Impact of Hosting the Olympics

2016-08-01-1470024501-2875993-RioOlympicsThe past several months have been extremely disheartening due to the countless acts of violence and terror that has wreaked havoc across the entire world. An event like the 31st Olympiad, in Rio de Janeiro, brings hopefulness to the world as we set aside our political, religious and other differing beliefs to come together and stand behind the athletes that represent our countries. With all the optimism that surrounds the Olympics, it’s surprising to think that only a few cities offer final bids to host the games each election period. For these 2016 Games, Rio, Chicago, Madrid and Tokyo were the only cities that offered final bids. With the extensive media coverage, publicity and millions of tourist that travel to the Games, it begs the question as to why more cities are not clamoring to host the Olympics?

There is no doubt that the Olympic Games brings national pride to citizens of the host city. However, the underlying fact is that hosting the Olympic Games is an extremely risky megaproject that most cities want to avoid. Since the first modern Olympics held in Athens back in 1896, the cost for hosting the Games has increased exponentially. In today’s dollars, the post-war 1948 London Olympics cost $30 million. From there, the budgets continued to grow until the 1976 Games when Montreal spent $1.5 billion that took 30 years to pay off and almost bankrupted the city. Fast forward to Rio, and the Olympics are expected to cost roughly $12 billion, but could end up costing as much as $20 billion.

Not only are the actual costs of the event astonishing, but the maintenance costs for these Olympic venues after the Games have ended are a burden on the host city. Most of these venues are built specifically for the Olympics. Once the Games have finished, the city has to find ways to utilize these venues to help offset the cost. For example, the Bird’s Nest stadium built for the Beijing Games cost the city $480 million dollars to build. The city is currently looking for a regular tenant, but while it searches, the city has to front the $11 million annual maintenance costs.

The host city does generate revenue from the Games which helps offset some of the costs. Cities receive a portion of the media rights and sponsorship income generated by the International Olympic Committee (IOC). In addition, cities will generate revenue from local sponsorships and ticket sales. An economist from Smith College in Massachusetts estimates that the Olympic Games will generate about $4-5 billion in revenue from these four sources. The remaining funds have to be generated from local and national governments. Any overrun in budget falls on the host city. Since 1960, the average budget overrun is a staggering 179%.

The cities that submit proposals to the IOC understand the risks that are associated with hosting the Olympics. Essentially, they are writing a blank check to fund the infrastructure and security demanded by the IOC. Just because a city hosts the Olympics, doesn’t mean the city will always incur years’ worth of debt. Although past statistics are not favorable, studies show that some hosts experience a positive effect on their economy. The 1992 Barcelona Games may be the most successful in the last several decades. Although Barcelona blew their budget by 400%, the long-term benefits have far exceeded expectations.

When Rio was awarded the Olympics nearly 8 years ago, the country’s economy was thriving. Since then, the country has experienced political turmoil and a suffering economy. The infrastructure and security improvements described in Brazil’s proposal to the IOC were delayed due to the country’s widespread instability. Like Barcelona, Brazil hopes that the newly completed infrastructure and increased publicity will help boost their economy by attracting future tourist and global and local businesses. Once the games have finished, it will be essential for Rio to utilize the infrastructure to help offset the long-term costs.

As great as the Olympic Games are to watch and experience, it’s amazing that the IOC puts this type of pressure on the host city. Unfortunately, there is no indication that the program will change. For the time being, we applaud those cities that volunteer to host this great event. Even with the negativity that has surrounded Rio the last several months, the 2016 Rio Games have been a great success and we hope that these Games will bring a boost to the Brazilian economy and well-being.

Traditional or Roth IRA…Which is best for you?

PICIf given the option, would you rather defer taxes or pay them now? That seems like a fairly straightforward question with a no-brainer answer. In fact, most of us would probably take advantage of the chance to defer any type of payment. People work hard for their money and want to hold onto it for as long as possible. Unfortunately, the answer to that question isn’t as simple when determining which type of Individual Retirement Account (IRA), traditional or Roth, to use for retirement.

