Monthly Archives: September 2017

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

September 24, 2017

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

Financial Fact: Equifax: What You Need to Know

September 20, 2017

There are two things that seem to be at the forefront of everyone’s mind at the moment: Mother Nature’s most recent wave of hurricanes and the Equifax security blunder. Unfortunately, it’s impossible to prevent a hurricane, but it is possible to defend one’s valuable information against cybercriminals.


Cyberwar is becoming an ever-increasing threat, and it may be time to start treating the potential for identity theft the way we hedge risk against damage to our home or vehicle. In other words, it may be time to start treating identity theft protection as a standard insurance policy.


We do not intend for this email to scare our clients. However, we want to be transparent about the realistic possibility of a cyber-attack. The following tips can help protect your identity, personal information, and credit score, both in the short and long-term.


Check, Check, and Re-check Your Credit


First and foremost, consider enrolling in Equifax’s program. We understand if you’re skeptical as this is the same company that’s notorious for its recent prize-winning security malfunction. However, in the event your personal information may have been stolen, Equifax will provide a year of free credit monitoring.


To enroll, go to Equifax Enrollment. After clicking “begin enrollment,” you will be asked to enter your last name and the last six digits of your social security number.


Next, you will receive a message reporting whether or not your information is at risk. If you receive a message stating that your information may have been affected, you should consider enrolling in the Equifax credit monitoring program.


If you receive a message stating that you were not affected, we still advise that you check your credit report at least three times a year. The government requires all three of the major credit rating agencies to provide an annual, free credit report. Therefore, you can obtain an up-to-date credit report three times a year without bearing any cost.


Below is a link to request your free credit report:


Click Here to Request Your Free Annual Credit Report


We do not feel that there is a set interval one should request a credit report, but in light of the recent security breach, we believe it’s wise to request a report before the end of the month.


The most prevalent long-term concern following this breach is the stagnant nature of a person’s identity. Your social security number and personal identity do not change, so while you may not see any suspicious activity this year or next, you may be affected in ten years when you least expect a compromise. We believe that portions of this risk can be hedged by habitually obtaining a free-credit report three times a year. You are not responsible for charges made on a fraudulent card or account opening, but you must report the charges in a punctual fashion. Therefore, regularly checking your credit is pertinent to ensuring a compromise can be remedied.


Determine the Consequences of Freezing Your Credit


The most effective security defense against fraudulent account openings and subsequent charges is to freeze your credit. While this approach has been the most widely recommended prevention strategy in the wake of the Equifax breach, we do not feel comfortable making this recommendation to all of our clients.


Freezing credit is not wise for those who foresee a need to get a car loan, refinance a mortgage, or open any type of credit.


For example, in the aftermath of Hurricane Harvey, we understand that some of our clients may need to take out an additional line of credit for home or automobile repairs with very little notice. For these clients, we do not recommend that they freeze their credit. The process of unfreezing one’s credit has proven to be slow and arduous, and we expect this delay to worsen as understaffed agencies race to meet the increasing demands spurring from recent events.


Though it is not upon us yet, be wary during tax season as it is a common practice for identity theft to be directly associated with fraudulent tax return filings as a means to receive an individual’s tax refund. 


The Equifax breach and the ever-increasing emphasis on cyber warfare have turned our associates’ attention toward the evolution of identity theft protection as a standard insurance policy. This may not be music to our clients’ ears. Frankly, we may be years away from such a measure being warranted. While we are far from making a decision or recommendation one way or the other, we wanted our clients to understand our thinking so they can decide whether or not this additional piece of insurance is vital to their peace of mind.


Below are links to a few articles we’ve found helpful throughout our own research.


How to Freeze Your Credit

Equifax Drops Credit Freeze Fee

The One Move to Make after Equifax Breach

Equifax: A Category 5 Data Breach

Our thoughts are with our clients as they recover from the breach. We are aware of the situation and are researching additional ways our firm and our clients can defend against cybercriminals. Please reach out to us with any questions or concerns.


Financial Fact | Net Unrealized Appreciation

September 18, 2017

Do you have employer stock in your 401(k)?  Don’t take your first withdrawal until you learn more about Net Unrealized Appreciation (NUA).


If you have employer stock in your 401(k), you might have an NUA distribution opportunity. 


