Category Archives: Thoughts From Willis

Thoughts From Willis | Hot Dogs, Fireworks, & Reviewing Your Investment Accounts

Published June 26, 2018

Next week, the average investor will celebrate July 4th with hot dogs, fireworks, and a semiannual review of their investment accounts…

Why? Because they have been busy all year and finally have the time to do so.

 

Independence Day is one of the few holidays that does not fall on a Friday or a Monday. For many corporate professionals, this justifies taking an extended vacation. This year, July 4th falls on a Wednesday, meaning the market will close at noon on July 3rd.

 

So, when a national holiday falls in the middle of the week like July 4th, how will the stock market be affected?

 

The key players driving the market during this year’s middle-of-the-week July 4th holiday are composed of three major trading groups and their activity during this period varies as outlined below.

 

Institutional Traders Do Less:

More than likely, these individuals will be taking off a portion of the July 4th holiday week, if not the entire week. This will potentially result in less-active trading for this period.

 

Automated Traders Do the Same:

Automated traders are computerized trading programs, which will not rest over the holiday. However, the pricing parameters remain set and execute only based off prior-set trading points if they are hit.

 

Busy individuals Do More:

Corporate professionals and executives account for many of the busy individuals who traditionally review their accounts at the end of the year and over long holiday weeks and/or weekends like the Fourth of July and Thanksgiving.

 

If institutional traders are not executing big trades during the July 4th week, the individual trader will account for a larger portion of the trading volume during the holiday break.

 

Thus, the individual trader should have more influence over the market’s activity than they normally would during an average market week.

 

Historically, the individual consumer’s trading activity has produced large swings in the market during similar mid-week holidays.

 

Should this scenario have any effect on your decision to buy or sell over the next week?

 

At Willis Johnson & Associates, we have our price targets for trading already set. In addition, we will have staff present during the upcoming holiday week in case a change needs to be made.

 

What is your plan?

 

CEO and President,

Willis Johnson CFP®

 


Willis Johnson & Associates is a registered investment advisor. Information presented is for educational purposes only. It should not be considered specific investment advice, does not take into consideration your specific situation, and does not intend to make an offer or solicitation for the sale or purchase of any securities or investment strategies. Investments involve risk and are not guaranteed. Be sure to consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed herein. Insurance products and services are offered or sold through individually licensed and appointed agents in various jurisdictions. 

Thoughts From Willis | Congratulations, Nick Johnson for Obtaining the Designation of Certified Financial Planner®

Published: May 22, 2018

For this month’s piece, I’d like to take a moment to congratulate WJA Vice President, Nick Johnson for obtaining the esteemed designation of Certified Financial Planner®.

What does it mean to be a Certified Financial Planner®? Why does it matter?

 

The CFP® designation distinguishes the title holders from their peers by requiring individuals to complete extensive training, education, and experience requirements, as well as abide by stringent ethical standards. All of these elements work to ensure the financial planner who wears the designation will ultimately put the client’s best interest over their own when providing wealth management services.

 

The CFP Board’s education requirements include both the completion of a financial planning curriculum at a college or university approved by the CFP Board, as well as the successful completion of the CFP Board’s Certification Exam.

 

Nick completed his certification requirements, a comprehensive effort in itself while managing the everyday operations of the firm. However, if you know Nick, that comes as no surprise. His passion for education has remained a consistent theme in the development of his career, from completing three degrees at Trinity University, to achieving his CFA® at only 27, to heading the WJA internship program. These are only a few of the ways Nick continues to learn– and help others learn– as he develops his professional career.  

 

I am very proud of the team here at Willis Johnson & Associates. The individuals we hire exhibit an insatiable desire to grow and understand the value of continued education to their professional development. Nick leads in continuing to build a culture of sharp, talented, and most importantly, driven individuals who are always looking for ways to improve.

 

Congratulations Nick, and thank you for leading by learning.

 

You can connect with Nick on LinkedIn to read his latest thoughts on the industry and browse our custom WJA content.

