How to Get Tax Breaks by Hiring Your Children (The Right Way)

There is a right way and a wrong way to do almost everything. Of course, financial planning is very nuanced and often specific to your own situation. But, if you own a business AND have children under the age of 18 do not give them a dime until you watch this video or read this post. I will teach you how to strategically hire your child to get tax breaks in the business now and create a tax-free nest egg for your child forever.

On the IRS’s own website it says: “One of the advantages of operating your own business is hiring family members”.

While hiring a child may not be the first thing many business owners think of, if you do it properly, there can be many tax benefits to doing so.

I’m Colin Exelby, and I am the owner of a virtual financial advisory practice, Celestial Wealth Management.  My two children see all the work I put into building the business and guiding clients to keep more of what they earn.  One of my goals is to instill that entrepreneurial spirit into each of my girls.  My oldest currently has three businesses and recently opened her first bank account to hold the earnings.  My youngest… not so much… yet.

If you have a child, be sure to check out my video on Banking 101: Opening First Bank Account for a Child

Having my children work in the business as early as possible has many advantages.  We get to spend more time together.  I can help them create solid work habits and time management skills.  But, most of all, there are several tax benefits that may be available when parents hire their minor children to work in the family business.

These benefits have been around for hundreds of years back to the days when children worked on the family farm.  There aren’t nearly as many family farms as in the 1880s now but there are many individual businesses that can use the strategy just the same. Of course, you can’t hire your children, pay them and not have them do work.  This only applies if your child is paid a reasonable wage for performing work directly related to your business. If your children are dependents and under the age of 18, it’s important to follow the correct procedures.

What age can a child begin work in a business?

Tax Court has upheld that children as young as seven can work in a business as long as child labor laws are followed.

How much can they earn tax free?

The Tax Cuts and Jobs Act (TCJA) roughly doubled the standard deduction to help those in lower tax brackets.  This means children are able to have more income than ever taxed at the 0% rate!  The largest benefit to hiring a minor child is to shift income from the parent’s higher income tax bracket to the child’s lower brackets.  

In 2021, the standard deduction for individuals (including children) is $12,550.  A family where a parent owns a business and is in a fairly high tax bracket can stand to have quite a tax savings by paying the minor child in the 0% Federal bracket.

What about the Kidde Tax?  Well, the dreaded “Kiddie Tax” is not a factor because that tax is only on unearned income like capital gains, dividends, and interest.  Income generated from working is earned income so the “Kiddie Tax” doesn’t apply.

Let’s look at an example of how to get potential tax breaks hiring your children:

Scott owns a successful boat dealership.  (You have heard that boat and RV sales have gone through the roof).  Scott is currently in the 35% tax bracket, and has three children, ages 10, 12, and 16. Scott decided to hire each of his children to work on and off during the year.  They performed legitimate work like cleaning, and prepping boats, filing and doing data entry, doing deliveries, and a little modeling on the company’s social media and website.  Scott paid them each $12,400, the deductions would reduce his 2020 taxable income by $37,200 ($12,400 x 3 = $37,200), lowering his own taxes by $13,020 ($37,200 x 35% = $13,020).

Even better, if we assume that Scott’s kids don’t do any other work (and how could they when they spend so much time with Dad), the entire $12,400 salary paid to each child is 100% Federal-income-tax-free! This means it’s a true family tax savings of the same $13,020

If Scott is contributing to an education account for his kids, going to give them an allowance, or is putting away money in a savings account for them, this is a much better and more tax-efficient way of doing it

If you own a business that is close to the new qualified business income (QBI) deduction phaseouts the tax savings can be even better!  The salary is a business expense that can lower the business income to the point of receiving a larger QBI deduction.  Getting Uncle Sam to help with your college education funding or splitting an allowance with you is very nice.

What procedures should you follow when hiring a child under 18?

When employing your child you want to make the process is as audit-proof as possible.  You will want to keep a timesheet showing the dates and hours worked, services performed, along with proof of payment and receipt of payment.  You can’t pay in pizza slices and cans of soda.

To start off, fill out a form W-4 for your child for your records.

Next, create a job description and informal contract between your company and your child.  Create a spreadsheet to track dates, times worked and services performed.

According to the IRS website, wages of a child under age 18 who works for his or her parent in a trade or business are not subject to social security and Medicare taxes if the trade or business is a sole proprietorship or a partnership in which each partner is a parent of the child.  If you are running a small sole proprietorship or partnership get off and running.  If you have an S Corporation we will get to you in a minute.

From my discussions with CPAs as well as my own independent research, there is some conflict on whether you actually need to issue a W-2 from the business for your child.  Because you are not required to withhold FICA, FUTA, or SUTA taxes for your dependent, minor child there is an argument to be made that a W-2 doesn’t need to be issued.  You could, as a business owner write off the expense as “outside labor” to get the deduction and be done with it.

In my opinion, even though the wages of the child under 18 are not subject to social security and medical taxes it still is a good idea to file the W-2.  The W-2 is one of the ways you can sufficiently document your child receiving earned income.  The records you keep including the job description and timesheet are typically all the proof you need but in my opinion, the W-2 is the cherry on top.

How should your child receive the funds?

As I stated above, you don’t want to pay your child with pizza and soda.  Check out this often-cited story where a business owner paid their children in pizza because that is what they preferred.  The tax courts frowned upon this strategy.

Ideally, you want to have your child on your payroll and pay funds directly to a bank account in their name.  Since they are a minor that would most likely be a custodial account for their benefit.  This helps to close the loop and show receipt of payment.  In addition, the account makes it much easier to fund the savings strategies I will outline later.  

Does your child need to file a tax return since they are earning money?

