Aimee Butler & Chris Waclawik Promoted to Principals

Aimee Butler & Chris Waclawik Promoted to Principals

 

Merriman Wealth Management, LLC, an independent wealth management firm with over $3.5 billion in assets under management, is pleased to announce the promotion of two new principals – Wealth Advisors Aimee Butler, CFP®, and Chris Waclawik, AFC®, CFP®.  

“Aimee and Chris’s contribution and dedication to Merriman and our clients has been invaluable as we seek to be the destination for clients and employees who are looking to Live Fully,” said CEO Jeremy Burger, CFA®, CFP®. “Aimee and Chris continue to demonstrate a strong commitment to improving the lives of our clients, lifting up their fellow teammates and giving back to their communities.”

Merriman is proud to offer a path to partnership for intellectually curious, motivated individuals who combine technical expertise and empathy. With the addition of Aimee and Chris, Merriman now has 15 principals. 

Aimee joined Merriman in February 2018 in its newly acquired Eugene, OR, office after holding senior leadership roles at Waddell & Reed and Ameriprise. Her leadership experience was indispensable as she helped integrate the newly merged teams and worked with clients to fulfill Merriman’s long-term vision of empowering people to Live Fully. Along with assisting many clients on Merriman’s behalf, Aimee serves on two leadership committees: the first designed to continually enhance the Merriman client experience and the second to attract and retain talented individuals to Merriman.

Chris joined Merriman in May 2014 as an Associate Advisor. Within two years, he was asked to lead and enhance the associate program into a development program for future advisors. While managing this growing team, he continued to be an advocate for clients and has helped the firm grow through new channels. In addition to his direct client work, Chris now focuses his leadership expertise on the Wealth Management Services and Client Experience Operations committees at Merriman. Always ready to contribute, Chris’s tax experience and attention to detail deliver great intellectual value, which consistently benefits our clients and team.  

 

 

 

Disclosure: All opinions expressed in this article are for general informational purposes and constitute the judgment of the author(s) as of the date of the report. These opinions are subject to change without notice and are not intended to provide specific advice or recommendations for any individual or on any specific security. The material has been gathered from sources believed to be reliable, however Merriman cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source.  Merriman does not provide tax, legal or accounting advice, and nothing contained in these materials should be taken as such.

Market Response to Russian Invasion of Ukraine

Market Response to Russian Invasion of Ukraine

 

Russia’s threats and invasion of Ukraine have upset global markets and driven them lower to start the year. Losses and volatility are typical when the future course of events is highly uncertain. However, as shown in the graphic below, what happens in the short term usually has little bearing on future market returns.1

 

 

Intra-year market declines are much more common than one might realize. Every year since 1979, the U.S. market (represented by the Russell 3000 Index) has experienced an intra-year decline of at least 2.7%. In 1987, the market experienced an intra-year decline of 33.1% but still finished the year with a positive return.2

We are biologically hard-wired to respond to uncertainty with action. When we were hunter-gatherers, uncertainty looked like a lion waiting in ambush and action was a beneficial response. When it comes to markets, the opposite is usually true. Time after time, we have seen that sticking with a carefully designed, diversified allocation through ups and downs yields a better outcome compared to selling out and trying to guess when to buy back in.

As we saw in March 2020, early in the pandemic, what feels like the worst of times can, in hindsight, be a market bottom followed by a strong rally. It is also very possible we will see further declines from here. There are many players whose decisions will influence the trajectory of events as well as new paradigms at play, like economic sanctions of unprecedented size and speed of application, and cyberoperations assisted by commercial companies. Given the complexity of the conflict, it is impossible for anyone to predict the outcome or its effects on the global economy.

What we do know is that diversified portfolios are designed to weather uncertainty, and that human ingenuity, perseverance, and adaptability have enabled businesses and their investors to prevail even through difficult times, especially when they are on the side of democracy and freedom. The Ukrainian businesses switching from making farm combines to tank-stopping hedgehogs and metal road spikes, and turning malls into logistics warehouses are great examples.