 

CEO and President,

Willis Johnson CFP®

 


willis

Willis Johnson, CFP®

CONNECT WITH ME ON LINKEDIN

 

Willis Johnson is President and Chief Executive Officer of Willis Johnson & Associates. As a CERTIFIED FINANCIAL PLANNER™ professional (CFP®), Mr. Johnson provides a full complement of financial services to individuals as they go through the transitions in their corporate life. 

 

During his 34 years as an advisor, 13 years with a national financial advisory firm and 21 years as a principal at his own firm, Mr. Johnson implemented exclusive estate and financial planning techniques. His structured methodology, customized for each client, is still the basis of his approach today. Building grounded, long-term relationships, while understanding client objectives and goals, is always the key to Willis’ success as a Certified Financial Planner® professional.

 


 

Willis Johnson & Associates is a registered investment advisor. Information presented is for educational purposes only. It should not be considered specific investment advice, does not take into consideration your specific situation, and does not intend to make an offer or solicitation for the sale or purchase of any securities or investment strategies. Investments involve risk and are not guaranteed. Be sure to consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed herein.

 

Thoughts From Willis | Are You Ready for the Big Game? How to Avoid Financial Planning Risks and a Nail-Biting Finish

Published: April 24, 2018

I often hear investment professionals on financial networks compare the market cycle to the innings of a baseball game.

 

They associate the first inning with the beginning of a long, positive bull market, and the ninth inning with the end of a cycle, just prior to the beginning of a bear market. However, I feel a better analogy is to compare baseball to an individual’s financial planning journey.

 

In baseball, like many sports, the ending score is the only one that really counts. However, if you get ahead early in the first few innings, you have flexibility. You have the option to protect your lead by playing conservative and saving your pitchers, or, you can take the risk and pour it all on.

 

As you approach the end of the game, the losing team will begin making aggressive changes. Why? Because at this point, they have nothing left to lose. It’s time for the big play, the pinch hitter, the new pitcher and aggressive base stealing. If the aggressive play does not work and the game ends in a loss, most fans can say ‘at least they tried’, or ‘at least they gave us an exciting finish’.

 

In baseball, high risk moves are thrilling and, sometimes, taking such risk can yield very positive results. However, when it comes to financial planning, relying on the risky plays later in life to make up for all the years you skipped saving or planning can be a gamble. Unlike baseball, when you’re taking significant financial risks in the later stages of your retirement journey, you have a lot to lose.

 

Life doesn’t have another season.

 

You don’t want to run out of money in the seventh inning before the end of the game. More importantly, you don’t want to begin the game with the ‘I can make up for it later’ mindset. As you prepare for retirement, your financial well-being will likely be affected if you skip an inning of planning, saving, or reviewing your financial affairs.

 

So, what is your financial planning team doing to help you get ahead and avoid financial planning risks?

 

Have you developed your financial plan to get you through the ninth-inning and potential extra innings, or…

 

Have you skipped planning this year hoping for an exciting finish to save your financial game?

 

 

President and CEO, CFP®
Willis Johnson

Willis Johnson & Associates is a registered investment advisor. Information presented is for educational purposes only. It should not be considered specific investment advice, does not take into consideration your specific situation, and does not intend to make an offer or solicitation for the sale or purchase of any securities or investment strategies. Investments involve risk and are not guaranteed. Be sure to consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed herein.

Thoughts From Willis | Building Your Financial Planning Team

Published: March 27, 2018

We’re about to wrap up the first quarter of 2018, and many are still focused on their fitness goals and resolutions. Have you made a similar commitment to your long-term financial goals?

The beginning of the year is a great time to address both fitness goals and financial goals, as they both require a strategic plan and steady commitment to facilitate long-term success.

 

Statistics show that we have a greater chance of achieving our fitness goals when we work out with a group of individuals with health obstacles and fitness goals similar to our own.

 

A recent study published by American Osteopathic Association revealed that, “those who exercise individually put in more effort but experienced no significant changes in their stress level and a limited improvement to quality of life,” when compared to those working out in a group.