NUA is the difference in value between what you or your employer paid for the stock (cost basis) and the current market value of stock held in your 401(k).  If there is a large gain on the stock upon your retirement, it may be more sensible for you to distribute the stock to a brokerage account.


Initially, you may have thought you would be paying ordinary income taxes on distributions from your 401(k).  If so, you were partially correct.  Most distributions from 401(k)s are taxed at ordinary income rates.  However, you have some flexibility on taxes with the employer stock in your 401(k).  If you distribute the stock to a brokerage account as the first withdrawal utilizing the NUA strategy, you will pay ordinary income taxes on the cost-based portion. When you eventually sell the stock, you will pay long-term capital gains taxes on the gain of the stock. 


Below is an example of how the tax savings could work if you have $300,000 of employer stock with a cost basis of $50,000:




If you utilized the NUA strategy in this scenario, you would save $50,000 in income taxes.  It’s pertinent to understand how NUA withdrawals work.  One of the following must apply to you: (1) you are separated from service of the company whose plan holds the stock, (2) you are age 59 ½, (3) you are disabled, or (4) you have passed away and your spouse is permitted to utilize the NUA strategy.  The distribution of stock MUST be the first withdrawal from your 401(k) and you also must distribute all the assets in your 401(k) within one year, either by a rollover to an IRA or directly to yourself. 


However, there are additional elements to consider.  For example, are you under age 59 ½? If so, you may be subject to a 10% penalty for an early withdrawal.  Additionally, assets outside retirement plans do not enjoy the same creditor protection.  Finally, NUA may not always be the most tax-efficient strategy, especially if the price of the stock declines or tax rates change.


Often, NUA may only make sense when you have a large gain and you can pay taxes on the majority of the value of the stock at long-term capital gains rates.  It is also important to think about the timing of the NUA solution and how that may best fit your personal tax situation over the next few years. 


Willis Johnson & Associates is a registered investment advisor. Although the information has been gathered from sources believed to be reliable, it cannot be guaranteed and the accuracy of the information should be independently verified. This information is not intended to be a substitute for specific individualized tax, legal or investment planning advice. Federal tax laws are complex and subject to change.


alexisAlexis Long, MBA, CFP®



Alexis Long is a wealth manager at Willis Johnson & Associates. For Alexis, financial planning combines an interest in producing detail-oriented financial plans with a desire to help people obtain their goals, ranging from retiring early, paying for their grandchildren’s educations, buying a second home or leaving a legacy for their children. Understanding what is truly important to a client is key to good financial planning, along with providing solid technical advice.


Alexis earned her undergraduate degree in International Business from Texas Tech University and her Finance M.B.A. from the University of St. Thomas.


What Nick’s Reading | Hurricane Harvey Help and Advice

September 7, 2017

Hurricane Harvey had a tremendous impact on Houston and the surrounding areas and, just like you, we’ve watched as the aftereffects shake the lives of our friends, loved ones, and even our own families. 


Our team, for the most part, stayed high and dry, though Willis’ house was affected by the Addicks Reservoir release. While we are all safe and taken care of, there are many who lost everything, or lost enough to put their finances and their future in jeopardy. Our thoughts are with those suffering from such losses.


In the midst of the chaos, we know it can be a source of stability to have someone else handle your finances, which is why we had staff working off-site in Houston and Austin to continue monitoring the market and client accounts.  


There will be much to rebuild in the months ahead, and we’re here to help our clients navigate this recovery in the most cost-effective and strategic manner possible.


Funding Expenses 


Do you find yourself faced with unexpected repairs and other hurricane-related expenses?


Willis Johnson and Associates can provide our clients with guidance as to how to fund these surprise costs, as well as how to adjust their current cash flow situation and retirement savings strategy due to this major loss. Our wealth managers can help clients decide which assets to use for funding repairs, as well as assess the pros and cons of refinancing, loans, 401(k) withdrawals, etc.


For example, we know the IRS has made an effort to help flood victims by making it easier to take hardship withdrawals from 401(k)s. However, we would caution this, as it is generally not the best fit for most of our clients.


It’s also important to know that the IRS extended tax-filing deadlines for people and businesses affected by the flood. Our wealth managers can help you make a financial decision that will support both your disaster recovery efforts and your financial future.