While our portfolios are diversified, the emerging market funds we recommend have less than 1% of their assets currently in Russian companies and as of March 4, our largest emerging market fund provider, Dimensional, has announced they will be divesting from all Russian assets. We anticipate the others will follow shortly. The markets are signaling that the biggest fear right now is inflation, especially if Western nations choose to cut off the flow of Russian energy. Historically, value stocks have done better in inflationary periods than other areas of the market and we are seeing this with our value positions outperforming the growth segments of the market. With their heavier exposure to natural resource companies, we anticipate this trend could continue if commodity prices and inflation continue to rise.

Hopefully you can find peace of mind knowing that your Merriman portfolio will weather the current storm. If you want to act, you can feel confident in your ability to donate in support of humanitarian aid or the valiant fight of the Ukrainian people, or take action to help reduce dependence on Russian energy.

 

 

 

 

Sources:

1 Vanguard

2  Dimensional Fund Advisors.

 

Disclosure: The material is presented solely for information purposes and has been gathered from sources believed to be reliable; however, Merriman cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. Merriman does not provide tax, legal, or accounting advice, and noting contained in these materials should be relied upon as such. Past Performance is no indication of future results.  The Russell 3000 Index is a market-capitalization-weighted equity index maintained by FTSE Russell that provides exposure to the entire U.S. stock market. The index tracks the performance of the 3,000 largest U.S.-traded stocks, which represent about 97% of all U.S.-incorporated equity securities. Any reference to an index is included for illustrative purposes only, as an index is not a security in which an investment can be made. Indices are unmanaged vehicles that serve as market indicators and do not account for the deduction of management fees and/or transaction costs generally associated with investable products.

How to Report a Cash and Stock Merger on Your Tax Return

How to Report a Cash and Stock Merger on Your Tax Return

 

First: Congratulations on the successful merger of Kansas City Southern (KSU) and Canadian Pacific Railway (CP). Second: It’s no fun to receive a surprise tax bill related to the December 2021 merger, so we’ll try to outline the specifics.

Here are the rules around gain recognition when cash/property is received as part of an otherwise non-taxable merger/transaction: Your original cost basis is first applied or transferred to the shares of the acquiring company’s stock. If your cost basis is greater than the value of the acquiring company’s stock received, then the remaining cost basis is applied to the cash portion of the transaction. If your cost basis is less than or equal to the acquiring company’s stock received, any cash or property received in addition to the stock is taxed as a gain.

 

Case Study #1

You originally bought stock for $10,000 that was later acquired by another company for a total merger consideration of $20,000 ($15,000 for the acquiring company’s stock and $5,000 cash). In this case, your new cost basis in the acquiring company’s stock is $10,000 (where you now have an unrealized $5,000 gain as it’s worth $15,000) and $5,000 realized capital gain (since your cost basis was less than or equal to the stock received of the acquiring company).

 

Case Study #2

KSU and CP merger details: KSU shareholders received 2.884 shares of CP stock and $90 cash for each share of KSU stock in December 2021.

Now how would this transaction be reported on your 2021 tax return if you owned 1,000 shares of KSU at the time of the merger?
  • Original KSU cost basis: $65,000.00 or $65.00 per share purchased > 1 year ago.
  • Merger consideration: $298,657.40 total value received between CP stock and cash:
    • CP stock: 2,884 shares of CP stock worth $208,657.40 (1,000 shares of KSU * 2.884 shares of CP shares at $72.35 on the date of the transaction)
    • Cash: $90,000 (1,000 shares of KSU * $90 cash received per share)
    • Cash in lieu of fractional shares: Since the stock conversion part of the transaction led to a whole number (i.e., 2,884.00 shares versus 2,884.50 shares), no extra cash was distributed for fractional CP shares.
  • New CP cost basis: $65,000 or $22.54 per share ($65,000 KSU cost basis / 2,884 new shares of CP). The cost basis remained unchanged (explained below).