There are a handful of differences between traditional IRA’s and Roth IRA’s, but the core differences are in how the accounts are funded and how the contributions and earnings are taxed upon withdrawal. Traditional accounts are funded using pre-taxed dollars, which allows for a current year deferral of taxes by reducing your taxable income. Later, when the funds are withdrawn in retirement, the accumulated contributions and earnings are subject to income tax. On the other hand, Roth accounts are funded using after-tax dollars. Although no current tax break is received, the accumulated earnings and contributions are not subject to tax in retirement.  There is also an annual Required Minimum Distribution (RMD) that the traditional account owner must adhere to upon reaching age 70.5.  Roth accounts do not require any scheduled distributions and can be withdrawn at any time in retirement without a tax penalty.

Choosing a traditional or Roth account depends on many factors, most of which relate to an individual’s current and expected future income tax rates. A key question to consider is whether or not an individual’s income tax rates will be lower or higher in retirement. If income tax rates are higher now than in retirement, the individual is generally better off in a traditional account. Conversely, if income tax rates are lower now than in retirement, the individual is generally better off in a Roth account. Furthermore, if income tax rates are expected to be the same in retirement as they are now, both a traditional and a Roth account will result in the same purchasing power. In addition, another key factor is whether or not a legacy will be left for descendants, as Roth accounts can be “stretched” for decades for children and grandchildren without taxes being incurred.

So, for many, the decision may seem rather simple – just calculate future income. However, predicting future income is difficult, much less guessing whether or not Congress will increase tax rates within the next 10, 20 or 30 years. Instead of trying to predict the future, consider other factors that are more easily determined. Individuals are more likely to earn larger salaries and bonuses as they progress through their career. For a young professional or even a child, their tax rate is likely to be lower than when they would retire. Perhaps a Roth account would be more beneficial initially. It’s important to keep in mind income levels as a person progresses through their career as it may become advantageous to change to a traditional retirement account.

Another factor to consider is where does the individual plan to live upon retirement. States, like New York, have significantly high state tax rates, whereas states like South Carolina and Illinois offer deductions for retirees or even excluded retirement income from state taxes. Better yet, you can choose to retire in states like Florida or Texas, which do not have any state income taxes.

Just because a person is projecting a certain tax rate in retirement or plans to live in a state with minimal or no taxes, an individual can never make a completely wrong decision. Couples often times will look at other factors when choosing the right account for them. If an older couple would like to give a tax-free inheritance to their children, even if it means paying a higher tax rate for the contributions, a Roth account or back-door Roth may be the right fit for them. Or if a young couple is just starting a family and could use the extra tax savings now rather than later, a traditional account may be their best fit.

Whether a person or a couple chooses to defer current taxes using a traditional IRA or waits to receive a benefit upon retirement using a Roth IRA, they can’t go wrong. In either case, they are contributing to their future in an account designed to help them achieve long-term growth of retirement savings. In addition, funds can be converted from traditional to Roth in the future, especially in years of a lower tax bracket. Here at DWM, we strive to give our clients the information they need to make the best decisions for themselves and their family. If you are having trouble deciding which type of account to use or want to review your current strategy, we would be glad to assist.

Don’t Be Like Prince!

FILE - In this Feb. 4, 2007 file photo, Prince performs during the halftime show at the Super Bowl XLI football game at Dolphin Stadium in Miami. Prince, widely acclaimed as one of the most inventive and influential musicians of his era with hits including "Little Red Corvette," ''Let's Go Crazy" and "When Doves Cry," was found dead at his home on Thursday, April 21, 2016, in suburban Minneapolis, according to his publicist. He was 57. (AP Photo/Chris O'Meara, File)

Just a short three weeks ago, the world unexpectedly lost one of its greatest musicians and most unique entertainers in Prince. Whether you follow music closely or not, most everyone has a favorite Prince song. Prince grew up in a musically talented family. His parents were John Nelson, a musician with the stage name Prince Rogers, and Mattie Shaw, a jazz singer. Prince began teaching himself how to play the guitar, drums and piano at age 7. Needless to say, Prince was naturally gifted. Every instrument he touched, he mastered. In Prince’s first album, “For You”, which was released in 1978, he played 27 different instruments. From there, he never slowed down. Throughout his life, Prince produced 39 studio albums, 4 in his last 19 months alone. Prince was so consumed with music that he would spend days in his studio without sleeping. While Prince hardly failed in life, he did fail to plan for his unexpected passing.