Your children, who often make less than the standard deduction most likely do not need to file a tax return.  This is the questionnaire used by the IRS to determine if you need to file a tax return.  In the vast majority of cases, no return needs to be filed because the income is less than the standard deduction.  It is possible they would need to file if their unearned income was greater than certain amounts or they were eligible for different tax credits. If you’re unsure if your child needs to file a tax return, talk to your qualified tax advisor.

Even though the child’s wages aren’t subject to FICA taxes, they are still subject to federal withholdings (unless the child is exempt) so the child should ideally receive funds from payroll and a W-2 from the business.  Those funds should actually be deposited into an account for them to complete the cycle.  In my opinion, this helps prove earned income, which can be valuable later in this process.

What if you don’t have a sole proprietorship or partnership? 

If you run an S corporation or C corporation, you are not eligible for special employment breaks on FICA taxes.  So, if you own a corporation, you ideally don’t want to pay your children from the company.  But there are other options.

One of the most common ways is to create a separate sole proprietorship or partnership family management company.  This separate entity IS ELIGIBLE for the FICA tax savings because it is a sole proprietorship or partnership.  The family management company would hire the children and contract a fee with your S Corporation to provide the services.

If you pursue this more sophisticated approach to paying your children, be very vigilant in maintaining proper books and records.

  1. Make sure to have a copy of the contract between the family management company and the company hiring the children.
  2. If the family management company were able to provide those services to another non-family-related company that would provide additional validity.
  3. Since the family management company is the actual employer of the children, payroll and W-2s should be run through that company and likely a tax return.

It is possible that for some business owners this extra work could outweigh the monetary benefits.

What about hiring your child who is over 18?

If you are paying children 18 or older, you have the option of treating them as subcontractors or as employees.  If you decide to pay them as a subcontractor, just issue them a 1099 in January like any other subcontractor.  Just remember, that if you hire them as a full-time employee of the company they must be treated like one. No special treatment.

They would file a small-business Schedule C, get to take small-business tax deductions, take a standard deduction of $12,550 in 2021 (adjusted for inflation each year) and will probably be in a lower tax bracket than you.  This can provide tremendous tax savings to the company.

As children get older, in my opinion, having them involved in the business on a Board of Directors or Board of Advisors (if an LLC) can provide many benefits both financial and otherwise.

Where to Invest the Funds

Now that you have properly hired your children in the business for legitimate work and have set up payroll, where do the funds go? First, there should be a bank account that would receive the funds.  This helps complete the circle, from business expense, to payroll, to receipt of funds.

Should you just leave the funds there?  Heck no!  This is where the real benefits of this strategy kick in for your child. In my opinion, the #1 place to begin the accumulation of funds is in a Custodial Roth IRA for the benefit of the minor child.  We have no idea what future tax rates will be, but a Roth IRA allows one to contribute after-tax funds (which these would be), have the funds grow without taxes, and then take the funds out without taxes (as long as a few rules are followed.

Because your child would be in the zero percent tax bracket, this is a way for you to turn a below-the-line savings strategy into an above-the-line business expense and a triple tax-free benefit for your child’s future! In order to make a Roth IRA contribution, an individual must have earned income AND it must be below a certain income threshold (currently in the six figures adjusted annually).  In 2021, they would be eligible to make a contribution of up to $6,000 or the amount of earned income they had whichever is lower.

This “small” amount of savings can really add up over time to potentially large sums of tax-free money for future use. Just take a look at this hypothetical example.

In addition to the Roth IRA, you could direct the earned income into an education fund for college or a private high school.  The after-tax funds contributed (at the child’s 0% rate) could be invested in a 529 Plan and grow without taxes.  As long as they are used for qualified educational costs of either private high school, trade school or college, the distributions are also tax-free.

Now, you the business owner get a tax deduction for paying your child to work for you… money you were going to give to the child anway. They don’t pay any tax on the income (if less than the standard deduction) and don’t file a tax return.  You can take those funds and contribute to their future retirement via a tax-free Roth IRA or their college education via a tax-free 529.

WHOA!  That sounds like a plan!

These are two excellent ways to create potentially tax-free wealth for your children while instilling in them life skills such as time management, entrepreneurship, and work habits while also getting to spend more time with your family.

One item I do want to make note of is the potential impact on Financial Aid.  Typically, 50% of a student’s income is counted toward their expected family contribution (EFC) when applying for financial aid.  But, for students entering college in 2021, the first $6,970 of income is exempt from the FAFSA calculation.  That amount generally increases by about $100 per year.  This is relevant for children who are at least sophomores in high school because these are the years that are used to calculate financial aid.

If you have any questions on how you could potentially employ these strategies visit my website at or speak with your CPA.

Colin B. Exelby, CFP®

This is general tax information and hasn’t considered your personal tax situation. It is based upon current tax information available in April, 2021. This information should not be relied upon as tax advice.  Please consult your tax professional.  This information is for educational purposes only.   The solutions discussed may not be suitable for your personal situation, even if it is similar to the hypothetical example presented. Investors need to make their own decisions based on their specific investment objectives, financial circumstances, and tolerance for risk

The post How to Get Tax Breaks by Hiring Your Children (The Right Way) appeared first on See The Forest Through The Trees.

Roth IRA for Kids: A Truly Life-Changing Strategy

Supercharge your kid’s future with tax-free growth AND tax-free withdrawals in a Roth IRA. You probably already know the incredible benefits of a Roth IRA. Tax-Free Growth.  Compounding.  Tax-Free Withdrawals.  Financial Freedom. Did you know that your kids can enjoy those benefits as well?  A Roth IRA isn’t typically considered an ideal savings vehicle for kids but in my opinion, it should be!  As long as your child has earned income a custodial Roth IRA can be opened and contributed to on their behalf.