Capital gain: Long-term capital gain of $90,000 realized and reported in tax year 2021. Per the example above, the cash received is treated as a capital gain in the year of receipt since this individual’s cost basis was less than the stock received of the acquiring company (CP in this case). This also left the new cost basis in CP to be unchanged from KSU.

 

Case Study #3:

Now what if the conversion of KSU shares to CP shares led to fractional CP shares? How would that impact the tax calculation? What if you owned 1,150 shares of KSU instead of 1,000 shares?
  • Original KSU cost basis: $65,000.00 or $56.52 per share purchased > 1 year ago.
  • Merger consideration: $343,456.01 total value received between CP stock and cash:
    • CP stock: 3,316 shares of CP stock worth $239,912.60 (1,150 shares of KSU * 2.884 shares of CP shares at $72.35 on the date of the transaction—see below for how the 0.6 of 3,316.60 shares is treated)
    • Cash: $103,500 (1,150 shares of KSU * $90 cash received per share)
    • Cash in lieu of fractional shares (result of 3,316.60 CP shares conversion to 3,316.00 CP shares): $43.41 (CP shares at $72.35 * 0.60) of which $31.65 will be treated as a capital gain in 2021.
      • Capital gain calculation: $31.65 [$43.41 cash received for a fractional share of CP stock – ($19.60 new CP cost basis per share * 0.60 shares)]. The new CP cost basis is calculated by dividing the original KSU total cost basis by the new CP shares received including fractional shares (i.e., $65,000 KSU cost basis / 3,616.60 CP shares).
    • New CP cost basis: $64,988.24 or $19.60 per share. The new CP cost basis is the KSU cost basis less the $11.76 cost basis used up when calculating the capital gain in the cash received in lieu of fractional shares.

Capital gain: Long-term capital gain of $103,531.65 realized and reported in tax year 2021 ($103,500 cash + $31.65 cash in lieu of fractional shares). Per the example above, the cash received is treated as a capital gain in the year of receipt since this individual’s cost basis was less than the stock received of the acquiring company (CP in this case).

 

Case Study #4:

What if you didn’t have as large of a gain on the position when the transaction happened? What if your cost basis was $280,000 instead of $65,000 for 1,150 shares?
  • Original KSU cost basis: $280,000.00 or $243.48 per share purchased > 1 year ago.
  • Merger consideration: $343,456.01 total value received between CP stock and cash:
    • CP stock: 3,316 shares of CP stock worth $239,912.60 (1,150 shares of KSU * 2.884 shares of CP shares at $72.35 on the date of the transaction—see below for how the 0.6 of 3,316.60 shares is treated)
    • Cash: $103,500 (1,150 shares of KSU * $90 cash received per share)
    • Cash in lieu of fractional shares (result of 3,316.60 CP conversion to 3,316.00 CP): $43.41 of which $0.00 will be treated as a capital gain in 2021.
      • Capital gain calculation: $0.00 [$43.41 cash received for a fractional share of CP stock – ($72.35 cost basis per share * 0.60 shares)]
    • New CP cost basis: $239,912.60 or $72.35 per share. The new CP cost basis equals the price of CP shares on the date of the transaction because the KSU cost basis was greater than the amount of CP stock received in the merger.

Capital gain: Long-term capital gain of $63,456.01 realized and reported in tax year 2021 [$103,500 cash – ($280,000 original KSU cost basis – $239,956.01 CP stock received, based on CP share value at $72.35 applied to 3,316.60 shares)]. Per the example above, only part of the cash received is treated as a capital gain since the $280,000 original KSU cost basis is greater than the amount of CP stock received. As such, the remaining cost basis is applied to the cash received until used up; then the remainder is treated as a capital gain.

