Finding a Way to Boost Economic Growth

When Donald Trump was running for president, he promised Americans a huge increase in economic growth reaching 4, 5, and even 6 percent. However, real economic growth in 2017 is expected to be around 2.1 percent–equaling the average over the last 10 years.2 Boosting growth will require overcoming challenges and capitalizing on opportunities. 1

 

 

 

(1) David Payne, “Goldilocks GDP Growth: Not Too Hot, Not Too Cold,” Kiplinger, July 28, 2017.
(2) Federal Reserve Bank of St. Louis.
(3) Nick Timiraos and Andrew Tangel, “Can Trump Deliver 3% Growth? Stubborn Realities Stand in the Way,” WSJ, May 15, 2017.
(4) Glenn Kessler, “Do 10,000 Baby Boomers Retire Every Day?,” The Washington Post, July 24, 2014.
(5) Amanda Dixon, “The Average Retirement Age in Every State in 2016,” Fox News, December 28, 2016.

The opinions and forecasts expressed are those of the author and may not actually come to pass. This information is subject to change at any time, based on market and other conditions, and should not be construed as a recommendation of any specific security or investment plan. SFS is not affiliated with any companies mentioned in this commentary.

2017 Tax Update

2017 Tax Deadline: April 18th
For you procrastinators, there is some good news regarding taxes this year: the tax filing deadline has been moved back to April 18th because the 15th falls on a Saturday and Monday the 17th is a holiday in the District of Columbia. However, you should not wait until the bitter end.

Even if you have to pay, we recommend submitting your return a week in advance just to avoid any possible issues. If you are due a refund, why wait? Get your money now! If you have more questions about tax brackets or other important numbers, please check out our website.

IRA/Roth IRA Contributions
Don’t rob from your future self. Make a payment to your future security. As with taxes, you also have until April 18th to make contributions into your IRA or Roth IRA. (But don’t wait that long or you risk missing the deadline!) Remember that IRA contributions lower your current taxes. They make sense if you are in a high tax bracket now and you will be in a lower one at retirement.

Roth contributions do not lower your current taxes, but they do grow tax free. If you are currently in a low tax bracket and will be in a higher one at retirement, or if you are a long way from retirement, then Roth contributions may be the best option for you.

You can contribute $5,500 total per person to an IRA or Roth. If you are over age 50, you can make a catch-up contribution of $1,000 for a total of $6,500 per year.

If you are eligible for a 401(k) through work and if your income exceeds a certain amount, your ability to deduct IRA contributions or make Roth contributions may be limited. Please consult with your CPA or check out our website to get more information regarding the phase-out limits.

Tax Forms
All of the tax forms have been mailed out, including the delayed tax reporting on non-retirement accounts. We are sorry (especially to the accountants) that the IRS has allowed delays in order for reporting companies to provide more accurate information.

If you still haven’t seen your tax forms, log in to your myStreetscape account and download the forms under the documents section. If you do not have a login, go to www.mystreetscape.com and click “register.” Then follow the prompts to create an account. You can use the same myStreetscape login to go paperless for the future.

In April, myStreetscape is being renamed to Wealthscape. You will be able to use the same login credentials after the transition.

Qualified Charitable Distributions
We’ve had several questions, from clients and accountants, regarding Qualified Charitable Distributions (QCD) that were sent directly to charities.
A quick recap: If you are over 70 ½ years old, a QCD allows you to donate part or all of your Required Minimum Distribution (RMD) to a charity and avoid paying tax on it.

The 1099-R’s sent by National Financial Services (NFS) show the total amount of distributions and are not reduced by the amount of the QCD. So, the tax preparer should reduce the amount reported on the 1099 by the amount of the QCD to come up with the taxable amount of IRA distributions.

The QCD should NOT be included as an itemized deduction. The potential benefit of the QCD is to remove the IRA distribution from your income, which may lessen the amount of Social Security subject to tax or help you avoid Alternative Minimum Tax (AMT). Smedley Financial does not give tax advice. Please consult a qualified CPA to get additional detail.

Source: http://www.smedleyfinancial.com/financial/2017-key-numbers.php. Tax advice is not provided by Securities America representatives; therefore it is important to coordinate with your tax advisor regarding your specific situation.

Election Impact

President-elect Donald Trump made a lot of promises to Americans on the campaign trail. Yes, he proposed building a wall on the Mexican border and blocking certain groups from immigrating to the United States, but none were more important to voters than how the candidate would impact their money.

Trump believes his economic plans will double U.S. growth, which is currently at 2.9 percent. He plans to focus on cutting taxes for the rich, increasing government spending, and negotiate better trade deals with foreign countries. If necessary, he has even suggested imposing tariffs on imports of goods to the United States.

