WEEKLY UPDATE – December 27, 2017
While much of the political fire and fury from Congress’ tax plan debate has settled, some of the economic smoke still lingers as financial analysts and private investors plot their way through the new $1.4 trillion law’s long-range ramifications.
President Donald Trump signed the historic tax bill into law December 22 following a firestorm of partisan exchanges in the last few weeks that painted near apocalyptic visions if the bill either passed or failed. Republican pundits hail the sweeping tax bill as Trump’s first major legislative victory in office.
American taxpayers are “going to start seeing the results in February. This bill means more take-home pay. It will be an incredible Christmas gift for hard-working Americans. I said I wanted to have it done before Christmas. We got it done,” Trump said.
The U.S. House of Representatives voted 224-201 December 20 in what was labeled by USA Today as an “unusual do-over vote” to approve the bill following the U.S. Senate’s 51-48 vote the same day, which included several minor changes from an earlier House version. The House voted 24 hours earlier to approve the tax plan’s first version.
One of the 3 provisions Senators removed from the House version allowed families to use tax-advantaged 529 accounts for home-schooling expenses.
The other 2 provisions involved the law’s title and excise-tax conditions colleges and universities can use for their endowments.
The law slashes the corporate tax rate from 35% to 21% and gives business owners a 20% deduction on business income.
For taxpayers, the law nearly doubles the standard deductions to $12,000 for individuals and $24,000 for couples, which means itemizing deductions may help lower the standard tax load.
The new tax brackets are 10%, 12%, 22%, 24%, 32%, 35% and 37%, which are slight decreases from previous categories. However, many workers will move into lower tax brackets under the new law. A couple making $76,000, for example, would pay 12% in income taxes as opposed to 25%.
What Does the New Plan Mean for Individual Investors?
The new tax law leaves the investment world mostly untouched and perhaps better positioned to take advantage of a rosier and potentially more robust marketplace.
Favorable rules for 401(k)s, IRAs, and other retirement accounts remain intact.
The law, however, prohibits taxpayers from reversing Roth IRA conversions for a certain amount of time, which were used by account holders if investment values declined. Americans don’t have to pay income taxes on Roth IRA withdrawals.
Although the estate tax wasn’t eliminated, the plan raises the federal exemption from $5 million to $11 million per person and to $22 million per couple.
The plan also boosts the alternative minimum tax (AMT) from $50,600 to $70,300 for individuals and from $78,750 to $109,400 for married couples filing jointly. The AMT’s aim was to prevent high earners from skirting full income tax payments by increasing the number of deductions. The AMT, a mandatory alternative to the standard income tax, takes effect when taxpayers’ income reaches certain levels.
Sole-proprietorships, partnerships, and S-corporations would pay taxes at individual rates, but be allowed to use the 20% income deduction. This provision would not apply to high earners making more than $315,000 and filing jointly as couples.
What Should I Do Now?
Take a look at previous years’ tax filings to determine the differences in your tax situation. If it appears your tax rate may drop or your ability to itemize changes, you may want to consider making changes to future contributions – such as charitable donations – or deductions, which may include medical expenses.
Retirees will benefit from the increase in the standard deductions for charity. To gain the most advantage, experts suggest doubling donation sizes but give less frequently. For example, by giving more in a single year and then skipping the next year, taxpayers would have a higher amount to write off on their taxes. Financial professionals also point to donor-advised funds rather than donating cash.
Retirees will also have to monitor their income (withdrawals from their retirement accounts, which are taxable) to avoid moving into a higher tax bracket.
Retirees approaching 70½ in 2018 may want to start taking early distributions if they have high balances in their retirement accounts to avoid landing in higher tax brackets.
We hope you found this report useful. We strive to keep you abreast of the most recent developments in the financial industry. If you have questions, call us anytime.
Jerry Blakely, Regional Vice President
Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.
Diversification does not guarantee profit nor is it guaranteed to protect assets.
The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.
The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ. The DJIA was invented by Charles Dow back in 1896.
The Nasdaq Composite is an index of the common stocks and similar securities listed on the NASDAQ stock market and is considered a broad indicator of the performance of stocks of technology companies and growth companies.
The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indexes from Europe, Australia and Southeast Asia.
The S&P U.S. Investment Grade Corporate Bond Index contains U.S.- and foreign-issued investment-grade corporate bonds denominated in U.S. dollars.
The SPUSCIG launched on April 09, 2013. All information for an index prior to its Launch Date is back-tested, based on the methodology that was in effect on the Launch Date. Back-tested performance, which is hypothetical and not actual performance, is subject to inherent limitations because it reflects application of an Index methodology and selection of index constituents in hindsight. No theoretical approach can take into account all of the factors in the markets in general and the impact of decisions that might have been made during the actual operation of an index. Actual returns may differ from, and be lower than, back-tested returns.
The S&P/Case-Shiller Home Price Indices are the leading measures of U.S. residential real estate prices, tracking changes in the value of residential real estate. The index is made up of measures of real estate prices in 20 cities and weighted to produce the index.
The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
Past performance does not guarantee future results.
You cannot invest directly in an index.
Consult your financial professional before making any investment decision.
Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors.
These are the views of Platinum Advisor Marketing Strategies, LLC, and not necessarily those of the named representative, Broker dealer or Investment Advisor, and should not be construed as investment advice. Neither the named representative nor the named Broker dealer or Investment Advisor gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your financial advisor for further information.
By clicking on these links, you will leave our server, as they are located on another server. We have not independently verified the information available through this link. The link is provided to you as a matter of interest. Please click on the links below to leave and proceed to the selected site.