Taylor Financial Group s Monthly Planning Letter

Transcription

1 Taylor Financial Group s Monthly Planning Letter December 017 Year-End Planning December is Year-End Planning Month at Taylor Financial Group We have prepared this short newsletter to provide you with some planning tips as we head into year-end. We hope that you find this newsletter both informative and helpful and encourage you to call our office with any questions, or suggestions for planning topics, that you may have. We wish you all a Happy Holiday season and a peaceful, healthy, and prosperous new year! Debbie Monthly Planning In this Issue Tax Taxable gains Planning Reviewing tax deductions Retirement Planning Estate Planning Insurance Tax Reform Charitable giving Retirement Plan Contributions Required Minimum Distributions Roth IRA Conversions Trust distributions Annual exclusion gifts Health Insurance open enrollment Flexible spending accounts What about the new tax plan for 018? Page 5 Securities offered through Cetera Advisor Networks LLC, Member FINRA/SIPC. Advisory services offered through CWM, LLC, a registered investment advisor. CWM, LLC is under separate ownership from any other named entity. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Information Disclosure: The information contained herein has been obtained from sources considered to be reliable, but accuracy or completeness of any statement is not guaranteed. Professional Advice Disclosure: None of the information contained herein is meant as tax or legal advice. Tax laws are complex and subject to change. Please consult the appropriate professional to see how the laws apply to your situation.

2 Have you reviewed your realized gains? A capital gain occurs when you sell an investment (for example a stock) for more than you purchased it for. Capital losses from investments can be used to offset capital gains. If your capital losses exceed your capital gains, you may be able to use the loss to reduce your taxable income by up to $,000 per year. If you have more than $,000 in capital losses, the excess can be carried forward to future years to offset future income, or capital gains. TAX PLANNING Have you considered tax-loss harvesting? If you have large unrealized losses in your investment portfolio, you may want to consider selling those investments to realize a capital loss. For example, let s say you invested $50,000 in a start up company a few years ago that is now worth only $10,000. If you have large realized gains of say $100,000 from selling appreciated stocks, those capital losses of $0,000 from the start up company can be used to offset the gains. You should note that if you sell an investment at a loss and repurchase it within 1 days, the transaction would be a wash sale and the loss would not be allowed under IRS Rules. Making charitable gifts? Do you have highly appreciated stock? In order to obtain an income tax deduction for charitable gifts in 017, gifts must be made by December 1. If the gift consists of property that will require an appraisal (generally required for gifts of property with a value in excess of $5,000, other than publicly traded stock), you should start the process as soon as possible. If you have highly appreciated stock, you can deduct up to 0% of your adjusted gross income. For example, if your adjusted gross income is $100,000, up to $0,000 of long-term appreciated stock and other capital gain property may generally be deducted as a charitable contribution, although high-income donors may be subject to a partial phase-out of itemized deductions. Any excess can generally be carried forward and deducted over as many as five subsequent years. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Information Disclosure: The information contained herein has been obtained from sources considered to be reliable, but accuracy or completeness of any statement is not guaranteed. Professional Advice Disclosure: None of the information contained herein is meant as tax or legal advice. Tax laws are complex and subject to change. Please consult the appropriate professional to see how the laws apply to your situation. Do you have any large expenses on the horizon? Tax deductions can reduce your taxable income, thus decreasing the amount of tax you owe to the government. Under the current tax plan, examples of deductions are property taxes, medical expenses, education expenses, and certain interest expenses. Bunching is the practice of accelerating the payment of an expense, such as your property taxes, so that you realize twice the expense in 017 and no expense in 018. Accelerating expenses into 017 may result in less tax payable this year, however, you should also analyze whether you would benefit from deferring those deductions to next year when income tax rates may be higher. UPDATE as of December 18, 017- recent news reports indicate that prepaying income and property taxes will not help in lowering your tax bill, so don t bother! Taxpayers may deduct $10,000 total for any combination of state and local taxes, sales taxes and real estate taxes. But if you try to prepay those taxes before year-end to circumvent the limit, apparently, the new tax code won t allow it at this time.