Republicans will control the Senate and House of Representatives, so the next president may find it easier to get things done, especially at first. Here are a few of the promises made during Trump’s campaign.

Jobs

The foundation of the United States is firm and its economy is strengthening. Unemployment numbers cannot get much better than current levels. Wage growth may be a more valuable measure of economic health. Infrastructure spending of $500 billion may help by boosting productivity of Americans in the long-term.

Education and Family

  • Require paid maternity leave for 6 weeks.
  • Make child care expenses tax deductible.
  • Allow “dependent care savings accounts.”

Healthcare

    When it comes to healthcare, any president faces an aging population and rising costs of new medical technology. Trump plans to repeal the Affordable Care Act and replace it with something different.
  • Make health insurance premiums tax deductible.
  • Encourage health insurance to be sold across state lines (something already allowed by federal law).
  • Allow imports of foreign drugs where prices are cheaper.

Taxes

    Trump has proposed many changes to the tax code. The greatest impact will be on the top one percent of earners who are estimated to save about $100,000 in taxes every year.
  • Increase the standard deduction to $30,000 for joint filers from its current level of $12,600.
  • Eliminate the personal exemption of $4,050 per dependent that parents use.
  • Eliminate estate tax.
  • Eliminate alternative minimum tax.
  • Lower corporate tax to 15 percent.

Investments

In the coming months very little should change. Increased government spending on infrastructure combined with tax cuts roughly the same size could boost growth in the coming year or two. It would also increase the national debt significantly. This could depress the value of existing bonds as interest rates rise on U.S. debt.

If we raise tariffs and other countries do the same then global trade could decrease and the cost of goods could rise. Less trade would also decrease profitability for U.S. exporters. This could even cost workers their jobs.

Our advice? Vote with your ballot, not your portfolio. Think of all the missed opportunity if one withdrew whenever there was uncertainty. Whether your favored candidates were elected or not, we want to reinforce the importance of sticking to your long-term plans.

IRA Charitable Donations Are Back…and This Time They Are Here to Stay!

For those of you over age 70 ½, a very beneficial tax law is back on the books thanks to the Protecting Americans from Tax Hikes (PATH) act signed into law on December 18, 2015.

The PATH act has a provision that allows you to donate IRA money directly to a qualifying charity and avoid paying any tax on the distribution. Even better, the distribution still counts toward your Required Minimum Distribution. Officially it is called a Qualified Charitable Distribution or QCD. Those who took advantage of it in previous years will be glad it is back.

Even better, the PATH act is now permanent. In the past, Congress has only approved the measure in 1- or 2-year increments, which has made it difficult to plan for the future.

Some people have wondered what the difference is between making a QCD directly to a charity or taking the money and then donating it to the charity personally. The main difference is that a QCD does not increase your income on your tax return (AGI). This may not sound like a big deal, but the implications can be large.

By not increasing your income you may reduce or possibly avoid paying taxes on Social Security. Also, if your income is lower, you may avoid paying the Alternative Minimum Tax (AMT).

To explore this in detail let’s look at an example. Let’s say Henry wants to get the money first and then donate it to a charity. If his required minimum distribution was $10,000 and he withheld $2,000 for taxes, he would get a check for $8,000. Henry would then deposit that check in his checking account and write out a personal check to the charity.

Next year Henry would get to include the $8,000 (not the full $10,000) as a deduction on his taxes. However, his income (AGI) will still be higher by $10,000, which may result in his Social Security being subject to higher taxes and/or his deductions being limited by AMT.

The other option is for Henry to donate the $10,000 directly to a charity. His income (AGI) isn’t increased and he doesn’t have to pay any taxes on the distribution. Also his charity is benefited by the full $10,000. That is an additional $2,000 to charity at no extra cost to Henry! The decision seems to be fairly easy.

If you plan to donate money to a charity and you have to take a Required Minimum Distribution, give us a call so we can help you take full advantage of this reinstated tax law.
Source: http://www.wsj.com/articles/congress-gives-americans-a-tax-gift-for-christmas-1450434600.
Smedley Financial and its advisors do not provide personal tax advice. It is important to coordinate with your tax advisor regarding your situation.

Year-End Tax Tips

As the end of 2015 approaches, here are some year-end tax tips that may help you save some of your hard-earned money.

Piggy Bank

• Tax harvesting – This is one way to turn a curse into a blessing. If you have an investment with large capital gains that you haven’t wanted to sell for tax reasons, just look to see if you have another non-retirement investment that is underwater. If you sell both investments, you can use the losses in the poor-performing investment to offset the gains of the good performer.

• Lost a job or retired early – You may consider a Roth conversion if your taxable income is low. Low-income years can result in more deductions than taxable income, which means that you may be able to convert part or all of an IRA into a Roth without much tax consequence.