Do you know what makes sense?  Giving your kids a financial head start in life by starting up a Roth IRA as early as possible. Does your child earn money from babysitting?  Do they wash dishes at a restaurant?  Do they walk neighborhood dogs?  Are they a hostess or waitress at a restaurant?  Even better, do they work in your business?  If you haven’t checked out my video on that benefit, look for it in the links below.  If your child has any earned income that doesn’t come directly from you, they should have a Roth IRA opened right now!

What is a Roth IRA and the Power of Tax-Free Compounding

As a reminder, a Roth IRA allows anyone that falls within the IRS income limits to contribute after-tax money into the account.  The money is invested, grows without taxes, and can be withdrawn in retirement (after age 59 ½) without any taxes on the earnings.  That growth can be incredible over time.  Just check out this chart!  As you can see below, investing just $3,000 from age 10 every year until age 65 and earning 8% per year yields $2,546,770!  You can access this calculator here.  Roth IRAs are ideal for kids, because children have decades for their contributions to grow tax-free.

Of course, children aren’t thinking of their future retirement, AND they often need access to their money.  The beauty of the Roth IRA as opposed to other retirement vehicles is that you can ALWAYS access your contributions without taxes or penalties.  So, if they wanted to withdraw some of the money for any reason they could.  You can also access the Roth IRA contributions AND earnings up to $10,000 for a first-time home purchase without any taxes or penalties.

Kids of any age can contribute to a Roth IRA as long as they have earned income.  My oldest daughter is almost 11.  She has three businesses.  She sells bracelets online.  You can check out her Etsy shop here.  She walks, plays and dog sits for neighborhood dogs and she is a Mommy’s helper occupying children so that parents in the neighborhood can get some things done.

This earned income is perfect to be saved in a Roth IRA.  What’s even better?  As a parent or grandparent, you can actually provide the savings on their behalf. It’s important to remember that gifts, investment income or allowance does not count as earned income.  You can’t pay your child for doing chores either.  This income needs to be earned by providing a service to someone else.

What is the process?

  • First, make sure your child is documenting the earned income they receive.  A spreadsheet or contract can help provide proof of the income if you ever needed it.
  • Second, the account will need to be opened as a custodial Roth IRA where the parent or grandparent would be the custodian.  The adult maintains control of the account until the child is no longer a minor (age 18 or 21 depending on the state).  There are a number of custodians who will open these accounts.
  • Third, make your deposit and invest the funds.  Custodians don’t accept cash, so a check or electronic transfer would need to be made either from a custodial account or an account in the parent or grandparent’s name.

What Are the Contribution Limits?

The Roth IRA contribution limit is $6,000 a year in 2021, or the total of earned income for the year, whichever is less. For example, if a child earns $3,000 dog walking in 2021, they can contribute up to $3,000 to a Roth IRA.  If they earned $8,000, only $6,000 of it can be contributed into the Roth IRA.

As a parent or grandparent, you can gift money to the grandchild to be put in the Roth IRA. The IRS doesn’t require that the specific dollars of compensation be used for the Roth IRA contribution, just that the contributor needs to have earned income. For example, the grandchild earns $2,000 from babysitting, but uses that $2,000 to purchase a new computer.  If the grandparents gift $2,000 to the grandchild, that money can be used to contribute to the grandchild’s Roth IRA.

If you have an entrepreneurial child, this is the perfect time to help their financial future.  Remember, the contributions can be withdrawn and used for anything in the future without penalties and taxes.  They could be used for high school or college expenses, a first car, a new business venture… anything you can imagine.  Put the power of tax-free compounding to work for your child today…. As long as they have earned income.

If you have any questions on how you could potentially employ these strategies book a meeting with me at my website or speak with your CPA.

Til next time,

Colin Exelby, CFP®

This is general tax information and hasn’t considered your personal tax situation. It is based upon current tax information available in April, 2021. This information should not be relied upon as tax advice.  Please consult your tax professional.  This information is for educational purposes only.   The solutions discussed may not be suitable for your personal situation, even if it is similar to the hypothetical example presented. Investors need to make their own decisions based on their specific investment objectives, financial circumstances, and tolerance for risk.

The post Roth IRA for Kids: A Truly Life-Changing Strategy appeared first on See The Forest Through The Trees.

How are Cryptocurrencies Taxed?

You can’t avoid paying taxes on Bitcoin and other crypto assets.


The excitement around cryptocurrencies is everywhere.  Did you profit and sell some of your Crypto positions?  Don’t be that person who thinks that crypto is off the grid and Uncle Sam will not come for you.  If you have gains, you more than likely will owe taxes. How are cryptocurrencies taxed?






These are the top five cryptocurrencies according to Market Capitalization on May 10th, 2021.  Over the weekend, Elon Musk hosted Saturday Night Live and much of the leadup was speculation on what he would say about Dogecoin.  In fact, there were thousands of live streams on Twitter with the price of Dogecoin and the SNL episode streaming side-by-side Saturday night.

The mainstream adoption of cryptocurrencies isn’t slowing down anytime soon.  The government may want it to go away, but it isn’t.  As more people are aware and accumulating various digital currencies there are implications that are currently very mysterious.

In this edition of Transformation Tuesday, I discuss Crypto, NFTs, how their gains are taxed, and some challenges for wealth planning with digital assets.

Are Cryptos Really Currencies?

Many people think of currencies like the U.S. Dollar, The Euro, The Yen, and the Lira.  While cryptocurrency has the word “currency” in the name, it’s a little misleading, at least as far as taxation goes. Similar to other investments like stocks, the IRS views cryptos as property.  This distinction is important because it means that cryptos are subject to capital gains taxes.  When preparing your taxes this year, you may notice your CPA asking you if you sold and cryptocurrency this past year.

That is because the yes/no question about whether you have been involved in any digital currency transactions moved all the way up to Page 1 of the 1040.  Previously, it was down under Schedule 1.