3 Are you self-employed? A solo 01(k) is one of the best ways for self-employed people to save for retirement. You can contribute up to $18,000 ($,000 if you are 50 or older) plus up to 5% of your net self-employment income, up to a maximum contribution of $5,000 for 017. You have until April 18, 018, to make contributions for 017, but you have to open the account by December 1 if you don t already have one. Have you considered a Roth conversion? You have until December 1 to convert money from a traditional IRA to a Roth for 017. You ll pay taxes on the conversion, but you ll be able to withdraw the money taxfree from the Roth in retirement.* Making a Roth conversion is a particularly good idea if your income was lower in 017 than in previous years. Many investors may make partial conversions to avoid increasing their income enough to push them into a higher tax bracket. Under current rules you have until October 15 of the year following your conversion to recharacterize or undo your conversion. This is valuable because if the market should go down after your conversion, you get a free redo to recharacterize and convert a lesser amount (thereby realizing a lower tax bill). Under the current tax plan proposal, recharacterizing may be disallowed in the future. If you would like to review whether or not a Roth conversion might benefit you, do not hesitate to contact our office. RETIREMENT PLANNING Have you maximized your contributions to your employer sponsored retirement plan? Have you reached age 70 ½? After reaching age 70 ½, Traditional IRA account holders are required to begin taking withdrawals from their IRA, called RMD s (Required Minimum Distributions). If you reached age 70 ½ in 017, you have until April 1, 018 to take your RMD. You should note, however, that if you wait until 018 to take your first required minimum distribution, you will realize your 017 and 018 RMD within the same tax year and may pay higher taxes. All IRA account holders who are age 70 or older should review their IRA withdrawals to ensure that they have fulfilled their minimum distribution requirements. Have you made your IRA contribution? You can make your IRA contribution for 017 any time before the tax-filing deadline. The contribution limit for 017 is the lesser of 100% of earned income, or $5,500. If you are 50 or older, you can contribute up to $6,500 to your Traditional or Roth IRA's in 017. The elective deferral (contribution) limit for employees who participate in 01(k), 0(b), most 57 plans, and the federal government s Thrift Savings Plan is $18,000 for 017. In addition, participants age 50 and over can contribute an additional $6,000 (totaling $,000). If you have not maximized your contribution to your employer sponsored retirement plan, call your Human Resources Department immediately as you may be able to increase your contributions from your final paychecks of the year (or even defer your year-end bonus). Some plans also allow after-tax contributions above and beyond your deferral limits. Those after-tax contributions can later be transferred to a Roth IRA while the earnings can be rolled over to an IRA and continue to grow taxdeferred. To the extent that your cash flow allows, you should consider making the maximum contributions allowed by your plan. *The Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change. Traditional IRA account owners should consider the tax ramifications, age and income restrictions in regards to executing a conversion from a Traditional IRA to a Roth IRA.

4 ESTATE AND LEGACY PLANNING Have you made distributions to trust beneficiaries? A trust reaches the highest income tax bracket of 9.6% after generating only $1,500 of annual income. Trusts are also subject to the new.8% Medicare Surtax on investment income in excess of $1,500. This results in a total top Federal rate of.% for trusts. However, when beneficiaries receive distributions from a trust, it is the beneficiary who pays the tax on that income, not the trust. Beneficiaries may be in a lower tax bracket than the trust. Therefore, making distributions to trust beneficiaries at year-end may result in a tax savings to the trust. Accelerate your annual gifts with a 59 Plan! Consider funding Section 59 plans by December 1 to apply 017 annual gift tax exclusion treatment to the contributions. You can front-load 59 plans by making five years worth of annual exclusion gifts ($1,000 per person, per year) to a 59 plan. In 017, you can transfer $70,000 ($10,000 for a married couple) to a 59 plan without generating gift tax, or using up any of your gift tax exemption. Prior to investing in a 59 Plan investors should consider whether the investor's or designated beneficiary's home state offers any state tax or other benefits that are only available for investments in such state's qualified tuition program. Withdrawals used for qualified expenses are federally tax Have you made your annual gifts? Each year, individuals can gift up to $1,000 ($8,000 for married couples) to as many people as they wish without reducing their federal gift tax exemption ($5. million). Any gift tax exemption used during a taxpayer s lifetime will effectively reduce the taxpayer s estate tax exemption. You should make gifts prior to year-end. Consider making gifts to a Roth IRA for your children or grandchildren. Help your children or grandchildren get an early start on saving for retirement. Consider making a gift of up to $5,500 to either a traditional or Roth IRA for your children or grandchildren who are not funding their own IRAs (but have enough earned income to do so). Small gifts today can potentially yield great results for your children, or grandchildren s, futures. For example, a $5,500 Roth IRA contribution for a ten year old grandchild today can yield $7,000 at age 65, which can be withdrawn tax free (the hypothetical rates of return used do not reflect the deduction of fees and charges inherent to investing. Investing involves risk including loss of principal). The open enrollment period for employer insurance coverage is here, so everyone should be paying close attention to changes in health insurance benefits. Many companies offer several plans that may have different costs and benefits, so it's important to review each option What that is available to to look you. for on your credit Do report you have a Flexible Spending Account? The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Information Disclosure: The information contained herein has been obtained from sources considered to be reliable, but accuracy or completeness of any statement is not guaranteed. Professional Advice Disclosure: None of the information contained herein is meant as tax or legal advice. Tax laws are complex and subject to change. Please consult the appropriate professional to see how the laws apply to your situation. HEALTH INSURANCE PLANNING Review your health care coverage options. As the year draws to a close, many people with a Flexible Spending Account for medical expenses are rushing to the doctor or dentist to use up any remaining funds. FSA s follow a use it or lose it policy. But, some FSA s offer a grace period into the beginning of the New Year, so make sure that you understand your choices.

