Tax code changes in 2017, how will they impact you?

Dear Mr. Market:

tax1You’ve posted some very impressive performance since Donald Trump’s victory in the recent presidential election. While the debate will continue in regards to what changes will take place with the new regime in Washington D.C., individuals are contemplating how they will be impacted. What can you expect and how might you be able to make some strategic moves to take advantage of these changes? Let’s specifically look at what Trump and his team are proposing to change with the current tax laws and how it will impact your finances both today and in the foreseeable future.

With Trump in the White House and Republicans taking control over both the House and Senate, tax cuts are virtually a sure thing. Our current tax codes have individuals paying rates on a graduated level with seven brackets ranging from 10% to 39.6%. What many don’t realize is that with ‘Obamacare’ the top tax bracket pays an additional 3.8% on net investment income which brings their rate to 43.4%. Here are some key points to keep in mind as we move into 2017 and the potential changes:

  • Individual Tax Brackets: Look for a reduction to three tax brackets: 12%, 25% and 33% along with elimination of the additional ‘Obamacare Tax’. Currently qualified dividends and long-term capital gains are taxed at 15% or 20% depending on income along with the additional 3.8% previously mentioned. Expect to see the top rate remain at 20% and the additional tax for healthcare removed.
  • Estate Tax: Trump certainly did not hold back his feelings regarding the ‘death tax’ during his campaign! Currently individuals can pass up to $5,450,000 to their heirs tax-free and for a married couple it’s twice this amount. After that threshold an estate tax of 40% is imposed. Trump would like to completely eliminate the current estate tax structure and make radical changes to it.
  • Overseas Profits: Trump made no effort to hide the fact that he wants jobs and funds that have moved overseas to come back to U.S. soil. Currently billions of dollars from U.S. based companies with foreign divisions are not captured with current tax laws. Trump has proposed a 10% repatriation tax on profits derived from these companies and suggested that this charge could be paid over a 10-year period. He has stated numerous times that he expects this to drive a huge inflow of business and profits back to the U.S.
  • Business Taxes: Expect to see legislation that will cut the current rate of 35% all the way down to 15%. For those that operate as a partnership, Limited Liability Corporation (LLC) or S corporation, they could possibly see the same rate as corporations. Of all the proposals that Trump has mentioned this one could have the most profound impact with the potential of a tax rate cut from 43.4% (39.6% plus ‘Obamacare’ 3.8%) all the way down to 15%; particularly if these savings find their way back into the U.S. economy.

All of these rumored changes will not take place until 2017 so what can individuals do to prepare for their 2016 taxes? Below is a quick checklist of some year-end tax tips that everyone should be aware of:

  • Consider working with a professional: There are numerous software and service solutions available these days but with all the changes in tax codes it is prudent to consider working with a tax professional. You might pay more for this but the peace of mind it offers is worth every single penny.
  • Required Distributions: If you are required to take an RMD (Required Minimum Distribution) you have until the end of the year to complete it. The penalty for failing to do so is 50% of the amount not distributed. Also be aware that non-spousal inherited IRAs have unique distribution requirements.
  • Maximize Retirement Savings: If you have not contributed the maximum amount to your traditional IRA or pretax contributions to an employer-sponsored plan, consider doing so to reduce your 2016 taxable income.
  • Tax Harvesting: Take a moment to look at the moves made within your taxable accounts this year. If you have considerable gains consider selling positions that have losses to offset the tax liability. Also be aware of any tax loss carry forwards that you might have from previous years to manage your current taxable gains.
  • Defer Income to 2017: With the potential changes we discussed earlier many individuals might find themselves at a lower tax bracket next year. Consider pushing items like: a year-end bonus, payments for services, business and rental income into next year if possible.
  • Increase Tax Withholdings: If you are going to owe federal income tax for this year consider bumping up your withholding for the remainder of the year. This can be done with a Form W-4 through your employer.
  • Plan Ahead: Waiting until the last-minute is not a plan! Take the time to put together your tax information, know your current situation and how it might change in the future. If this is an overwhelming process for you…we would encourage you to go back to our first point and consider working with a professional!

screen-shot-2016-12-02-at-9-27-05-amThe winds of change are blowing in Washington D.C. and the impact that they could have on your personal finances could be “HUGE” or should we say “YUGE”… (pun intended)! Be aware of your current situation and how the newly proposed legislation will affect you going forward. If you find that you need help, consider asking for a referral from other professionals you currently work with. We also are here to help and encourage you to contact us at (888) 47-GUIDE or (888) 474-8433.