This type of question can be used by the IRS to make note of items it may look further into if you answer Yes.  You are now on record stating you have engaged in cryptocurrency positions in a document signed under threat of perjury.

Crypto holdings, at least in the eyes of the IRS are more of a security than a currency, so cryptocurrencies have many of the same tracking and reporting requirements that stocks have. The problem for the government is the very nature of cryptocurrency.  Even though every transaction is captured on the blockchain, many transactions are anonymous. Rarely is an entire crypto position garnered in one transaction.  More likely it has either been mined over time or gathered at different times, in different sizes, at different prices.  Dollar-cost averaging into crypto positions by purchasing every month can cause much stress come tax time.  Every single purchase could create its own taxable event.

Even further than the tax challenges, crypto is hard to integrate into more traditional wealth planning techniques.  As more wealth is created with crypto assets, more sophisticated planning may be beneficial.

Planning Challenges for Digital Assets

With many wealth management strategies, It is common to move assets into a trust to help control the assets and pass them on in a tax-efficient manner.  Trusts typically consist of a grantor (who gifts the money into the trust), a trustee (who is in charge of the trust), and the ultimate beneficiary.

But, access to a crypto wallet is private.  To meet the requirements of a trust, you would need to give access to a trustee, who would then move the assets to a new wallet with a unique key that the initial grantor doesn’t know.  Much of this is currently up to legal interpretation and I would imagine challenges to legal structures are on the way.  The book is just now being written on how to plan efficiently for the management and transfer of crypto assets.

How NFT Taxation is Handled

What about NFTs?  NFTs are nonfungible tokens or digital assets like art and sports cards held digitally.  Currently, the IRS is deeming them to be collectibles by those buying and selling them.  In 2020 and 2021, collectibles are taxed at higher 28% rates than current long-term capital gains rates.  However, the definition of collectibles for tax purposes includes the word tangible.  Like gold, silver, comic books, actual physical sports cards, and actual physical art.

This image provided by Dapper Labs shows digital trading cards. Just a few months ago, almost no one would have paid actual money for a digital image that could be copied for free. But sports trading cards have gone convincingly virtual thanks to a clever use of the technology that underlies Bitcoin and similar cryptocurrencies. These virtual collectible cards — spinning, floating digital cubes that each feature a video highlight of an NBA player. (Dapper Labs via AP)

How can something be tangible and digital?  I imagine further argument and ultimately, clarification are on the horizon.  These are questions that will have significant implications in wealth planning.

All of this is at the Federal Level.  What about at the state level?  States often lag behind and piggyback on federal laws.  The majority of states don’t even differentiate between capital gains rates and income rates.  Everything is treated as “income”. I think the next few years will be very pivotal in determining how digital assets will ultimately be taxed and transferred.


  • Crypto assets are taxed at capital gains rates determined by the length of your holding period.  Less than 12 months are short-term capital gains determined by your marginal income tax bracket.  Long-term capital gains held over 12 months are generally taxed at lower rates.  
  • NFTs are deemed to be collectibles currently, so all gains attributable to them will be taxed at the 28% collectible tax.

Proper tax planning involves looking at various scenarios and how they affect your wealth, BEFORE making a decision. Everyone’s financial situation is different.  You should consult any tax-related moves with your tax advisor.


Colin Exelby, CFP®

This is general tax information and hasn’t considered your personal tax situation. It is based upon current tax information available in April, 2021. This information should not be relied upon as tax advice.  Please consult your tax professional.  This information is for educational purposes only.   The solutions discussed may not be suitable for your personal situation, even if it is similar to the hypothetical example presented. Investors need to make their own decisions based on their specific investment objectives, financial circumstances, and tolerance for risk.

The post How are Cryptocurrencies Taxed? appeared first on See The Forest Through The Trees.

Families Get Crash Course in Remote Learning

As more kids head back to class, a new survey shows some families saw silver linings to virtual learning during the COVID-19 pandemic, including saving money as a result of having their kids study at home. Humans do a pretty amazing job at adapting. Teachers, students, administrators, and parents have taken a very tough situation in stride.

Allie Johnson, a writer at reached out to me about contributing to a piece she was doing in response to the survey. As a father, husband, and business owner I was happy to give my thoughts. As a CERTIFIED FINANCIAL PLANNER™ professional, I was also able to add a unique perspective to her article. The article is titled Families Get Crash Course in Remote Learning and is up on the Bankrate website.

You can check out the full article by clicking here. I would love to hear about your experiences. Has it been easier than you thought? Harder? Have you saved money in odd ways? Did you end up spending more than you hoped? Would love to hear about it in the comments.

Get Clear. Be Clear.

Colin B. Exelby, CFP®

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Ready to Open a 529 Account in Maryland? Read This First.

For many families, 529 plans are the bastion of college savings. But, with the plethora of options out there, sometimes it is tough just getting started. If you are ready to open a 529 Plan for a loved one in the state of Maryland, there may be additional benefits for you to consider… like free money if you apply by May 31st! If you or someone you know does not have a Maryland 529 Plan and meets the requirements below they should be eligible for these benefits.

The state of Maryland generally has two plans it runs. The first is the Save4College State Contribution Program and the second is the Maryland Prepaid College Trust. We will be discussing the more traditional Save4College plan and how to open a 529 plan today.

You could be eligible for a $250 or a $500 State contribution if you open a new Maryland 529 Plan. The Maryland Save4College State contribution program wants to make it easier for families in Maryland to save for college. The savings can be used at nearly any public, private, or technical college across the country for expenses such as tuition, fees, room, and board. In addition, you are now permitted to take 529 plan distributions without taxes or penalties up to $10,000 per beneficiary for tuition at a K-12 school. Contributions can be invested in a variety of investments run by T. Rowe Price, including eight age-based portfolios and eight static investment funds along with a money market option. The potential earnings grow without taxes and if used for education purposes, are not taxed on the distribution.

