7-10 years or more. However, if you are currently drawing on your investment funds for living expenses or very close to doing so, this might be the time to get more conservative in your investments. We are always available to talk with you about your investment portfolio. So please give the office a call if you would like to schedule a meeting to sit down with us.

Always at your service,

Tony and Jeremy

Introducing Davidson & Watson Financial!

July 15, 2019

Dear Clients,

I am pleased to announce that Jeremy Watson and I have formed a new company Davidson & Watson Financial.  Davidson & Watson Financial will still provide your investment, financial planning, business consulting and all your tax needs.

As most of you already know, I will be cutting back my involvement in Davidson & Watson Financial in February of 2020.  Jeremy Watson will be taking over the running of the business and I will be consulting with him on specific returns and projects.  My consulting relationship will continue for as long as Jeremy or our clients need my assistance.

Jeremy has been working with me for the past three years and in February he will be bringing his expertise as a Certified Financial Planner™ and an Enrolled Agent.  As a Certified Financial Planner™, Jeremy will provide financial planning services, investment advice, retirement planning, insurance advice and investing.  As an Enrolled Agent, Jeremy will prepare and file tax returns for Corporations, Partnerships, Trusts, Estates and Individuals.  Jeremy will be able to represent you before any of the tax agencies receiving your returns.  Simply put, Jeremy will be able to provide any of the services that I provided in previous years, plus financial planning services.

As many of you know, I was a Paramedic before becoming an accountant.  My years in the medical field instilled in me an attitude of service which I brought to my practice.  My focus was always to provide whatever service my clients needed both in their personal and financial lives.  Many of you know that Jeremy is a Presbyterian Pastor, having served for 15 years in full-time church ministry before transitioning to this service industry.  He will continue to provide the same focus on service as we have provided for the past 37 years.

Jeremy and I have known each other for many years.  He is married and has three children.  Pam and I think of his children as our grandchildren and we are affectionately known as Mimi and Toto.  He and his family will continue to be our family, which means I will be available to him for many years to come should he need my consulting services.

I am confident that Jeremy will provide excellent service for all your financial needs.  I have found him to be a good communicator and someone who puts the service to his clients first. Between now and February, we will be working together to provide the best financial services possible to you our clients.

Very truly yours,

Tony H. Davidson, CPA