Are you allowing the “tax tail” to wag the “investment dog”?

Dear Mr. Market:Tax tail dog 1

Not only do you toy with the emotions of every investor; you also have a partner that often surprises them and hits investors where it hurts the most… their pocketbook. Making money in the stock market is great but so many forget that eventually they have to reconcile with Uncle Sam come tax time. Look for example at some investments that we have recently discussed: Under Armour (UA) and InvenSense (INVN).   If you had purchased these stocks on the first trading day of this year (1/2/2014) you would be up 58% with Under Armour and up 20% with InvenSense. These numbers are impressive and would certainly make any investor happy but what happens when they are sold? How will they impact your tax return and how much of the gain will you have to pay?

Nothing is certain except death and taxes.

                            Benjamin Franklin 

*** Before we move any further in this discussion it is important to note that we are not tax advisors. In this article we will be discussing general guidelines. Every investor’s situation is unique and deserves personal attention. If you have questions we would encourage you to talk with a qualified tax professional.

Let’s take a moment to go over some of the basics when it comes to investor tax issues. Continue reading

Building Your Financial Team – The Road to Success

Teamwork arrowDear Mr. Market:

How ‘fit’ is your financial team? Putting together a financial team to help you meet your financial goals is like building a winning sports team. Each member of your financial team needs to know what their responsibility is and what they are contributing to your financial success.   With tax-season behind us and the equity and fixed income markets experiencing volatility, now is a great time to assess your team and see if it is truly making the grade!

There is no single approach to building your team or a guide on how to assemble one. The key is the team needs to work for you, they need to give you a sense of comfort and they need to work together. Whether you work with individuals or utilize software solutions it is important that an assessment takes place so that you don’t suddenly find yourself in a hole that you need to dig out of.

In this article we will discuss how to build your “Team of Trust”. We will look at three key areas that every investor should consider: Estate Planning, Tax Planning and Financial Advice. We will discuss some key elements with each member of the team: Why? Who? What? How Much? Continue reading

Top Tax Tips for 2014

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Dear Mr. Market:

Your whole world is about investing and the stock market. Stick to what you’re good at and leave things like repairing your car, fixing that leaky faucet, or doing your taxes to someone else-

(1) Don’t take investment advice from a CPA and vice versa.

Notice how we practice what we preach. Our first “tax tip” will be to let you know that for specific tax advice you should NOT go to your investment advisor. We’re not CPA’s and even though we understand a great deal about taxation (specifically with regard to investments) our job is to manage investments, not tax codes.

Why is it then that we see so many accountants, tax preparers, CPA’s, and even “enrolled agents” dole out investment advice around this time of year? Investors naturally gravitate to the professional that sees the majority of their financial house and by default it’s typically a CPA. We’re not bashing CPA’s but allow us to be crystal clear on this point: A CPA has no formal training nor better understanding of investments or the portfolio strategy you or your financial advisor has put together.

Look to Tip #2 on what your CPA should know about your investment situation:

(2) If the introduction hasn’t been made yet…Make it happen!

In the case of investments and taxes one old adage couldn’t be more true: ”The right hand should always know what the left hand is doing.”

If your investment advisor has not met or interacted with your CPA an introduction needs to be made. They don’t have to become best friends but your overall financial situation will be enhanced when key professionals that help you know each other.

(3) What type of tax professional do you need?

Do you simply need Continue reading