5 TAX REFORM What about Tax Reform? Should I do anything to Prepare for 018? With the House of Representatives and Senate recently voting to approve competing tax plans, you are right to ask how tax reform may affect you and if there is anything you should do to prepare. Unfortunately, the approved plans in the House and Senate are competing and there still needs to be a great deal of negotiation to be done to come to center. We include a chart summarizing some key provisions of the competing Plans so you can get an idea as to where the competing versions agree (and do not agree). Below the chart we discuss a few of those key provisions. HOUSE BILL SENATE BILL Top Individual Rate 9.6% 8.5% Number of Individual Brackets 7 Estate Taxes Expands exemption to $11 million per person, repeals Estate Tax in 05 Expands exemption to $11 million per person, no repeal Corporate Rate 0% 0% Corporate Rate Reduction Starts Top Pass-Through Rate 5%, with limitations Below 0% State and Local Tax Deduction Preserved only for property taxes up to $10,000* Preserved only for property taxes up to $10,000* Mortgage Interest Deduction Up to $500,000 of debt on primary home only** Up to $1,000,000 of debt on primary and secondary home** Medical Expense Deduction Eliminated*** Expanded temporarily*** Student Loan Interest Deduction Eliminates**** Preserves**** Personal Exemption Eliminates Eliminates Standard Deduction Nearly Doubles Nearly Doubles Alternative Minimum Tax (AMT) Eliminates Retains, but with bigger exemption Child Tax Credit $1,600 per child $,000 per child Expirations Key credit expires after 0 Individual tax cuts expire after 05 Business Investments Full expensing, expires after 0 Full expensing, phases out after 0 * UPDATE AS OF DECEMBER 18, 017- any combination of state and local property, income, and sales tax will be deductible up to a cap of $10,000 ** UPDATE AS OF DECEMBER 18, 017- interest on up to $750,000 of debt would be deductible *** UPDATE AS OF DECEMBER 18, 017- medical expenses in excess of 7.5% of income would be deductible **** UPDATE AS OF DECEMBER 18, 017- currently preserved Tax Brackets- Individual and Corporate Rates Overhauled The House Plan shrinks the current number of individual tax brackets from seven to four, with the highest tax bracket of 9.6% remaining unchanged. As the brackets are compressed, the earnings thresholds per bracket will also increase. The highest tax bracket of 9.6% (which currently is assessed on income over $70,000 for those married filing jointly) will begin to cover income over $1,000,000. While it remains to be seen how the plan will be implemented, most Americans should see a decrease in their marginal tax bracket. However, they will likely see a big reduction in the deductions that are available to help offset income. The Senate Plan keeps the current number of individual tax brackets at seven but reduces the marginal rates, reducing the top bracket from 9.6% to 8.5%. A key area of the both Plans, which has been touted as non-negotiable, is the slashing of corporate tax rates. The top corporate tax rate of 5% is to be reduced to 0% under both Plans and the top tax rate for pass through entities such as LLC s, sole proprietorships, and S corporations is to be reduced from 9.6% to 5% under the House Plan and 0% under the Senate Plan. This plan draws criticism that the reduction of the tax rate for pass-through entities will encourage business owners to game the system by reducing their salaries and labor income. By doing so, they will avoid being taxed at higher rates. We will see how this critical provision pans out. 5