We can all agree that planning for life after death is very uncomfortable. We all hope to live forever but, in reality, we never know when our clock will stop. Prince’s family has yet to find a will, or any other estate documents, to outline his end of life wishes. Currently, 51% of Americans age 55 to 64 are following down the same path as Prince. Don’t be like Prince!

If you die without a will, there’s no guarantee who will inherit your assets. Generally, if you are married with kids, your surviving spouse and children will inherit your assets, but why take the chance? If you have a minor child and no surviving spouse, the court would choose their guardians. As a parent, wouldn’t you feel more comfortable appointing your children’s guardian beforehand? In addition, without proper planning, your estate will go into probate court which is costly (as much as 5% or more of the estate value) and time consuming for all parties. Mourning the passing of a loved one is hard enough. Your family shouldn’t have to experience the probate court process as well.

Establishing an estate plan with the proper documents is extremely important. Essentially, your estate plan is an instruction manual on how to handle your assets and end-of-life needs. A minimum estate plan should have at least four documents, which should be prepared by an estate attorney:

  1. Last Will & Testament – This document addresses how your assets will be distributed upon your passing. This document will allow you to assign a guardian for your minor children.
  2. Health Care Power of Attorney – This document allows you to appoint an agent to make medical care decisions should you become incapacitated.
  3. Living Will – This document directs your physician to either continue life or discontinue life-sustaining procedures if terminally ill or permanently unconscious.
  4. Durable Power of Attorney for Property – This document allows you to appoint an agent to manage your assets should you become incapacitated.

For many people, a living trust may be more appropriate than just having a will. A living trust helps administer your estate and can also help you avoid probate. A living trust also allows you and your family to remain in control of your assets while living, even if you become incapacitated. If you become incapacitated with only a will, the court may easily take control of your assets before you die. This a big concern for many families. Executing the appropriate documents is only half the process. You will also need to make sure all assets are titled properly and beneficiary designations, both primary and contingent, are what you want!

A common misconception that many people have is that their estate isn’t large enough to trigger an estate plan. Whether your estate is worth $300 million, like Prince, or a couple hundred thousand, estate planning is essential for everyone. The absence of estate planning can set the stage for conflict among heirs.  Other famous people who left without a will in place include: Jimi Hendrix, Bob Marley, Sonny Bono and Abraham Lincoln.

Here at DWM, we are not legal experts, but we do get involved with our clients’ estate planning and collaborate with their estate attorneys in this very important matter. The information we provide is based on our experience and knowledge in these areas. As part of adding value to our clients, we prepare an estate flow analysis to help clients understand the course of their estate and to make sure the titling and beneficiary designations of each asset are updated to match the clients’ wishes and avoid or minimize probate. If you are looking to begin the estate planning process or review and update your current situation, give us a call, we’ll be happy to help.

Don’t Be A Victim!

tax theftIn today’s technology driven world, the unfortunate reality is that cyber breaches will happen. The Internal Revenue Service recently announced that cybercriminals gained access to personal data from more than 700,000 taxpayer accounts in 2015. A majority of the information is taken from the IRS database, but hackers are beginning to use aggressive and threatening phone calls or emails impersonating IRS agents to gain information directly from taxpayers. It’s important to know how to protect yourself from these unsolicited phone calls and emails and what to do if your information has been compromised.


The IRS, and many states, are now encouraging tax returns to be electronically filed. Many people believe by electronically filing, they are more susceptible to having their information compromised. This is not accurate. These cybercriminals are attacking the IRS online application called “Get Transcript.” This application allows for taxpayers to obtain prior-year tax return information. Whether a taxpayer files electronically or not, each taxpayer has the ability to pull this type of transcript. By accessing prior year tax data, cybercriminals are able to file false returns with more accuracy, making it harder for the IRS and states to detect. The IRS estimated that the government paid out about $5.8 billion in fraudulent refunds to these cybercriminals in 2013.


If the IRS detects that a suspicious return has been filed, they will send a letter to the taxpayer asking to verify certain information. However, most taxpayers become aware of suspicious activity when they try to electronically file their return. The IRS will reject any return immediately if their database shows a duplicate filing for any Social Security number (SSN). This is an advantage of electronically filing versus paper filing. If a taxpayer’s return is rejected and suspects fraudulent activity has occurred, the IRS recommends paper filing your return and attaching a completed Form 14039, Identity Theft Affidavit. Going forward, the IRS would offer free credit protection and issue a specific identification number to use with the filing of future tax returns.