Who is eligible for the free state money?

  • The beneficiary of the plan MUST be a Maryland resident.
  • The Account Holder’s Maryland Taxable Income cannot exceed either $112,500 as an individual or $175,000 married filing jointly based on the previous tax year.
  • For applicants in Maryland, you must file your taxes by the April State Deadline. (currently considering extending to July 15th.
  • You must be opening a NEW Maryland 529 Plan, however, current holders are eligible to apply if you opened the account after December 31, 2016.
  • Application for the program must be submitted by 11:59 pm on May 31.
  • You must make the minimum contribution no later than November 1. ($25, $100, or $250 based on your income)

Many grandparents who are no longer employed may also be able to take advantage of this program.

Maryland Taxable Income
Individual Joint Minimum Contribution State Contribution
$49,999 or less $74,999 or less $25 $500
$50,000 – $87,499 $75,000 – $124,999 $100 $500
$87,500 – $112,500 $125,000 – $175,000 $250 $250

The State of Maryland will make the contribution by December 31st in the year the account holder made the contribution.

An important note is that if you do receive the state contribution in a given year, you are not also eligible for the income deduction on your state taxes for contributions made in that year. Additionally, new for 2021, a beneficiary can only receive two state contributions per year.

Here is a link to a one page fact sheet from the state of Maryland about the program.

If your household income meets these thresholds and your child lives in the state of Maryland, it may be worth looking into opening a 529 plan. You can do so by clicking this link.

It is important to discuss any tax benefits with your tax advisor. This is for educational purposes only and not providing advice.

The post Ready to Open a 529 Account in Maryland? Read This First. appeared first on See The Forest Through The Trees.

Is Online Trading the New Drug of Choice?

I can’t tell you how many neighbors, friends, colleagues, classmates, family, and those on social media have reached out to me for my thoughts on the Gamestop [GME], RobinHood, and Reddit saga. First of all, if you happened to own Gamestop, AMC, KOSS, or any other of the so-called meme stocks before this happened AND you were able to book profits because of it, let me tip my hat to you. In a world starved for a news story, this one sure has been entertaining.

Wall Street versus the Little Guy

r/WallStreetBets vs Institutional Trading

Dave Portnoy vs Vladimir Tenev

Robinhood vs Citadel

There is no shortage of stories around this saga and it really is fascinating. The biggest takeaway I had, was another example of how powerful the internet has become at bringing together those with common interests. Reddit and WallStreetBets have been around for many years. A great place for people to freely exchange investment ideas and analysis. It was frequented by those on Wall Street, those who used to work in finance, as well as those who love investing. I am all for educating Americans about investing and personal finance and this was another way people gained access to information. How those ideas ended up orchestrating one of the largest short squeezes in history (rivaling the Volkswagon squeeze of 2008 which briefly made VW the world’s priciest company) is an amazing story. I am sure the whole story will come out but it may take years to learn the full story from all sides.

What Could Go Wrong? To the Moon!


I would like to address a different, but related topic. There have been recent stories penned about how Robinhood has “gamified” investing while allowing almost anyone to buy and sell stocks and options….even on margin. If you have access to The Wall Street Journal, check out this article by the highly respected Jason Zweig on his experience using the App.

Are Webull, Cash App, Robinhood, Acorns, and other free stock trading apps becoming the new drug of choice amount young people today?

Often, young people are the most prone to take risks. We all know this. When the pandemic shut down the world, people searched for an outlet. There have been many stories about people succumbing to depression, alcoholism, and other drugs but these stories have been in the background. What has been right in the foreground has been the new obsession with trading stocks.

Nothing so undermines your financial judgment as the sight of your neighbor getting rich.”

J. P. Morgan

It’s easy they say. I see the TikTok videos, the YouTube gurus, and the people promoting stock trading on Instagram and Facebook. You just buy a stock that is going up and you sell it when it stops going up. Sound simple enough. (LOL) But many of us who are old enough to have been investing during 2011, 2008, 200-2003, 1994, 1987 know that markets don’t always move higher…and risk matters. I love the Felder Report and have been a reader of Jesse’s work for a long time. He shared this TikTok video showing a “sneak peek of one couple’s top-secret trading strategies”. If you haven’t seen it, it’s worth watching for the entertainment value. These two seem nice enough, but this is the type of “recos” being peddled these days.

The pandemic closed the doors to sporting events, casinos, and sports wagering while opening the door to a potentially much more addictive form of gambling: online day trading. Gambling has always been around and likely always will be. It prays on the weakest parts of the human brain. Fulfilling both your urge to take risks and offering the potential of unlimited riches without even getting out of your pajamas in the morning. When you shut down the economy, lock people indoors without social interaction, and then give them free money, this is what can happen.

Robinhood opened 3 million new trading accounts in the first quarter of 2020. That is twice as many as TD, Schwab, and eTrade COMBINED!

The global stock market has a nasty habit of teaching people lessons. It has a way of luring as many people as possible into a narrative, getting them all on one side of the boat, and then tipping the boat over.”

-Colin B. Exelby

What to Do Before It’s Too Late

As a Certified Financial Planner™ Professional, I do worry about what day trading and the pandemic will do to young people. Through the democratization of finance, we have given stock market access to anyone with a phone and a bank account. That is so awesome! But, with that access comes responsibility. We know that personal finance education in this country is woefully inadequate. We also know that many people are susceptible to vices like alcohol, smoking, drugs, and gambling. Combine addiction with a lack of knowledge or experience and you potentially create a dangerous cocktail.