• Roth conversions – If you have been contemplating converting money from an IRA into a Roth for 2015, just remember that the conversion has to take place before the end of the year.

• Watch for approval of Qualified Charitable Distributions (QCD’s) – Congress hasn’t approved QCD’s yet, and they may not this year. They have a history of waiting until the last minute. If congress does approve QCD’s and you are over age 70.5, you can donate part or all of your Required Minimum Distribution to a charity. This donation reduces your taxable income and may mean that less of your Social Security is subject to tax.

 

Smedley Financial and its advisors do not provide personal tax advice. It is important to coordinate with your tax advisor regarding your situation.

Keep it or trash it?

This question pops up from time to time, especially this time of year. What to do with all those saved documents? To help answer this question, here are some guidelines.

  • Mortgage Information: For as long as you own the property, plus 4 years for tax purposes.
  • Receipts for Purchases: 1 month, except big-ticket items requiring proof-of-purchase for insurance.
  • Utility Bills: 1 month, unless you deduct for home office expenses as these are filed with tax records.
  • Tax Records: Forever. Supporting documents: at least 4 years
  • Bank Statements: 1 month or until checks clear. Keep documentation supporting tax deductions.
  • Paycheck Stubs or Direct-Deposit Statements: 1 year.
  • Credit Card Statements: 1-2 months or until reconciled.
  • Records for Home Improvements, Sale or Purchase of Property: 4 years after the sale of the home or property.
  • Medical Records: 4 or more years.
  • Insurance Policies & Bills: Keep current policies and bills, discard cancelled policies.
  • Investment Records: Keep initial purchase and year-end reports indefinitely.

9 Ways to Reduce Taxable Income This Year

It is hard to believe 2014 is swiftly drawing to a close. At this point, what can you do to better manage your taxes? Here are several ideas you can consider:

9 Ways to Reduce Taxable Income

Maximize retirement contributions.
All contributions to your traditional 401(k) or other tax deferred retirement accounts are made before taxes are calculated. This means that if you make a maximum $17,500 contribution to a 401(k) your taxable income is reduced by $17,500. So, why not pay yourself rather than Uncle Sam? Generally speaking, you can modify your contributions at any time during the year, but check with your benefits office to be sure of your plan’s rules.

Harvest tax losses.
After several years of market growth you may want to lock in some of your investment gains. The downside is you will also trigger a tax on any growth over your initial investment. Consider dumping some of your portfolio losers. This will allow you to offset your taxable gains with losses resulting in a zero tax bill if the numbers are the same. Keep in mind you can only offset long-term gains with long-term losses. The same applies to short-term gains and losses. We can help you identify any tax harvesting opportunities in your portfolio.

Defer income.
If you have control over when you will receive income, consider deferring some of your income until next year. This generally applies to those earning commissions, bonuses, consulting fees, or self-employment income. A quick exercise to determine where you are tax-wise and how much income should be deferred to prevent you from hitting the next marginal tax bracket is recommended. This can be done by consulting with your tax professional. Some programs such as Turbo Tax allow you to run a pro-forma tax filing to get an idea of where you stand.

Make up tax shortfalls.
If you have not paid enough withholding or estimated tax throughout the year, there is still time make up the difference before the year ends. Increasing your tax withholding or making an estimated tax payment will help avoid any underpayment penalties.

Bunch itemized deductions.
Retirement brings with it some unexpected tax situations. For many there are not enough deductions each year to itemize on Schedule A of the tax return, in effect minimizing any tax advantages. By bunching deductions every other year, you can itemize one year and take the standard deduction the next year. This could be applied by prepaying state taxes every other year, making charitable donations every other year, moving up or pushing back a non-urgent medical procedure, and much more. Your tax professional can share ideas that fit your specific situation.

Make stock donations.
If you have held taxable investments for more than a year and they have increased in value, you can donate the stock directly to a qualifying charity. This avoids any capital gains you may owe on the growth of your investment. Nevertheless, you can still itemize the full value of the donation. Even better, the receiving charity pays no tax on the gift. You are then free to invest the cash you would have donated, creating the opportunity for future stock donations.

Be generous to charities.
Gifting cash to a qualified charitable organization also has tax perks. You can deduct the cash donation on Schedule A when you file your return. (Be sure to keep receipts for all cash donations.) You also get the benefit of helping others, while this may be a completely intangible outcome; the good feeling of making a difference in the world goes well beyond any tax advantages.

Maximize gift tax exclusions.
If your estate is growing considerably, you may want to gift something to your children and grandchildren while you can watch them enjoy the gift. You can give $14,000 annually to as many people as you wish. Neither you nor the happy recipients will pay gift taxes or estate taxes. If you are married your spouse can gift the same amount. Get double tax benefits by gifting appreciated stock and avoiding the capital gains taxes. The capital gains basis will transfer to the recipient, who is most likely in a lower tax bracket.