While fraudulent returns are out of taxpayers’ control, taxpayers are able to limit the personal information they release. Scammers have started using phone calls, emails and text messages impersonating IRS agents to gain information directly from taxpayers.  These scammers use the IRS name, logo and fake websites to try and steal money and information.


The IRS has seen an approximate 400 percent surge in phishing and malware incidents so far in the 2016 tax season. The phishing schemes cover a wide variety of topics including, information related to refunds, filing status, confirming personal information, ordering transcripts and verifying PIN information. Some of their emails will include links that carry malware which can infect taxpayers’ computers and allow criminals to access personal information.  If a taxpayer happens to receive a suspicious email, the IRS asks taxpayers to forward the email immediately to


The impersonated telephone scammers are typically aggressive and want the taxpayer to act immediately. The scammers will ask taxpayers to pay their tax over the phone or even ask for personal information if a refund is due. These scammers will also leave voicemail messages asking for an urgent callback. If a taxpayer is suspicious about a phone call, they should hang up immediately. The IRS asks that the taxpayer contact TIGTA immediately using their “IRS Impersonation Sam Reporting” webpage or by calling 800-366-4484.

Here are several tips that will help avoid these scams:


The IRS will NOT:

  • Call and demand immediate payment. The IRS will not call about payments without first sending a bill or notice in the mail.
  • Demand tax payments and not allow taxpayers to ask questions or appeal the amount owed.
  • Require a taxpayer to pay an outstanding payment using credit or debit cards.
  • Ask for debit or credit card numbers over the phone.
  • Threaten to bring in local police or other agencies to arrest the taxpayer if they do not pay.
  • Threaten taxpayers with a lawsuit.
  • Initiate correspondence with taxpayers using email or text message.


Here at DWM, we advise our clients and other taxpayers to get their CPA, or tax professional, involved immediately with any correspondence from the IRS, especially ones involving tax-related identity theft. Corresponding with the IRS can seem overwhelming, so get help. For those clients that self-prepare their returns, we ask that you let us know if you receive any notices or suspect suspicious activity involving your tax information. We’ll do everything we can to help you not become a victim.

Retirement Strategies You Shouldn’t Overlook: Back-Door Roths & QCDs

irarotheggsWithin the last several days, President Obama released his 2017 budget proposal to the public. Included in the proposal were many provisions that targeted retirement income. Between this proposal targeting retirement income and the Bipartisan Budget signed last year that eliminated Social Security claiming strategies, it sure seems retirement strategies are being picked on quite a bit lately. But let’s remember, the President’s proposal shouldn’t be seen as anything more than a “wish-list”. While the “wish-list” provides a good indication of where the administration may be heading, it could take years before any of the provisions gain traction. In the meantime, it’s important to take advantage of the retirement strategies available to us.

One strategy that the President’s proposal would eliminate but is still available this year is known as a “backdoor” Roth. A Roth IRA is funded with after-tax dollars which allows the funds to grow tax-free. In addition, Roth IRAs do not require a minimum distribution to be taken. The limitation with Roth IRAs is that higher earners are not allowed to contribute to these accounts. In the spirit of the law, this would only give these individuals access to a traditional IRA. Traditional IRAs are funded with pre-tax dollars which are then taxed upon withdrawal. These accounts also require a person to take a minimum distribution starting at age 70 ½. By using a “backdoor” approach, these higher earners can have the benefit of contributing money to a Roth IRA. The sequence of action would be for the person to contribute to a nondeductible IRA, then convert to a Roth immediately afterwards. If the taxpayer does not have any pre-tax funds in their IRA, the conversion can be made without tax.

Late in 2015, Congress made permanent a few tax provisions that were set to expire at year-end. One in particular allows individuals to make charitable donations directly from their traditional IRA without treating the distribution as taxable income. As mentioned above, distributions from a traditional IRA are generally taxable and are required when a person reaches age 70 1/2. This transaction, known as a Qualified Charitable Distribution (QCD), will count towards the required minimum distribution but will not be treated as taxable income. To be considered a QCD, the individual must be age 70 ½ or older, the distribution must be paid to a public charity, the full payment must qualify as a charitable contribution and the distributions must be a direct transfer from the IRA trustee to the charity.