I fear that young adults may be at risk of scarring themselves if markets turn. Robinhood users are 14 times more likely to default on their margin loans, according to a study by CBS news. Bear markets correlate with higher suicide rates. You may have read the story of the young man who was trading options on Robinhood, was reeling over what he thought was a $730,000 negative balance that he didn’t understand. He took his life. It’s impossible to know all the factors around his death, but not understanding his trading account may have contributed. I can’t even imagine the pain of that family.

Many people don’t have access to licensed financial advice. Or worse, those with access, choose to ignore it. We now have celebrities endorsing cryptocurrencies and stocks on the internet as YOLO (you only live once so throw risk out the window). They can say whatever they want without any repercussions. Social media is where many young adults spend too much of their time… and adults for that matter. What is trending carries a huge influence, and right now stock trading is trending. Maybe that changes as the economy opens up, or the next market correction occurs, but I worry about young Americans scarring themselves emotionally, financially, and never investing again.

Sure there are some people who will make money from GME, AMC, KOSS, BB, EXPR, or other meme stocks but the odds are that many more will lose money in those stocks and options. I wanted to write this post, as a financial advisor because I think that a discussion is important.

Responsible trading tips

  • Before you take advice from someone on the internet making an investment recommendation, ask yourself what they stand to gain by you taking the action they recommend.
  • Conduct your own research, and consult numerous information sources with varying and opposing opinions on any particular position, including those by licensed, regulated professionals who are obligated to discuss in full each and every risk inherent in the investment.
  • Take the highest of precautions when investing in speculative stocks, engaging in short selling, or trading on margin, as the potential for loss is high and in some cases may be unlimited.
  • If you have any questions about what you are trading, stop and consult a qualified, licensed, and regulated financial professional before going through with the trade.
  • Always consider the maximum potential for loss and thoroughly research all of the risks involved before initiating any trade.
  • Calculate your own margin and map out loss scenarios before trading. Always do your own margin calculations as you trade because the brokerage firm could make a mistake.

Don’t become the victim of ridiculous advice or strategies spewed about in an effort to get rich quickly. Investing is about assessing the possibilities. Knowing the upside, the downside, and if you can stomach the downside emotionally and financially. Everyone’s financial situation is different.


Colin Exelby, CFP®

The post Is Online Trading the New Drug of Choice? appeared first on See The Forest Through The Trees.

What is the Worst State for Taxing Retirement Income?

Being able to live where you want during retirement is one of the great discussions a family can have. COVID-19 has made that conversation even more top of mind. What is the worst state for taxing retirement income? Those that are retired should look out for three types of taxes to help determine whether a state is retirement-tax friendly… social Security and Pension taxes, property tax, and sales tax.

Shane Murphy over at MoneyWise just penned a great article that outlines The 15 Worst States for Taxing Your Retirement. Here is the list of the 15 worst states for taxing retirement.

  • 15. Massachusettes
  • 14. Ohio
  • 13. Maryland
  • 12. Maine
  • 11. California
  • 10. New York
  • 9. Illinois
  • 8. New Jersey
  • 7. Rhode Island
  • 6. Vermont
  • 5. Minnesota
  • 4. Wisconsin
  • 3. Kansas
  • 2. Connecticut
  • 1. Nebraska

Interestingly, outside of California, the list is comprised of the NorthEast and MidWest.

If you are considering retirement or have family who is considering retirement in one of the listed states, check out how they tax your retirement here. Make sure to include these assumptions in your retirement plan. Keeping more of what you make can help you efficiently, maximize retirement.

Thanks for checking out the blog. 2020 sure has been an interesting year filled with twists and turns. I hope some of the posts here have been able to help you plan for a better future. Here’s to a profit filled, happy and healthy 2021!

Get Clear. Be Clear.

Colin B. Exelby, CFP®

* The information here is for educational purposes only. You should consult with your tax advisor before making any financial decisions related to taxes.

The post What is the Worst State for Taxing Retirement Income? appeared first on See The Forest Through The Trees.

Exciting Digital Updates at Celestial Wealth Management in the Works

There are some exciting things happening at my company Celestial Wealth Management and I wanted to let you in on a few of them…

A digital footprint is incredibly important to business, especially in the age of COVID where personal interactions have been limited.
There is so much boilerplate and template-based stuff out there that original content and original thinking are in short supply. How do you really know what your advisor is thinking if it is watered down or even worse, “canned”? That was the purpose of creating See the Forest Through the Trees… Unfiltered content focused on wealth management strategies.

I am currently in the process of upgrading everything digitally to stay at the forefront as the age of digital advice accelerates.

Step number one was producing new, updated, high-quality photography for my digital presence. I was so excited to work with Kristina Sherk, who owns Washington DC Headshots.

Check out the behind the scenes footage from our photoshoot last month at the beautiful Avalon Apartment Building in Towson. In addition I am working on:

  • Updated Celestial Wealth Website
  • Increased Focus on Education and Original Content Creation
  • Revamped YouTube Page in the works
  • Additional technology investments in Financial Planning, Cash Management, and Investment Management to provide even more value for clients
  • Periodic Educational and Interactive Webinars and Video Podcasts with Guests from Around the Country
  • Redevelopment of the Digital Client Interface
  • Simplicity over Complexity

All of these upgrades are meant to help you interact with me as easily as possible as you strive to Get Clear and Be Clear.

I am excited to show you the final proofs that you will begin to see across my digital media. If you own a business, are looking for upgraded photography and are in the Washington, D.C. and Baltimore area, I highly encourage you to reach out to Kristina’s team.


Colin Exelby, CFP®

The post Exciting Digital Updates at Celestial Wealth Management in the Works appeared first on See The Forest Through The Trees.

How Does the Biden Tax Plan Affect You?