Schedule a financial checkup.
Throughout the year there may have been changes to your personal situation. This is a good time to review beneficiary designations, retirement plan contributions, estate planning options, and investment strategies. Your advisor can make you aware of and help you take full advantage of a wide range of planning opportunities.

For more information and ideas on how to maximize year-end planning opportunities, contact one of our wealth management consultants or your tax professional. Don’t wait too long; there is a deadline for getting everything finalized and some of our suggestions take time.

*Securities America and its representatives do not provide tax advice; therefore it is important to coordinate with your tax advisor regarding your specific situation.

Obamacare Medical Costs on the Rise

There is no shortage of controversy surrounding Obamacare. Apparently there is also much confusion around its name. Jimmy Kimmel, the late night comedian, proved that people don’t have their facts straight. He had a camera crew ask people on Hollywood Boulevard which they liked better: Obamacare or the Affordable Care Act. One woman explained that Obamacare has “a lot of holes in it, and I think it needs to be revamped.” The same woman felt that “the Affordable Care Act is better.” She wasn’t the only one. Most people had similar opinions. Just to clear up any misconception, they are one in the same.

One thing that is certain is many Americans will have their medical insurance costs increase this next year. This is largely due to medical carriers revamping their plans to be in compliance with the new law.

Forbes reports that 41 states will experience premium hikes. In Utah, individual-market premiums are expected to increase by 24%.1

Average_Age

In one case, a single mother with 5 children had the cost of insurance increase from $827 per month to $1045. That is a 26% increase for one year.2

Seniors may also be indirectly impacted by the new law, which imposes spending cuts by reducing payments to hospitals and doctors, while increasing incentives for more efficient care. Supporters say this will strengthen the Medicare program in the long-term. Opponents say that seniors in Medicare will find it harder to access their benefits because more doctors are refusing to treat Medicare patients.3

The silver lining to all of this is that 30 million Americans will now have access to health care, and
many of those will be eligible for subsidies.

To see if you may be eligible for a subsidy, go to the calculator at http://kff.org/interactive/subsidy-calculator/.

If you are eligible for a subsidy, you will need to apply for insurance through an exchange. When an exchange determines that a person is eligible for a tax credit based on expected income, subsidies will be paid directly to insurers to lower the cost of premiums.

Consumers purchasing insurance through an exchange “can pick from four levels of coverage, from bronze to platinum, with the greatest differences appearing in cost sharing features such as annual deductibles and copayments. Bronze covers 60 percent of expected costs; silver covers 70 percent; gold covers 80 percent; and platinum covers 90 percent.”4

After subtracting subsidies, a 27-year old in Salt Lake City earning $25,000 per year would expect to pay $95 a month if he chooses the bronze plan. A family of four in Salt Lake City with an income of $50,000 per year would expect to pay $122 per month for the bronze plan.5

The bottom line is that health care subsidies will be beneficial for low-wage and middle-income families. If you make too much to qualify for subsidies or if you are covered by an employer plan, most likely your premiums are going to increase. As the Supreme Court said, this increase is a “tax.” Make sure to plan those increased “tax” expenses in your monthly budget.

IRA Charitable Distributions Are Back!

For those of you over age 70 ½, a very beneficial tax law is back in the books thanks to the agreement reached by Congress on January 1, 2013. The tax break allows you to donate IRA money directly to a charity and avoid paying any tax on the distribution. Even better, the distribution still counts toward your Required Minimum Distribution.

This tax break was off the books for all of 2012 and then retroactively added in January of 2013 (too little too late). Those who took advantage of it in 2011, or before, will be glad it is back. Officially it is called a Qualified Charitable Distribution or QCD.

So, what is the difference between making a QCD directly to a charity or taking the money and then donating it to the charity personally? Let’s look at an example.

Let’s say Henry decides to withdraw the money first and then donate to a charity. If his required minimum distribution was $10,000, he would have to take the distribution and withhold taxes. For this article, let’s assume Henry must withhold 15% for federal tax and 5% for state tax, or $2,000 in taxes. That means he would get a check for $8,000. Henry would then deposit that check in his checking account and write out a personal check to his charity. Next year Henry would get to include the $8,000 as a deduction on his taxes. However, the deduction only reduces his taxes a fraction of the $8,000.

The other option is for Henry to donate the $10,000 directly to a charity. He doesn’t have to pay anything in taxes and his charity is benefited by the full $10,000. The decision seems to be fairly easy.

If you plan to donate money to a charity and you have to take a Required Minimum Distribution this year, give us a call so we can help you take full advantage of this reinstated tax law.