Flood Insurance


Not everyone has flood insurance, but if you do, it’s imperative to know what type and how much coverage you have. Most people have building property insurance that covers up to $250K, or personal property insurance that covers up to $100K. Your mortgage company may have required that you purchase a certain amount of flood insurance, but the National Flood Insurance Program (NFIP) encourages people to purchase both personal and property insurance.


When handling flood insurance claims and processing, be sure to:


1. File your claim as early as possible!

2. Document damages before you begin mucking your home.


Mucking Your Home


Once you can safely access your home, it is important to prevent mold from spreading. It may not be possible, but try to schedule a contractor ASAP. If you’re unable to find a contractor in a reasonable amount of time, there are some steps you can take to prevent the damage from worsening. The resources below can help guide you through basic home recovery and repair processes.


When the Waters Recede: A Field Manual for Early Response


When the Waters Recede: A Field Manual for Early Response (House Parts/Wall Coverings)


Hiring a Contractor


The last thing you want is to end up with another mess you have to clean, which is why it’s vital to be confident in the skills and professionalism of the contractor you decide to hire. Research the contractor and avoid compromising competency for time and money. Follow the steps below outlined by the Haley Garcia Group to begin your selection process:


1. Research the contractor’s business reputation, history, and location.

2. Work with your local Better Business Bureau to check if any complaints have been filed against the contractor.

3. Inquire if builders are required to be registered and bonded via your city’s building permit department.

4. Obtain and verify references.

5. Ensure your builder/re-modeler contract is clearly written and agreed upon.

6. Do not pay the expense for the entire job upfront.

7. Avoid contractors with prices that are “too good to be true.”


Giving Back


Many of us, like my wife Abby and me, were fortunate enough to remain unaffected by the flood. However, we still wanted to help and decided to donate to charities supporting the Harvey recovery. It can be difficult to choose where to donate your money, especially in the midst of scammers looking to take advantage of a person’s good will. 


This NPR article provides a useful list of Hurricane Harvey charity efforts from which you can select.


Charity donations can go a long way in helping our city recover, but they can also contribute to reducing your tax base. Willis Johnson and Associates is able to assist in recommending charitable giving strategies that provide the best tax advantages. We can help you decide which accounts and assets you should donate from to receive the greatest amount of tax reductions.  


For our clients who are taking required minimum distributions, it is important to understand that Qualified Charitable Donations are an option. With the running market, many clients may want to consider gifting highly appreciated stock to both receive a tax deduction and to avoid capital gains taxes.


At Willis Johnson and Associates, we understand the complications you may be facing as a result of Hurricane Harvey. Our wealth managers want to help you make the best financial choices during this trying time. We wish you and your family the best and we want you to know we are here to help. If you have any questions or concerns, please feel free to contact us. 


Willis Johnson & Associates is a registered investment advisor. This material is intended for informational purposes only and should only be relied upon when coordinated with individual professional advice. Please speak to an investment professional before implementing any advice here. Willis Johnson & Associates does not provide tax or legal advice.


nickNick Johnson, CFA®, CFP®



Nick Johnson believes that financial planning is more than numbers on a balance sheet and a standardized process. People are unique and should be treated as such. 


As Vice President and Wealth Manager at Willis Johnson & Associates, his goal is to really get to know his clients, all the while providing a proactive approach to comprehensive wealth management.


Market Update | The Markets (as of market close August 31, 2017)

September 7, 2017

Equities in August saw many peaks and valleys throughout the month, finally rallying at the end of the month. Strong second-quarter gross domestic product (GDP) figures, steady job gains, and increased consumer spending sent stocks higher, despite stagnant inflation and heavy personal and financial losses caused by Hurricane Harvey. The large caps of the S&P 500 and Dow posted marginal monthly gains with the tech-heavy Nasdaq leading the way closing August up 1.27%. The small caps of the Russell 2000 continued to lag, falling 1.39% from its July closing value. The Global Dow inched down 0.32% for the month, but is still strong year-to-date, up over 12.50%. The prices of 10-year Treasuries climbed, sending yields lower.




By the close of trading on August 31, the price of crude oil (WTI) was $47.07 per barrel, down from the July 31 price of $50.18 per barrel. The national average retail regular gasoline price was $2.399 per gallon on August 28, up from the July 31 selling price of $2.352 and $0.162 more than a year ago. The price of gold increased by the end of August, closing at $1,327.20 on the last trading day of the month, up $51.60 from its July 31 price of $1,275.60… Click here for full article.

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