Being that the QCD is excluded from taxable income, the charitable donation itself cannot be deducted on an individual’s tax return. At first glance, this may seem to provide no real tax benefit. Why not just include the distribution as income and take the deduction? For many people, this may be the right strategy. For those individuals that are subject to itemized deduction phaseouts and the 3.8% Medicare tax on investment income, a QCD can help minimize or avoid these consequences. In addition, excluding IRA distributions from income will lower adjusted gross income (AGI) and may make it easier to deduct medical expenses and miscellaneous expenses subject to 2% of AGI, reduce the taxability of social security benefits and minimize the Medicare Part B insurance premiums.

It’s typically best practice to make your Roth or Traditional IRA contributions early in the year, so they can grow tax-free or tax deferred all year. Most of you will be meeting with your CPA or financial advisor within the next several weeks. This will be a good time to discuss these two strategies and see if they will work for you. Here at DWM, we are always happy and available to have these discussions with our clients, during tax season or not. Please let us know how we can help.

How the New Changes to Social Security May Affect You

How-Social-Security-Works-cartoonPresident Barack Obama signed the Bipartisan Budget Act of 2015 into law on November 2, 2015. The budget provides relief for sequester cuts and allows for increased investments to support economic growth and build a strong middle-class for the next two years. To offset the cost of additional discretionary spending, the budget had to make cuts or changes to certain programs, including the Social Security program. The adjustments to Social Security will eliminate the file and suspend and restricted application strategies that helped some couples increase their lifetime Social Security benefits.

The new Social Security laws will take effect May 1, 2016. For those individuals currently using the file and suspend or restricted application strategies, they will not be affected by the rule changes. In addition, those individuals that turn age 66 before April 30, 2016 may elect to use the file and suspend strategy, if completed before May 1, 2016. The restricted application strategy will be available for those individuals that turned age 62 by December 31, 2015.

The file and suspend strategy allowed for one spouse, who reached their full retirement age, to file for and immediately suspend his or her benefits. By doing so, the second spouse would be allowed to start receiving a spousal benefit. The suspended benefits of the first spouse would then accrue delayed retirement credits at 8% a year. Under the new rules, if an individual decides to suspend his or her benefits, all benefits payable on his or her earnings record to other individuals will be suspended as well.

The restricted application strategy was often used in conjunction with the file and suspend strategy. By filing a restricted application, a person could apply for just a spousal benefit while his or her benefits accrued delayed retirement credits. Under the new rules, filing for a spousal benefit will trigger a person’s own retirement benefit. The Social Security Administration will pay only the greater of the spousal benefit or a person’s own benefit.

These two strategies were actually unintended loopholes that extended from the “voluntary suspension” concept introduced by the Senior Citizen Freedom to Work Act of 2000. The idea was originally intended to allow seniors that had mistakenly applied to receive their benefits early, stop their payments and earn delayed retirement credits. This allowed for these seniors to continue working, or even rejoin the workforce, without the risk of reducing or eliminating their social security benefit. The Social Security Administration will reduce a person’s annual benefit, if under the full retirement age, by $1 for every $2 made over a certain dollar threshold ($15,720 for 2016). Earned income includes W-2 wages and net earnings if self-employed. It does not include pensions, annuities, investment income, interest, or government or military retirement benefits.

It’s important to note that even if you missed out on using one of these strategies, you still may receive your maximum benefit. According to an analysis done by Social Security Choices, a software company that helps individuals optimize Social Security strategies, only about 18% of the cases analyzed showed it was beneficial to use the file and suspend and restricted application strategies. In addition, if these strategies were implemented, it could take as many as 12 years until a cumulative benefit was received.

With Social Security benefits playing a large part in calculating financial independence, DWM has researched the new adjustments to better understand how our clients will be affected. Although the new laws will limit the amount of planning available, we will continue to analyze each client’s Social Security situations in an effort to maximize their benefits, as there are still options and strategies available.