 

When there is someone else invested in your goal, there is someone else holding you accountable and supporting your efforts along the way. The same philosophy applies to developing and executing a financial plan, which is why it’s often most effective for an individual to engage professional guidance.

 

The Power of Accountability and Financial Planning

A financial planning professional can help build a long-term financial plan suited to each stage of your life journey,

and most importantly, they will hold you accountable if you begin to wander from your set plan.

 

Like your health, your financial well-being isn’t something you can wait until the last minute to address. You want to begin the financial planning process early-on, well in advance of retirement so you’re ready to overcome whatever curve-balls life may throw your way. Begin preparing for retirement today and consider the following questions:

 

Who can you trust to hold you accountable and keep you on track to meet your long-term financial goals?

Who can you turn to for clarity when it comes to your unique financial situation? How do you know if you’re still on the right path when/if things change?

 

It’s never too early to start planning for retirement. Take the time to prioritize your financial well-being today so you’re well-prepared when it’s time to retire. 

 

 

President and CEO, CFP®
Willis Johnson

 

Willis Johnson & Associates is a registered investment advisor. Information presented is for educational purposes only. It should not be considered specific investment advice, does not take into consideration your specific situation, and does not intend to make an offer or solicitation for the sale or purchase of any securities or investment strategies. Investments involve risk and are not guaranteed. Be sure to consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed herein.

Thoughts From Willis | Market Corrections Revisited and the Lessons We Learned

Published: February 27, 2018

It has been almost 9 years…

Next week, March 6, 2018, will mark the nine-year anniversary of the stock market bottom that resulted from the 2007-2008 Financial Crisis.

 

March 6, 2009 Stock Market Bottom: A Brief History

The Standard & Poor’s 500 declined 37% in 2008 alone. However, this market crisis did not start in the equity market. It started as a result of the over-inflated real estate market that was financed through the creation of weak-to-improper loan practices where commission-motivated loan officers loosely qualified home buyers for home loans they could not afford.

 

These loans were packaged by creative brokerage firms and banks, and were sold mostly to institutions and individual bond buyers who did not have a thorough understanding of what they were buying. Such individuals and sophisticated institutions purchased these bonds hoping to receive above average yields with little risk and low volatility. These types of investments can work for experienced investors, but they tend to have a very short shelf-life. In addition, they almost always end poorly for the average, unsuspecting buyer.

 

Let’s take a moment to travel back to the bottom of the market in March 2009…

 

Stocks/equities

On March 9, 2009, the S&P 500 closed at 676. Fast forward to Friday, February 23, 2018, where the S&P 500 closed at 2747.

 

This comparison represents an annualized return of 16.65% over the last 9 years. These returns have been supported on two fronts. The first being very low stock market valuations after the crash, and the second, a sustained period of very low interest rates.

 

Bonds

The 10-year Treasury rate over the same period has held the lowest interest rates in modern history. On March 9, 2009, the 10-year Treasury yield closed at 2.89%. On March 9, 2015, the same corresponding yield was 2.19%, and on March 9, 2016, it closed at 1.89%.

 

To put this in perspective, the 10-year Treasury closed Friday, February 23, 2018, at 2.94%, which was almost the same level as the close the day the markets bottomed.

 

Your Perspective: Market Activity 2009 vs. 2018

The important question to ask considering this information is: How did you react after the 2008 correction? Did you buy, sell, or stay the course?

 
An even more important question: How have you reacted since 2008? The market corrected from 5-15%. Did you buy, sell, or stay the course? Did you panic, assuming the next crash was coming and that you needed to get out fast?

 

Throughout February 2018, the market experienced a 10% drop. At Willis Johnson & Associates, we took this opportunity to add to our equity positions. 

 

What did you do?

 

 

President and CEO, CFP®
Willis Johnson 

Thoughts From Willis | Building Our Library With You In Mind

Published: January 19, 2018

Throughout 2017, Willis Johnson & Associates worked to expand our online library of educational resources and share this information with corporate professionals and executives.

