Montlake Financial Services,LLCJon Munson, CPA/PFS602-689-1020jmunson@montlakefinancial.comwww.MontlakeFinancial.com

Montlake Financial News - OctoberInfographic: Financial Lessons from Football

Ten Year-End Tax Tips for 2018

What are the gift and estate tax rules after taxreform?

How can I safely shop online this holidayseason?

Montlake Financial News

The Tech Sector Could Be Dominating Your Portfolio

See disclaimer on final page

The biggest names intechnology powered stockmarket gains and bouts ofvolatility in 2017, and thetrend continued into 2018.The S&P InformationTechnology sector indexposted a 13.19% totalreturn from January

through July 2018, compared with 6.47% forthe broader S&P 500 index.1

Wall Street analysts and the business mediaoften refer to well-known technology companiesFacebook, Apple, Amazon, Netflix, and Google(now officially Alphabet) collectively with theacronym FAANG. Others use FAAMG, whichsubstitutes Microsoft for Netflix. Apple,Microsoft, Amazon, and Facebook,respectively, are the four most valuablecompanies by market capitalization in the S&P500 index; Alphabet is ranked eighth and ninth(based on two different share classes).2

These tech giants are household namesbecause they already play a huge role ineveryday life, but they are also bold innovatorswith lots of cash on hand. They aim to expandtheir influence further by developing newproducts (such as self-driving cars and virtualreality) and disrupting established industries.3

The problem with popularityMany benchmark indexes are weighted bymarket capitalization (the value of a company'soutstanding shares), which gives largercompanies an outsized role in indexperformance. The same large-cap tech stocksdominate the index mutual funds andexchange-traded funds (ETFs) that track theseindexes, and can also be found among thelargest holdings of many actively managedfunds.

Spreading investments among the 11 differentsectors is a common way to diversify stockholdings. However, investors holding a mix ofdifferent funds for the sake of diversification

could be surprised by the heavy concentrationof popular technology stocks if they eventuallyfall out of favor and prices fall.

Asset allocation and diversification are methodsused to help manage risk; they do notguarantee a profit or protect against investmentloss.

Mind your sector exposureOver time, a core portfolio of diversified equityfunds can become overweighted in a sectorthat has been outperforming the broadermarket. Some investors with large positions intechnology stocks may not be aware of theconcentration level in their portfolios. Otherscould be ignoring the risk, possibly becausethey are overly optimistic about the sector'sfuture prospects.

Each business cycle is unique, which makes itdifficult to predict which sectors stand to benefitin the months ahead. Although there's little youcan do about the returns delivered by thefinancial markets, you can control thecomposition of your portfolio. For this reason,you may want to review the sector allocationand risk profile of your investment portfolio, ifyou have not done so lately.

All investments are subject to marketfluctuation, risk, and loss of principal. Shares,when sold, may be worth more or less thantheir original cost. Investments seeking toachieve a higher return may involve greaterrisk. Sector funds tend to be more volatile thanthe market in general and may carry additionalrisks.

Mutual funds and ETFs are sold by prospectus.Please consider the investment objectives,risks, charges, and expenses carefully beforeinvesting. The prospectus, which contains thisand other information about the investmentcompany, can be obtained from your financialprofessional. Be sure to read the prospectuscarefully before deciding whether to invest.1–2 S&P Dow Jones Indices, 2018

3 The Economist, June 2, 2018

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Infographic: Financial Lessons from Football

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Ten Year-End Tax Tips for 2018Here are 10 things to consider as you weighpotential tax moves between now and the endof the year.

1. Set aside time to planEffective planning requires that you have agood understanding of your current taxsituation, as well as a reasonable estimate ofhow your circumstances might change nextyear. There's a real opportunity for tax savingsif you'll be paying taxes at a lower rate in oneyear than in the other. However, the window formost tax-saving moves closes on December31, so don't procrastinate.

2. Defer income to next yearConsider opportunities to defer income to 2019,particularly if you think you may be in a lowertax bracket then. For example, you may be ableto defer a year-end bonus or delay thecollection of business debts, rents, andpayments for services. Doing so may enableyou to postpone payment of tax on the incomeuntil next year.