 

Case Study #5:

What if you bought the KSU stock less than 1 year prior to the stock and cash merger transaction with CP? The only difference is that any gain realized would be treated as a short-term capital gain that is taxed at ordinary income tax rates for Federal income taxes. Per Case Study #4, the $63,456.01 gain would be treated as a short-term capital gain instead of a long-term capital gain.

Estimated taxes: Please be aware that you may need to make an estimated tax payment(s) for Federal and State (depending on what state you live in) income taxes to account for the realized capital gain portion of these transactions to avoid any penalties.

If you have any questions about the KSU and CP cash and stock merger or about any other financial planning topics, please contact the Merriman team.

 

Useful resources:

 

 

 

 

 

Disclosure: The material is presented solely for information purposes and has been gathered from sources believed to be reliable. However, Merriman cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. It is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy or investment product. Nothing in these materials is intended to serve as personalized tax and/or investment advice since the availability and effectiveness of any strategy is dependent upon your individual facts and circumstances. Merriman is not an accounting firm- clients and prospective clients should consult with their tax professional regarding their specific tax situation.  Merriman does not provide tax, legal, or accounting advice, and nothing contained in these materials should be relied upon as such.

Washington Capital Gains Tax and Long-Term Care Payroll Tax – New Taxes and Planning Opportunities in 2022

Washington Capital Gains Tax and Long-Term Care Payroll Tax – New Taxes and Planning Opportunities in 2022

 

The start of the new year is often a time when tax changes go into effect. At the Federal level, the Build Back Better Act, which had some significant tax changes, has not passed. For now, it is unclear if the legislation will pass in 2022. It is also unclear if any of the changes would apply in 2022 or would only apply to future years if it does pass.

In Washington State, 2022 brings the scheduled implementation of two new taxes that have the potential to impact many Merriman clients: the capital gains tax and the long-term care payroll tax.

 

Washington State Capital Gains Tax

Starting in 2022, Washington will apply a 7% tax on realized capital gains above $250,000. The most common assets that will generate income subject to this tax include:

  • Sales of stocks and bonds (and mutual funds, ETFs, and other pooled investments)
  • The sale of a business above a certain size

 

Other assets are specifically exempt from the capital gains tax, including:

  • All real estate
  • Sale of small businesses below a certain size
  • Investments inside retirement accounts
  • Restricted stock units (RSUs) at the time they vest (though their later sale could result in taxable capital gain income)

 

How the tax is calculated

This 7% tax is applied only on capital gains above the $250,000 threshold. It is not impacted by other income. The same threshold applies to married and unmarried households.

Example 1: John sold $500,000 of Microsoft stock in his taxable investment account that was acquired for $240,000. He has no other income in 2022. This results in $260,000 of capital gains. Since $260,000 – $250,000 exemption = $10,000, John would owe ($10,000 x .07 = $700) in capital gains tax.

 

Example 2: Sally has $800,000 of income from her job. She sold $500,000 of Amazon stock that was acquired for $300,000. Because the $200,000 of realized capital gain is less than the $250,000 exemption, she does not owe the capital gains tax. Her other income is irrelevant to this calculation.

 

Example 3: Matt and Molly are married taxpayers filing a joint tax return. Matt sells stock in his individual taxable account that realizes $150,000 of capital gains. Molly sells stock in her individual account that realizes $120,000 of capital gains. Even though they are both individually below the limit, because they are married and are filing a joint tax return, their total gains are $20,000 above the $250,000 limit; they would potentially owe $1,400 in capital gains tax.

 

When are payments made?

According to the state Department of Revenue webpage, the tax will be calculated on a capital gains tax return in early 2023. The tax payment will be due at the same time the taxpayer’s federal income tax return is due.

There does not appear to be a requirement to make estimated tax payments before the end of the year the way some taxpayers are required to do for federal income tax.

 

Potential court challenge

Opponents have challenged the law saying this capital gains tax is unconstitutional under the state constitution. A hearing is scheduled for February 2022. Any ruling is expected to go to the state supreme court later this year.

At this time, we are encouraging families who may be impacted by this new tax to plan under the assumption that it will go into effect.