As you take on 2018, it’s important you reflect on what you’ve learned over the past year, which is why I’d like to take a moment to revisit some of our previously published content that I believe can provide value as you continue your financial journey.

 


 

The articles listed below offer a variety of technical and conceptual content that serve to address the main concerns and interests of our readers. Whether you’re looking for guidance when selecting a financial advisor, understanding your investment options, assessing market activity, or even something as specific as handling the financial aspects of one’s Hurricane Harvey recovery, the following articles may be of use to you.

 

The WJA team will continue to build our educational library around these topics to help our readers deepen their understanding of their financial planning needs and options. Please let us know if there’s something else you’d like to see us write about in 2018! If you have any questions, contact a member of the WJA team and we will work to provide you with the information you need. Click on the links below to explore our most popular educational content of 2017. 

 

 

President and CEO, CFP®
Willis Johnson 

WJA BLOG HIGHLIGHTS

 (Your 2017 Favorites) 

What Nick’s Reading | Tax Cuts & Jobs Act: The Basics

What Nick’s Reading | How to Compare: Roth Contribution vs. Roth Conversion vs. Roth Re-Characterization

What Nick’s Reading | Sequence of Return Risk

Thoughts From Willis | Filling Your Grain Elevator: Storing Your Profits for the Years Ahead

What Nick’s Reading | 401(k) Loans vs. Home Equity Loans: The Real Cost of Borrowing from Your 401(k)

What Nick’s Reading | P/E Ratios Predict Long-Term Returns

Financial Fact | Exchange Traded Funds vs. Mutual Funds: What You Need To Know

Financial Fact | Do You Have a Non-Qualified Retirement Plan?

Thoughts From Willis | What it Means to Have a Proactive Versus a Reactive Advisor

Financial Fact | How to Make the Most of Your Hurricane Harvey Property Loss Deductions

Financial Fact | Net Unrealized Appreciation

Thoughts From Willis | Remembering Black Monday: What We Can Learn From the 1987 Market Crash

What Nick’s Reading | State Income Tax May Impact Where You Buy Your Retirement Home

Thoughts From Willis | A Guide for Your 1st Meeting With a Financial Advisor: What to Expect

 

 

Willis Johnson & Associates is a registered investment advisor. Information presented is for educational purposes only. It should not be considered specific investment advice, does not take into consideration your specific situation, and does not intend to make an offer or solicitation for the sale or purchase of any securities or investment strategies. Investments involve risk and are not guaranteed. Be sure to consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed herein.

Thoughts From Willis | Filling Your Grain Elevator: Storing Your Profits for the Years Ahead

Published: December 22, 2017

Grain elevators emerged in North America in the second half of the nineteenth century. As American agriculture shifted from a subsistence-based economy to a cash-market economy, wheat farmers needed to store mass amounts of their crop to meet growing demands. This is where grain elevators helped farmers take advantage of a bumper crop year and prepare for those times when the year’s bounty resulted in less than expected.

 

Before the introduction of the grain elevator, grain was generally stored in bags rather than in bulk quantities. Thus, farmers could not efficiently store mass amounts grain to be distributed in later years. The contraption was designed and built by Joseph Dart and Robert Dunbar in 1842 and was first used in Buffalo, New York. Its use spread across the United States, making the grain elevator a staple of the American landscape and a primary facilitator of American agriculture’s transition to a cash-market production model.  

 

Like those farmers of the 1800s, after a bumper crop in the stock market, it may be an appropriate time to make sure your grain elevator is full and capable of enduring a potential drought or slowdown in the years ahead.

 

Remember, for many, retirement may cover a span of 15 to 25 years, during which you’re likely to face some less than profitable years.

 

At Willis Johnson & Associates, we prepare financial models to determine the probability of success when working to meet your retirement goals. These models are based on different rates of return, with most common assumptions positioned around 6.2%, and then stress tested at low returns. We also run Monte Carlo simulations to study the probability of success.

 

With this as a starting point, it’s fair to assume that based on the overall performance of the stock market in 2017, it is likely many investors may have exceeded the 6.2% rate of return this year. That being said, you should fill your grain elevator before you start spending too freely.