How Joe Biden’s Tax Proposal Would Impact High Net Worth and High Income Individuals

This has been one of the closest elections in history where ballots are still being counted and contested as of this writing. As we move into the last few weeks of 2020 and prepare for 2021 and a Biden presidency, I thought I would review Joe Biden’s tax plan and it’s impact. It’s important to remember, full details are not available yet and we do not know what would be implemented and what would not. We will not know the full extent of a potential proposal until we see actual legislation.

Restoring the full State Tax Deduction

The Trump administration capped the deduction for State and Local Taxes (SALT) at $10,000 per year. Previously there never was a cap. This Cap effectively increased the federal taxes paid by high-income earners in high tax states. Biden would attempt to repeal this cap and allow a full deduction on Federal taxes.

Increase Child Care Tax Credit from $2,000 to $3,600

Right now, parents can claim a $2,000 tax credit for each child age 16 or younger. That credit starts to disappear on joint incomes over $400,000 and singles above $200,000. Under the Biden plan that increase would go to $3,000 for kids between six and 17 and jump to $3,600 for children under six. This essentially means more money for more families. Biden’s phaseout levels would remain the same as the Trump plan but this increase is meant to only be temporary “as long as economic conditions require.”

First Time Home Buyer Tax Credit of $15,000

Biden wants to reenact a tax credit that was part of the Housing and Economic Recovery Act signed by President George W. Bush in July 2008. The $7,500 credit was raised to $8,000 the following year in a bill signed by President Barack Obama. The tax break ended in 2010. What is odd to me, however, is that tax credit was aimed at creating some demand for housing amidst the largest housing crash in American history. Currently, despite the pandemic, house prices are soaring as demand for housing in less dense areas has increased. This tax credit could help with affordability for would-be buyers but it also could just artificially increase home prices. Biden also wants the credit to be advanceable, meaning you don’t need to wait until you file your taxes to receive it.

Reinstituting the payroll tax on the top 1% of earners

This proposal would have a large impact on wage earners. Currently, all taxpayers must pay a 12.4% social security tax on wages up to $137,700 split evenly between employee and employer (6.2% each).  Biden wants the 12.4% Social Security tax to kick back in for incomes above $400,000 increasing taxes on the country’s highest wage earners. For example, the average CEO salary at the 350 largest publicly-traded companies in America was $1.325 million, according to the Economic Policy Institute.

This increase could also impact business owners depending upon how they structure their companies. As pass-through entities, many businesses, especially the fast-growing solo entrepreneurs pass-through business income to their personal tax returns.

Entrepreneurs should consider structuring wages and profits appropriately.  Work with a CPA and Certified Financial Planner™ professional to discuss alternative ways of classifying income. If 100% of the business income is currently considered wages to the owner, the owner could potentially reclassify some wages as profits from ownership. Social security taxes would not be owed on those reclassified amounts.  In order to pursue this strategy, wages by the owner should be reasonable for the position. Essentially, think of it as what it would cost to hire your replacement for the time you spend working in the business, not on the business.

Raising the marginal tax rates on high earners

Biden’s plan is to raise the highest marginal tax rate to 39.6% from 37%. Often, in situations where marginal rates are increasing in the future, high-income individuals should consider accelerating income into the year before the tax law becomes active.  Roth Conversions during today’s lower interest rate environment take on additional benefit. Once the tax law is in place, traditional strategies like deferring income into future years when marginal rates are lower (often retirement years), will make the most sense.  Deferred compensation plans, retirement contributions, and other tax-advantaged savings could become more valuable.

Increasing capital gains tax on filers earning over $1 million

Biden’s tax proposal would change capital gains for high-income individuals to their ordinary tax rate of 39.6%. This is a significant increase from current capital gains rates. Currently, as you can see in this chart, the rate is never above 20% and for many tax filers, it is 15% or less.

Long-term capital gains tax rates for the 2020 tax year
Single Up to $40,000 $40,001 – $441,450 Over $441,450
Married filing jointly Up to $80,000 $80,001 – $496,600 Over $496,600
Married filing separately Up to $40,000 $40,001 – $248,300 Over $248,300
Head of household Up to $53,600 $53,601 – $469,050 Over $469,050

Source: Internal Revenue Service 

Add these taxes on top of state capital gains rates and this could be a massive increase. Strategies to consider include selling appreciated securities before a proposal like this turns into law, harvesting any tax losses for use in the future, or delaying asset sales until a date in the future when rates may be more favorable.

Limiting itemized deductions to 28%

For high-income filers, charitable contributions, mortgage interest, or state taxes can be deductions that can help reduce the tax burden. By limiting these deductions it can have the effect of lowering demand for high-end real estate (since larger mortgages would not see the deduction) and charitable organizations (will high earning Americans give as much to charity if they don’t get the tax benefits?).

Eliminate the stepped-up basis at death

Biden has proposed doing away with the step-up in basis, a provision in the tax code that permits heirs to receive assets valued as of the date of death. For individuals who inherit low basis assets, this can save them significant money, since they can sell these assets and pay no capital gains taxes.  This proposal would potentially impact everyone who inherits money as beneficiaries. This change in combination with a much higher capital gains rate could result in beneficiaries paying much, much higher taxes when the assets are sold. More sophisticated planning strategies may need to be employed.

Reducing the estate and gift tax exemption

Even without any new legislation, the estate tax exemption amount is scheduled to sunset on January 1, 2026 from $11,580,000 currently to $5,000,000. According to the Tax Policy Center, Biden’s plan seeks to reduce that amount to $3.5 million and limit gifts to $1 million

What Does this All Mean?