 

 

Long-Term Care Payroll Tax

We have previously shared about Washington’s new long-term care payroll tax. The tax is 0.58% on all wages (including RSUs at the time they vest) and is used to pay for long-term care benefits ($580 on $100,000 of income).

Taxpayers were given the opportunity to exempt themselves from the payroll tax by securing a private long-term care insurance policy before November 1, 2021, and requesting an exemption from the state.

 

Delay in implementing the payroll tax

In December 2021, Governor Inslee asked the state legislature to delay implementing the payroll tax. That has not happened yet, and employers are technically still required to withhold the payroll tax from employee paychecks.

The requested delay was to allow time to address some concerns, including:

  • The current program is limited to Washington residents. Residents could pay in for an entire working career, move out of state in retirement, and then not be eligible for benefits.
  • The current program has no mechanism for new workers in Washington State to opt out.
  • The current program requires workers to pay into the system who may never be eligible for benefits. Since you must pay in for 10 years to qualify for benefits, older workers who retire before reaching that point will pay in but not qualify for benefits. Military spouses and other out-of-state residents who work in Washington may be in a similar situation.
  • The current program has no mechanism to ensure that individuals who opted out of the payroll tax maintain their insurance.

It is expected that implementing the payroll tax will be delayed, but it will still likely go into effect in some similar fashion in 2023 or 2024.

 

 

Planning Opportunities

The biggest planning opportunity for the capital gains tax is remaining mindful of how much capital gains income is being realized each year. Several large area employers, like Amazon and Microsoft, along with many smaller employers have seen a significant increase in stock values.

At Merriman, we believe in the benefits of diversifying investments and not remaining too concentrated. For tax purposes, it is often beneficial to realize those capital gains over multiple years to spread out the tax impact.

Since the 7% state capital gains tax is in addition to the federal capital gains tax, it likely makes sense to limit those gains to $250,000 per year where possible.

For the payroll tax, there is a bit of a holding pattern. There was a rush of activity in 2021 to qualify for the exemption, and that deadline has passed. Now that implementation has been delayed, we will wait to see what adjustments, if any, happen and what clients should do to plan for it.

We will update with further adjustments for federal and state taxes. Your financial advisor can provide additional specific guidance.

 

 

Disclosure: The material is presented solely for information purposes and has been gathered from sources believed to be reliable; however, Merriman cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. Merriman does not provide tax, legal, or accounting advice, and nothing contained in these materials should be relied upon as such.

 

When Can I Expect My Tax Forms?

When Can I Expect My Tax Forms?

 

We know there’s a lot to keep track of at tax time and we often get asked, “When will I get my tax forms?” Here’s a quick guide of roughly when you can expect to have your tax forms available from your custodian. We encourage you to sign up for electronic tax form delivery for notifications about their availability, ease of access, and security.

Schwab

To ensure timely tax reporting while limiting corrections, Schwab produces its Form 1099 Composite in two separate production runs, depending on the types of investments held and when trades were last placed in the account. If you are a Merriman client, your account(s) will likely be included in the second production run.

First Production run | Posted online and begin mailing forms: February 2
Second Production run | Posted online and begin mailing forms: February 16
Both production runs | Tax software download/export: Available February 18

Source: Schwab

 

You can sign up for electronic tax form delivery by logging into www.schwaballiance.com and selecting the Paperless option in the Service tab.

 

Tax Form Corrections

If Schwab receives updated information from issuers of securities after the initial tax form has been mailed, Schwab is required to send a corrected Form 1099 Composite, with the revisions clearly highlighted, within 30 days of being made aware.

 

 

TD Ameritrade

TD Ameritrade has already posted some 2021 1099 tax forms. If you received at least $10 in dividends or interest, or had a closing transaction or certain reportable corporate actions, an IRS Form 1099 will be issued.