 

You may consider taking one or more of the following steps to take advantage of this particularly profitable year:

 

1)      Make sure your cash reserve/emergency account is full.

2)      If you had planned on making a major purchase in a year or two, set that money aside today.

3)      If you have high interest debt, think about paying it down.

4)      Think about starting education 529 plans for your children or grandchildren.

 

Of course, you should always talk with your financial advisor and review your long-term plan before making any final decisions. If you have any questions, you can reach out to a member of the WJA team for more information.

 

*Investing involves risk, including the potential loss of principal. Past performance is not a guarantee of future results. 

 

Willis Johnson & Associates is a registered investment advisor. Information presented is for educational purposes only. It should not be considered specific investment advice, does not take into consideration your specific situation, and does not intend to make an offer or solicitation for the sale or purchase of any securities or investment strategies. Investments involve risk and are not guaranteed. Be sure to consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed herein.

Thoughts From Willis | A Year of Blessings: Giving Thanks at Willis Johnson & Associates


Once again, it’s that special time of year when we all take a moment to gather with loved ones, overindulge on turkey and pumpkin pie, and most importantly, express our gratitude for both the blessings and the challenges we’ve faced thus far.


 

For Houstonians, 2017 has been particularly tumultuous. Throughout the year, we witnessed families, communities, and the Houston area as whole come together to navigate the hardships and celebrate the victories we encountered. All of us at Willis Johnson & Associates are proud to be a part of such a resilient and charitable community.

 

As summer came to a close, Hurricane Harvey unleashed destruction and chaos across south Texas.  While many families are still picking up the pieces, we know Houstonians will continue to help provide relief to those affected by the storm.

 

Our firm was very fortunate as none of our employees, and few of our clients, suffered severe damages as a result of Hurricane Harvey. Unfortunately, Patsy and I are have just begun repairs to restore the damage our home incurred as a result of the Addick’s Reservoir flood, and we are looking forward to a late spring move-in. Unlike many others in our position, we were fortunate enough to lease a temporary apartment until our home is habitable. The Johnson family will be forever grateful to those who have supported us throughout this event, and we hope our fellow Houstonians can take the time to enjoy the holiday festivities in the midst of their own recovery efforts.

 

On a more positive note, WJA surpassed its quarterly goal for three consecutive terms, which propelled the firm’s steady growth over the course of 2017. This achievement has allowed Willis Johnson & Associates to attract and hire additional top-tier professionals capable of enhancing the value we deliver to the corporate professional, and enabled our team to continue our commitment  to providing top-notch service and technical expertise.

 

I believe WJA’s consistent success can be primarily attributed to our team’s unique financial planning expertise. Willis Johnson & Associates provides financial planning services focused around the goals and needs of corporate executives and professionals. We’ve accompanied hundreds of these individuals along the road to retirement, and this repeated experience has given our firm an in-depth understanding of the corporate professional’s life journey which allows us to take a proactive approach to helping them obtain their financial goals.  

 


“If you are really thankful, what do you do? You share.”

W. Clement Stone


 

Copy of Constant Contact thanksgivingdinnerThe WJA team is dedicated to delivering the utmost value in everything they do. Our primary goal is to become our clients’ most trusted advisor and help them successfully reach their retirement goals to fulfill their life vision. In doing so, we strive to become recognized and respected as an industry leader in the Houston area. 

 

 

Throughout the course of 2017, Willis Johnson & Associates was ranked #11 on the Houston Business Journal’s list of the 2017 Top Wealth Management firms*, recognized by Financial Advisor magazine as one of the top 400 financial firms in the nation** of 2017 with more than $250 million AUM, named to the 2017 edition of the Financial Times national 400 Top Financial Advisors*** with more than 10 years experience and more than $300 million in assets under management, and most recently, WJA was awarded a place on the 2017 University of Houston’s Cougar 100**** list of the fastest growing Cougar-owned businesses across the globe ranked by their two-year revenue growth.  Again, none of this would be possible without the commitment of the WJA team and the trust our clients place in us, for which I am exceedingly grateful. 