6 State and Local Tax Deduction (SALT) Partially Repealed and Capped The State and Local Tax Deduction was a major sticking point, especially for those in high tax states such as New Jersey, New York, and California. When the budget was voted on in October, twenty Republicans crossed the aisle and voted no, with eleven of them coming from New York and New Jersey. Under the proposed House plan, the deduction for state income taxes will be repealed but the property tax deductions will remain, though they will be capped at $10,000. Under the Senate proposal, the SALT deduction would be eliminated entirely. This is a serious blow to those of us here in New York and New Jersey who face high state income and property tax rates, and of course, this section is currently being debated. UPDATE AS OF DECEMBER 18, 017- state and local income, sales, and property taxes would be deductible up to $10,000 Mortgage Interest Cap Lowered Currently, mortgage interest is deductible on up to $1,000,000 in debt. The Senate plan keep the current $1million allowance, but the House tax plan will reduce that mortgage interest deduction cap to $500,000 in debt, though existing loans will be grandfathered. UPDATE AS OF DECEMBER 18, 017- interest on debt up to $750,000 would be deductible Medical Expenses Eliminated Currently, individuals and families can deduct medical expenses, to the extent that they exceed 10% of their income (7.5% if you are age 65 or older). The House tax plan repeals all deductions for medical expenses which will hurt those who experience high medical expenses, especially seniors. UPDATE AS OF DECEMBER 18, 017- medical expenses in excess of 7.5% of income would be deductible Standard Deduction is Doubled For those who do not itemize their deductions, the standard deduction will be nearly doubled. Currently, the standard deduction is $6,50 per person and $1,700 for couples. Under the tax plan, that will rise to $1,000 per person or $,000 per couple. Personal Exemption is Eliminated. The personal exemption of $,150 per person will also be eliminated. Charitable Contributions Unchanged- Donors who itemize deductions can still take deductions as per the current tax code. What Should You Do Now? This is a tricky time, as no one knows for sure if or when the tax package will pass, if it will be retroactive, and what provisions of the plan will survive. Having said that, we mention a few things to think about, as we watch the process unfold. It is usually a bad idea to procrastinate, but in the case of selling investments such as stocks, waiting may be a good idea. This is because if Republicans succeed in ending the Affordable Care Act, it could mean the elimination of the Act s.8% tax on net investment income. It may also be a good idea to accelerate expenses that are currently acceptable itemized deductions. This is because in the proposed plan many of the expenses we currently get to itemize will be eliminated. Therefore, it could be a good idea to try to accelerate itemized deductions into this year, as opposed to next year when many itemized deductions could be a thing of the past. UPDATE AS OF DECEMBER 18, 017- according to news reports, accelerating deductions is disallowed under the plan, so don t bother prepaying expenses as of now If you have more than $500,000 in debt and have considered refinancing your home, you should not procrastinate any longer. If the tax plan passes as proposed, any mortgage interest on debt in excess of $500,000 will no longer be deductible. However, if your debts are refinanced prior to the plan passing, existing loans could grandfathered and would still be deductible. UPDATE AS OF DECEMBER 18, 017- the limit has been raised to $750,000 and news reports indicated that only loans dated prior to December 15 th are grandfathered so it is too late to refinance Having said all of this, we are still taking a little of a wait and see approach. As House Ways and Means Committee Chairman Kevin Brady (R., Texas) said, We are following the Reagan example here. Go bold. Listen. Make adjustments, but keep the process going forward. To that end, we anticipate that the final product will be completed before the end of the year. We will keep you posted as the showdown in Washington unfolds. Stay tuned! 6

7 Action Items Review your realized and unrealized capital gains to determine if tax loss harvesting may be right for you. Review your tax deductions with your tax preparer or accountant to determine if accelerating or deferring deductions is an appropriate tax strategy for you. If you have a traditional IRA, consider whether a Roth conversion is right for you. Ensure you have maximized your contributions to your IRA and employer sponsored retirement plans. There is still time to make gifts to loved ones without reducing your gift tax exemption. For 017, you can gift up to $1,000 to each of your loved ones. You can accelerate up to five years of gifts ($70,000) to a Section 59 College Savings Plan! Review your health insurance options for 018. Ensure that you have used up the funds that cannot rollover to next year in your Flexible Spending Account. Taylor Financial Group 795 Franklin Avenue, Suite 0 Franklin Lakes, NJ 0717 (01) office@taylorfinancialgroup.com Securities offered through Cetera Advisor Networks LLC, member FINRA/SIPC. Investment advisory services offered through CWM, LLC, a registered investment advisor. CWM, LLC is under separate ownership than any other named entity. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Information Disclosure: The information contained herein has been obtained from sources considered to be reliable, but accuracy or completeness of any statement is not guaranteed. Professional Advice Disclosure: None of the information contained herein is meant as tax or legal advice. Tax laws are complex and subject to change. Please consult the appropriate professional to see how the laws apply to your situation. 7