Many analysts believe this tax proposal (in the entirety) is extremely unlikely.  Without a Democratic “Blue Wave”, the chance of passing this type of reform seems very unlikely. I am a firm believer in preparation, not panic. Understanding potential changes and how they can impact you both positively or negatively can allow for effective planning. Whatever proposals come out of the DC Beltway, continuing to plan on maximizing after-tax cash flow and after-tax wealth accumulation strategies can help you build your Path Toward Prosperity™

If you have any questions about your current tax plan or what some of these proposals could mean for you, please don’t hesitate to drop me a line.


Colin B. Exelby, CFP®

Information contained herein has been obtained from sources considered reliable, but its accuracy and completeness are not guaranteed. It is not intended as the primary basis for financial planning or investment decisions and should not be construed as advice meeting the particular investment needs of any investor. This material has been prepared for information purposes only and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Past performance is no guarantee of future results.

The post How Does the Biden Tax Plan Affect You? appeared first on See The Forest Through The Trees.

What Every Small Business Owner Needs to Know About Starting Up a 401(k) Plan

New tax breaks and other promising developments make launching a startup 401(k) plan for employees a much more viable option for small businesses.

It is often said by politicians that small businesses are the heartbeat of America. It’s also no secret that 2020 has been a trying year for many businesses but also a very successful year for others. I always say, every person’s situation is different and there shouldn’t be a cookie-cutter approach. Thankfully, the government added many incentives through the SECURE Act to help small business owners build wealth outside their businesses. Let’s learn a little more about what they are.

What is a 401(k)?

A 401(k) is an employer-sponsored savings plan that companies can offer to help employees save money for their retirement. Small businesses have always been permitted to set up a 401(k) plan for their employees, but new tax incentives and other changes make a startup 401(k) plan much more attainable.

Until recently, many small businesses shied away from offering a 401(k) plan to their employees based on financial constraints and other concerns. Fortunately for small business owners, startup 401(k) plans now lie within easier reach, thanks in large part to legislative changes and the increased availability of small business-oriented 401(k) plans. If you are considering offering a 401(k) retirement savings plan to your employees, it is important to understand what they are, how they work and how to go about starting one.

I recently contributed to a great article by Julie Ritzer Ross in Business News Daily that outlines many of these new incentives. If you are a solo entrepreneur or you have an established business but haven’t yet started up a retirement plan, I advise you to check out this article. If after reading the article, you have questions or would like to chat about it, feel free to reach out to me.


Colin B. Exelby, CFP®

The post What Every Small Business Owner Needs to Know About Starting Up a 401(k) Plan appeared first on See The Forest Through The Trees.

Privacy Policy


Collection of your personal information

Celestial Wealth Management has adopted this privacy policy with recognition that protecting the privacy and security of the personal information we obtain about our customers is an important responsibility. We also know that you expect us to service you in an accurate and efficient manner. To do so, we must collect and maintain certain personal information about you. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do.

Through this policy and its underlying procedures, Celestial Wealth Management attempts to secure the confidentiality of customer records and information and protect against anticipated threats or hazards to the security or integrity of current and former clients’ records and information. We want you to know what information we collect and how we use and safeguard that information.

Information We Collect:

We collect certain nonpublic information about you (“Customer Information”). The
essential purpose for collecting Customer Information is to allow us to provide advisory services to you. The types of personal information we collect and share depend on the product or service you have with us. This information can include:

  • Identifying information such as your name, age, address, and social security number
  • Information that you provide on applications, forms, and software. This customer information may include personal and household information such as income, spending habits, investment objectives, financial goals, statements of account, and other records concerning your financial condition and assets, together with information concerning employee benefits and retirement plan interests, wills, trusts, mortgages and tax returns.
  • Financial account balances, holdings and Information about your financial transactions with us, or others (e.g., broker-dealers, clearing firms, or other chosen investment sponsors).
  • Information we receive from consumer reporting agencies (e.g., credit bureaus), as well as other various materials we may use to provide an appropriate recommendation or to fill a service request.


How does Celestial Wealth Management protect my personal information?

We restrict access to your nonpublic personal information to those employees who need to know that information to provide products or services in furtherance of the client’s engagement with Celestial Wealth Management. We maintain physical, electronic and procedural safeguards that comply with applicable federal or state standards to protect your nonpublic personal information.


How does Celestial Wealth Management collect my personal information?

We collect your personal information, for example when you

  • Sign an investment or financial planning advisory agreement
  • Open an Account
  • Request financial planning or investment advice
  • Tell us about your investment portfolio

What information can Celestial Wealth Management Disclose to affiliates and non-affiliates?

We may disclose the client’s information for our everyday business purposes:

  1. To individuals or entities not affiliated with Celestial Wealth Management, including the client’s other professional advisors and/or certain service providers that may be recommended or engaged by Celestial Wealth Management in furtherance of the client’s engagement with us (i.e., attorney, accountant, insurance agent broker-dealer, investment adviser, account custodian, record keeper, proxy management service provider, etc.) and then only to those persons necessary to provide the authorized services
  2. For marketing and offering products and services to you
  3. To persons assessing our compliance with industry standards (e.g., professional licensing authorities, consultants, etc.)
  4. To our attorneys, accountants, and auditors
  5. As otherwise provided by law

We are permitted by law to disclose the nonpublic personal information about you to governmental agencies and other third parties in certain circumstances (such as third parties that perform administrative or marketing services on our behalf or for joint marketing programs). These third parties are prohibited to use or share the information for any other purpose. Celestial Wealth Management only authorizes employees who have signed a copy of the Privacy Policy to have access to client information. Employees violating Celestial Wealth Management’s Privacy Policy will be subject to our disciplinary process. In the event there were to be a material change to our privacy policy regarding how we use your confidential information, we will provide written notice to you. Where applicable, you would be given an opportunity to limit or opt-out of such disclosure arrangements.


If you have questions about this privacy notice or about the privacy of your customer information call (443) 438-7211 or visit and ask to speak to the Chief Compliance Officer

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