 

As we approach the end of the year at Willis Johnson & Associates, I’d like to personally thank each of our clients for allowing us to be a part of your life journey. On behalf of myself, Nick, Patsy, and the WJA family, we hope you and your loved ones have a happy, blessed, and safe Thanksgiving holiday.

 

 

Let’s not forget to thank the Houston Astros for giving our city a much needed win.

We are blessed to call our home team the 2017 World Series Champions.

#1

Go ‘Stros!

 

 

 

Happy Holidays,

 

Willis Johnson, CFP®

President and CEO

 

*Ranked by Assets Per Local Client.
**Ranked by discretionary and non-discretionary assets under management as reported on Form ADV.   
***Financial advisers from across the broker-dealer channel applied for consideration, having met a set of minimum requirements. The applicants were then graded on six criteria: assets under management (AUM); AUM growth rate; experience; advanced industry credentials; online accessibility; and compliance records. There are no fees or other considerations required of advisers who apply for the FT 400.”
****To be considered Cougar-owned, the company must be 51 percent owned by a Cougar or cumulatively by a group of Cougars. Cougar-led companies are considered those with a CEO, president, managing partner or chairman who is a Houston Cougar. Only companies that submit an application are eligible. The 2017 Cougar 100 list was ranked by two-year revenue growth.
Third-party rankings and recognitions are not a guarantee of future investment success and do not ensure that a client or prospective client will experience a higher level of performance or results. These ratings should not be construed as an endorsement of the advisor by any client nor are they representative of any one client’s evaluation.

Thoughts From Willis | Remembering Black Monday: What We Can Learn From the 1987 Market Crash

Last week was the 30th anniversary of Black Monday, October 19, 1987. On this day, the market dropped 23 percent in 24 hours. I remember the day, the week, and the year very well.

 

At the time of the market crash, I was four years into my new career and had recently left the security of working as an accountant to enter the emerging industry of financial planning. Stockbrokers had been around for hundreds of years in one form or another, but financial planning was still in the early stages of its inception.

 

Around the time of the financial planning industry’s debut, the International Board of Standards and Practices for Certified Financial Planners (IBCFP) introduced the official CFP® Certification Examination. I received my CFP certification in March 1990 and went on to establish a wealth management firm dedicated to helping clients build a proactive plan for their financial future.

 

As many of you already know, financial planning is the development, implementation and monitoring of a long-term financial strategy. Your financial planner should be prepared to navigate every potential roadblock, from the typical forced layoff, to an unprecedented event such as Black Monday.

 

Such occurrences can impact your long-term financial plan, especially when emotional reactions are involved. That’s why, as your financial advisor, it’s our job to assess the impact of such events on your financial future before they occur, and work with you to develop a plan that mitigates such risk. Our goal is to respond to such events in a composed, methodical fashion without allowing emotions to negatively impact your financial future.

 

Black Monday: From Willis’s Perspective

So, back to Black Monday, October 19, 1987.

 

Black Monday Social Graphic

The year had big run-ups in the market, which led to a 23 percent decline over a single day. However, the market had already fallen nearly 16 percent over the prior two months, resulting in a peak-to-trough decline of almost 40 percent. The surprise result is that the Dow ended up at a two percent return for the end of the year.

 

Riding out the events of 1987 without planning or making financial adjustments would not have had a major impact on the financial plans of a majority of individuals. However, selling when the market was as much as 34 percent down, could devastate a comfortable retirement or easily set one back five to ten years.

 

What Can We Learn From Black Monday?

In our current financial environment, I believe it’s critical to emphasize the following two points to our clients:

 

1. The development of a long-term investment plan is more important than ever

2. You should understand and designate which assets and portfolios will serve as your income source during retirement 

 

If you are employed and do not expect to retire within the next three years, stay the course. On the other hand, if you plan to retire and commence utilizing your investments as an income source, it could be an opportune time to adjust your investment allocation.