The 1099 forms currently available are for clients who:

  • Had reportable activity as a result of trading and/or dividend or interest income from equity stocks, and
  • Did not hold investments deemed highly likely to reclassify income distributions, requiring a corrected 1099 tax form.

TD Ameritrade will alert clients who have a valid email address on file once their 2021 Consolidated Form 1099(s) and corrected form 1099(s) (if issued) are available for them to view online.

You can sign up for electronic tax form delivery by logging into www.advisorclient.com. then selecting My Profile > Communication Preferences.

 

Clients Who Will Be Excluded from This First Mailing

Clients who had a high probability of income reclassification or cost basis reporting related to fixed-income products were not included in the initial 1099 batch. Their 1099 tax forms will be available in the coming weeks, allowing more time to capture such changes in the original form and reducing the likelihood these clients will receive a corrected form (which could potentially require the refiling of their tax returns).

 

 

Fidelity

Similar to Schwab and TD Ameritrade, Fidelity does multiple 1099 production runs to minimize corrections needed. Depending on the client’s holdings and when transactions occurred in the account, these are the three possible timelines:

 

You can sign up for electronic tax form delivery by logging in at www.fidelity.com and selecting Your Profile (tab) > Preferences > Communication Options. In the electronic/paper mail delivery section, click Update.

 

 

Flourish

1099-INTs have been posted for all applicable accounts. You can log in to www.flourish.com and click on the Documents tab to access your 1099(s), which are dated December 31st, 2021.

Please note: Flourish does not issue 1099-INTs for clients if their combined account(s) do not generate $10 or more of interest in any given year. This does not imply that clients are not required to report interest if under $10. Clients should consult with a tax professional if they have any questions.

 

 

 

Disclosure: The material is presented solely for information purposes and has been gathered from sources believed to be reliable, however Merriman cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. Merriman does not provide tax, legal or accounting advice, and nothing contained in these materials should be relied upon as such.

 

Merriman Wealth Management, LLC, Opens New Office in Bellevue, Moves Seattle Location

Merriman Wealth Management, LLC, Opens New Office in Bellevue, Moves Seattle Location

 
FOR IMMEDIATE RELEASE, January 18, 2022
Media Contact: Jay Scott, jscott@gavinadv.com, 484-695-3774

 

SEATTLE, Washington — Wealth management firm Merriman is opening a new office in Bellevue as part of its strategic growth plan.

The 6,461-square-foot Bellevue office at 10900 NE 8th St., Suite 780, will have 16 employees using it as their primary office starting January 19, with additional hires planned.

According to Jeremy Burger, Merriman CEO, there were several reasons for opening the new office. One top driver was talent acquisition and retention. The Merriman team grew by 15 percent in 2021 and is poised for additional growth this year to support the complex financial needs of its clients in the Pacific Northwest and nationwide.

“Having a presence on both sides of the lake will dramatically increase the number of highly qualified employees who may choose to work with Merriman,” Burger said. 

The new office offers proximity to a larger number of current and prospective clients in the growing Bellevue/Eastside market. But it is also a practical move – most of the 16 employees who will be based out of the new office live on the Eastside.

Along with the new Bellevue space, Merriman has relocated its Seattle office to 920 5th Ave., Suite 2720. The 5,929-square-foot downtown space is home to 23 employees.

“Hybrid work allows us to have wonderful client meeting spaces now in Bellevue and Seattle while also providing high quality remote options for clients, prospects and our growing team,” Burger said. 

Merriman also has offices in Spokane and Eugene, Oregon.

 

About Merriman

Merriman is an independent, fee-only investment advisory firm which manages approximately $3.67 billion for clients across the country. Founded in 1983, Merriman has a strong focus on creating deep relationships built on empathy and understanding and combining that with expertise to give our clients agency and confidence to use their money to achieve true wealth. To help our clients be truly successful in achieving their goals, we offer a comprehensive approach to wealth management that includes not only investment planning, but also encompasses taxes, estate planning, insurance, risk management, charitable giving and more.

 

Printable version available here.