Furthermore, any quantitative analysis is complicated by the risk that there will be future changes to Social Security, which could include “means testing”.   Individuals, whose retirement incomes exceed established thresholds, could have their future benefits reduced or eliminated. We anticipate that maximizing Social Security strategies will continue to be a moving target. We look forward to working with each of our clients as they approach “retirement age”.

Planning for the Yearend

20151117 SW blog picWith Paul Ryan being elected as the new House Speaker on October 29, 2015, many are looking ahead to the possible “once-in-a-generation” tax overhaul. Ryan is considered by many as one of Congress’ most distinguished and ardent tax experts. Before becoming House Speaker, Ryan served as the chair of the House Ways and Means Committee where he spent time laying the foundation for an ambitious rewrite of the tax code. Although many of Ryan’s ideas have fallen short in the past, he now carries the weight to push a new tax reform to the next level. With time running out in 2015 and the presidential election happening at the end of 2016, the likeliness of a major tax overhaul could occur in the early stages of the next presidency.

While it’s fun to entertain the idea of a new tax code, we all know how difficult it is for the government to pass any bill these days. With that being said, it’s imperative that you, the taxpayer, remain in the present and focus on tax planning for the current year. Even without the major tax legislation headlines for 2015, it’s still a good idea to know the changes that may take place. If Congress moves as they did last year, the decision on which tax provisions are extended could occur as late as the last week of December. Luckily, most of the major tax changes occurred in 2013, so any last minute decisions to extend some of the current provisions shouldn’t cause a major “sticker-shock” for 2015.

An important part of planning each year is to make sure the tax strategies used in the prior years are still effective. Taxpayers saw as much as 14-18% increase in tax, even with consistent income, since the 2013 laws were enacted. A majority of the increase was related to the increase in tax rates, increase in capital gains tax, phase outs of deductions and addition of the 3.8% Medicare surtax on net investment income. There are strategies such as grouping related passive activities, deferring income and accelerating expenses, shifting income to children – especially if you own your own business, examining the entity structure of your business and minimizing the effects of Alternative Minimum Tax that can help reduce your tax liability. If these strategies are not already in place, it’s important for you to bring some of these ideas to your CPA.

Being that healthcare insurance is an item that affects each and every one of us, it’s important to understand a few of the tax law changes that affect this topic. These changes won’t necessarily have a large impact on reducing your tax liability for the upcoming filing season, but they can affect planning and eliminate penalties. While you may or may not understand the thoughts behind Obamacare, it’s important to know the penalties being enforced for not having health insurance. The penalties last year were fairly insignificant – greater of $95 per person or 1% of household income. Moving forward the penalties are becoming more substantial. The penalties for 2015 and 2016 are the greater of $325 per person or 2% of household income and $695 or 2.5% of household income, respectively. There may not be a way out of paying the penalty for 2015, but it’s advised to look into the exchange market if necessary for 2016. Another area you may be familiar with is a Flexible Spending Account. These accounts allow taxpayers to contribute pre-tax dollars to pay for health care expenses. Traditionally these accounts were “use it or lose it” plans. As of 2013, these plans allowed you to roll over $500 to the next year. Starting in 2015, the laws have changed again in regards to these accounts. If you have an FSA and decide to roll over an amount, you will be ineligible to participate in a Health Savings Account (HSA) for the year into which the amount was rolled over. Many employers offer both FSA and HSA plans if you elect a high-deductible insurance plan. Be mindful of this new change so you can maximize the pre-tax savings gained from contributing to an HSA.

The tax changes and strategies mentioned above are just a few of the important items you should be aware of when looking at year-end tax strategies. With every taxpayer being unique, tax planning should be done on an individual basis. We encourage our clients to schedule an appointment with their CPA each November or December to review their projection. There may still be strategies available that can save 2015 taxes and need implementation by December 31st. For our clients who prepare their own returns, DWM would be happy to help them with this before year-end. It’s always a good financial plan to know what to expect when April 15th rolls around.

P.S. Please join us in welcoming Sam Winkler, CPA, to our DWM team. Sam joined us last week from Dixon Hughes Goodman LLP, in Charleston. Sam, wife Lauren and their twelve-week old son, Will, live in Mt. Pleasant. Sam will be heading up our tax and estate planning area for all DWM clients as well as adding value in all aspects of our wealth management services. Welcome aboard, Sam!