 

As retirement looms on the horizon, it may be reasonable for you to consider reducing your stock/equity exposure. This is a perfect example as to why I strongly advocate meeting with your financial advisor every six months. During these sessions, your advisor is not always going to change the major plan, but they will work with you take advantage of the current market environment in a way that supports your financial goals.

 

If you’re retired and living on your investments, it’s necessary to establish a cash flow plan. This plan is usually made up of a combination of resources, i.e. Social Security, pensions, bonds, and dividend income along with stock market appreciation. In addition, it’s pertinent that you establish a short-term emergency fund and a cash reserve account to cover any living expenses during your retirement.

 

How Should Those in Retirement Take Advantage of the Current Stock Market High?

If you’re in the retirement stage of your financial journey, you should work with your advisor to capitalize on the current market rally. The most commonly employed financial strategies are:

 

Re-balance your portfolio: 

For example, if our standard recommended stock/equity exposure is 65 percent and your portfolio has increased to 70 percent stock/equity, then it may be time to rebalance your portfolio. Generally, we would advise that you sell five percent of these investments.

Accelerate major purchases:

For example, if you plan to purchase a car in the next 18 months, sell a portion of your stocks/equities and set the money aside to fund the expense.

 

Overall, you should work with your financial advisor to implement and annually review a long-term financial plan. Rely on the facts, your long-term wealth management plan, and the knowledge of your financial consultant to guide your decisions.

 

We strongly recommend that you have a strategic discussion with your financial advisor before taking action. If you have any questions, feel free to reach out to the WJ&A team for more information or to schedule a meeting. 

 

 

 

 

Willis Johnson, CFP®

President and CEO

Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss. Past performance is not a guarantee of future results. This information is not intended to be a substitute for specific individualized advice and should only be relied upon when coordinated with individual professional advice

Thoughts From Willis | How Businesses Can Assist Their Employees With Hurricane Harvey Expenses

Did you know that companies can assist their employees affected by Hurricane Harvey in a tax-advantaged way?

 

If you are a business owner, or a consultant with an LLC or a sole proprietorship, you can make payments to your employees affected by Harvey, yourself included, which will not be subject to income or payroll tax. Section 139 of the Internal Revenue Code specifies the types of payments that are eligible for this favorable tax treatment. These payments are called Qualified Disaster Relief Payments (QDRP).

 

A QDRP is defined as a payment made to an employee to reimburse living expenses, repair of a personal residence or replacement of its contents, or any additional expenses that were incurred as a result of Hurricane Harvey. A QDRP allows business owners and consultants who were affected by Hurricane Harvey to make cash distributions intended to help mitigate repair costs and avoid income tax consequences.

 

This can be a very strong tax planning tool, but there are associated restrictions that must be considered. The IRS establishes a few caveats for these payments. First, these disaster relief payments are excludable “only to the extent any expense compensated by such payment is not otherwise compensated for by insurance or otherwise,” (IRC Section 139(b)). Expenditures must not be subject to insurance coverage to qualify for relief payments.

 

Secondly, employees who receive disaster relief payments cannot claim any deduction or credit for disaster related expenditures if they received these payments from their employers for those same expenditures. This is termed the Denial of Double Benefit (IRC Section 139(h)). Lastly, and perhaps most importantly, all employees of the company must be offered these reimbursements. Length or type of service with the company, salary, or job grade cannot affect QDRP distributions.

 

For an individual in this position, using IRC section 139 to receive assistance is the best option. Your company can claim the QDRP as a deduction, and you, as an employee of your company, are not subject to federal or employee taxes upon distribution. In addition, you are not required to provide receipts or verification of value to the IRS when making claims under section 139. This rule applies to all hurricane-related expenses, from automobiles, to movers, to apartment rent payments.

 

QDRP disbursements  can be particularly valuable to consultants and small business owners that were financially impacted by Hurricane Harvey. However, we strongly recommend that you consult your CPA or a tax professional before taking any action.

 

If you have any questions or would like more information, please feel free to reach out to our team. 

 

Willis Johnson, CFP®
President and CEO

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