3. Accelerate deductionsYou might also look for opportunities toaccelerate deductions into the current tax year.If you itemize deductions, making payments fordeductible expenses such as medicalexpenses, qualifying interest, and state taxesbefore the end of the year, instead of payingthem in early 2019, could make a difference onyour 2018 return.

4. Factor in the AMTIf you're subject to the alternative minimum tax(AMT), traditional year-end maneuvers such asdeferring income and accelerating deductionscan have a negative effect. Essentially aseparate federal income tax system with itsown rates and rules, the AMT effectivelydisallows a number of itemized deductions. Forexample, if you're subject to the AMT in 2018,prepaying 2019 state and local taxes probablywon't help your 2018 tax situation, but couldhurt your 2019 bottom line. Taking the time todetermine whether you may be subject to theAMT before you make any year-end movescould help save you from making a costlymistake.

5. Bump up withholding to cover a taxshortfallIf it looks as though you're going to owe federalincome tax for the year, especially if you thinkyou may be subject to an estimated tax penalty,consider asking your employer (via Form W-4)to increase your withholding for the remainderof the year to cover the shortfall. The biggest

advantage in doing so is that withholding isconsidered as having been paid evenly throughthe year instead of when the dollars are actuallytaken from your paycheck. This strategy canalso be used to make up for low or missingquarterly estimated tax payments. With all therecent tax changes, it may be especiallyimportant to review your withholding in 2018.

6. Maximize retirement savingsDeductible contributions to a traditional IRA andpre-tax contributions to an employer-sponsoredretirement plan such as a 401(k) can reduceyour 2018 taxable income. If you haven'talready contributed up to the maximum amountallowed, consider doing so by year-end.

7. Take any required distributionsOnce you reach age 70½, you generally muststart taking required minimum distributions(RMDs) from traditional IRAs andemployer-sponsored retirement plans (anexception may apply if you're still working forthe employer sponsoring the plan). Take anydistributions by the date required — the end ofthe year for most individuals. The penalty forfailing to do so is substantial: 50% of anyamount that you failed to distribute as required.

8. Weigh year-end investment movesYou shouldn't let tax considerations drive yourinvestment decisions. However, it's worthconsidering the tax implications of any year-endinvestment moves that you make. For example,if you have realized net capital gains fromselling securities at a profit, you might avoidbeing taxed on some or all of those gains byselling losing positions. Any losses over andabove the amount of your gains can be used tooffset up to $3,000 of ordinary income ($1,500if your filing status is married filing separately)or carried forward to reduce your taxes in futureyears.

9. Beware the net investment incometaxDon't forget to account for the 3.8% netinvestment income tax. This additional tax mayapply to some or all of your net investmentincome if your modified adjusted gross income(AGI) exceeds $200,000 ($250,000 if marriedfiling jointly, $125,000 if married filingseparately, $200,000 if head of household).

10. Get help if you need itThere's a lot to think about when it comes to taxplanning. That's why it often makes sense totalk to a tax professional who is able toevaluate your situation and help you determineif any year-end moves make sense for you.

Timing of itemizeddeductions and theincreased standarddeduction

The Tax Cuts and Jobs Act,signed into law in December2017, substantially increasedthe standard deductionamounts and made significantchanges to itemizeddeductions, generally startingin 2018. (After 2025, theseprovisions revert to pre-2018law.) It may now be especiallyuseful to bunch itemizeddeductions in certain years; forexample, when they wouldexceed the standard deduction.

IRA and retirement plancontributions

For 2018, you can contributeup to $18,500 to a 401(k) plan($24,500 if you're age 50 orolder) and up to $5,500 to atraditional or Roth IRA ($6,500if you're age 50 or older). Thewindow to make 2018contributions to an employerplan generally closes at theend of the year, while youtypically have until the due dateof your federal income taxreturn (not includingextensions) to make 2018 IRAcontributions.

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Montlake FinancialServices, LLCJon Munson, CPA/PFS602-689-1020jmunson@montlakefinancial.comwww.MontlakeFinancial.com

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2018

IMPORTANT DISCLOSURES

Broadridge Investor CommunicationSolutions, Inc. does not provideinvestment, tax, legal, or retirementadvice or recommendations. Theinformation presented here is notspecific to any individual's personalcircumstances.

To the extent that this materialconcerns tax matters, it is notintended or written to be used, andcannot be used, by a taxpayer for thepurpose of avoiding penalties thatmay be imposed by law. Eachtaxpayer should seek independentadvice from a tax professional basedon his or her individualcircumstances.

These materials are provided forgeneral information and educationalpurposes based upon publiclyavailable information from sourcesbelieved to be reliable — we cannotassure the accuracy or completenessof these materials. The information inthese materials may change at anytime and without notice.

How can I safely shop online this holiday season?Shopping online is especiallypopular during the holidayseason, when many peopleprefer to avoid the crowds andpurchase gifts with a few clicks

of a mouse. However, with this conveniencecomes the danger of having your personal andfinancial information stolen by computerhackers.

Before you click, you might consider thefollowing tips for a safer online shoppingexperience.

Pay by credit instead of debit. Credit cardpayments can be withheld if there is a dispute,but debit cards are typically debited quickly. Inaddition, credit cards generally have betterprotection than debit cards against fraudulentcharges.

Maintain strong passwords. When you orderthrough an online account, you should create astrong password. A strong password should beat least eight characters long, using acombination of lower-case letters, upper-caseletters, numbers, and symbols or a randomphrase. Avoid dictionary words and personalinformation such as your name and address.Also create a separate and unique password

for each account or website you use, and try tochange passwords frequently. To keep track ofall your password information, consider usingpassword management software, whichgenerates strong, unique passwords that youcontrol through a single master password.

Beware of scam websites. Typing one wordinto a search engine to reach a particularretailer's website may be easy, but it sometimeswon't bring you to the site you are actuallylooking for. Scam websites may contain URLsthat look like misspelled brand or store namesto trick online shoppers. To help you determinewhether an online retailer is reputable, researchsites before you shop and read reviews fromprevious customers. Look for https:// in the URLand not just http://, since the "s" indicates asecure connection.

Watch out for fake phishing and deliveryemails. Beware of emails that contain links orask for personal information. Legitimateshopping websites will never email you andrandomly ask for your personal information. Inaddition, be aware of fake emails disguised aspackage delivery emails. Make sure that alldelivery emails are from reputable deliverycompanies you recognize.

What are the gift and estate tax rules after tax reform?The Tax Cuts and Jobs Act,signed into law in December2017, approximately doubledthe federal gift and estate taxbasic exclusion amount to

$11.18 million in 2018 (adjusted for inflation inlater years). After 2025, the exclusion isscheduled to revert to its pre-2018 level and becut approximately in half. Otherwise, federal giftand estate taxes remain the same.

Gift tax. Gifts you make during your lifetimemay be subject to federal gift tax. Not all giftsare subject to the tax, however. You can makeannual tax-free gifts of up to $15,000 perrecipient. Married couples can effectively makeannual tax-free gifts of up to $30,000 perrecipient. You can also make unlimited tax-freegifts for qualifying expenses paid directly toeducational or medical service providers. Andyou can make deductible transfers to yourspouse and to charity. There is a basicexclusion amount that protects a total of up to$11.18 million (in 2018) from gift tax and estatetax. Transfers in excess of the basic exclusionamount are generally taxed at 40%.

Estate tax. Property you own at death issubject to federal estate tax. As with the gift tax,you can make deductible transfers to yourspouse and to charity; there is a basicexclusion amount that protects up to $11.18million (in 2018) from tax, and a tax rate of 40%generally applies to transfers in excess of thebasic exclusion amount.

Portability. The estate of a deceased spousecan elect to transfer any unused applicableexclusion amount to his or her surviving spouse(a concept referred to as portability). Thesurviving spouse can use the unused exclusionof the deceased spouse, along with thesurviving spouse's own basic exclusion amount,for federal gift and estate tax purposes. Forexample, if a spouse died in 2011 and theestate elected to transfer $5 million of theunused exclusion to the surviving spouse, thesurviving spouse effectively has an applicableexclusion amount of $16.18 million ($5 millionplus $11.18 million) to shelter transfers fromfederal gift or estate tax in 2018.

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