Tax Planning

, , ,

Charitable Giving Reminder Due to New Tax Law

, , ,

Contributed by: Timothy Wyman, CFP®, JD Tim Wyman

20180426.jpg

Are you making charitable contributions in 2018? 

There are three parties to every charitable gift; the charity, you, and the tax man. Due to the increased standard deduction, many folks will NOT receive an income tax benefit when making direct contributions to charities.  For those over the age of 70.5, consideration should be given to making charitable contributions via your IRA. For those under the age of 70.5 you should consider “bunching” your contributions into one year; a donor-advised fund can be quite useful. 

If we have not had an opportunity to discuss either of these strategies, and you expect to make charitable contributions, please feel free to contact our team to discuss your options in making tax-efficient charitable contributions.   

Here are two links to articles outlining the QCD strategy. 

Required-minimum-distribution-update

Qualified-charitable-distributions-giving-money-while-saving-it

Timothy Wyman, CFP®, JD is the Managing Partner and Financial Planner at Center for Financial Planning, Inc.® and is a contributor to national media and publications such as Forbes and The Wall Street Journal and has appeared on Good Morning America Weekend Edition and WDIV Channel 4. A leader in his profession, Tim served on the National Board of Directors for the 28,000 member Financial Planning Association™ (FPA®), mentored many CFP® practitioners and is a frequent speaker to organizations and businesses on various financial planning topics.

The information contained in this blog does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Timothy Wyman, CFP©, JD and not necessarily those of Raymond James. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. This material is being provided for information purposes only. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Every investor's situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation. You should discuss any tax or legal matters with the appropriate professional.

, , ,

WEBINAR IN REVIEW: Retirement Income Planning: How Will You Get Paid in Retirement?

, , ,

Contributed by: Nick Defenthaler, CFP® Nick Defenthaler

One of most common questions I hear from clients as they approach retirement is, “How do I actually get paid when I’m no longer working?” It’s a question that I feel we as planners can sometimes take for granted.  Because we are helping hundreds of clients throughout the year with their retirement income strategy, we can sometimes forget that this simple question is often the cause of many sleepless nights for soon-to-be retirees.   

Saving money throughout your career can be simple, but certainly not easy. Prudent and consistent saving requires a tremendous amount of discipline. However, if you elect the proper asset allocation in your 401k and you’re a quality saver, in most cases, accumulating really doesn’t have to be all that difficult.  However, when it comes time to take money out of the various accounts you’ve accumulated over time or have to make monumental financial decisions surrounding items such as Social Security or which pension option to elect, the conversation changes. In many cases, this is a stage in life where we frequently see those who have been “do it yourselfers” reach out to us for professional guidance. 

The first step in crafting a retirement income strategy is having a firm grip on your own personal spending goal in retirement. From there, we’ll sit down together and evaluate the fixed income sources that you have at your disposal. Most often these sources include your pension, Social Security, annuity income or even part-time employment income. Once we have a better sense of the fixed payments you’ll be receiving throughout the year, we’ll take a look at the various investable assets you’ve accumulated to determine where the “gap” needs to be filled from an income standpoint and determine if that figure is reasonable considering your own projected retirement time horizon. Finally, we need to dive into the tax ramifications of your income sources and portfolio income. If you have multiple investment or retirement accounts, it’s critical to evaluate the tax ramifications each account possesses. 

Make sure you listen to the replay of our webinar “Retirement Income Planning: How Much Will You Get Paid In Retirement?” for additional tips and information on how you might consider structuring your own tax-efficient retirement income strategy.

Nick Defenthaler, CFP® is a CERTIFIED FINANCIAL PLANNER™ at Center for Financial Planning, Inc.® Nick works closely with Center clients and is also the Director of The Center’s Financial Planning Department. He is also a frequent contributor to the firm’s blogs and educational webinars.

The information contained in this blog does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Nick Defenthaler and not necessarily those of Raymond James. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. This material is being provided for information purposes only. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Every investor's situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation. You should discuss any tax or legal matters with the appropriate professional.

, , ,

What You Need to Know About Pension Benefit Guaranty Corporation or PBGC, Part 2 of a 3 Part Series on Pensions

, , ,

Contributed by: Nick Defenthaler, CFP® Nick Defenthaler

20180419.jpg

In many cases, the decision you make surrounding your pension could be the largest financial choice you’ll make in your entire life.  As such, the potential risk of your pension plan should be on your radar and factored in when ultimately deciding which payment option to elect.  This is where the Pension Benefit Guaranty Corporation comes into play.

The Pension Benefit Guaranty Corporation or “PBGC” is an independent agency that was established by the Employee Retirement Income Security Act (ERISA) of 1974 to give pension participants in plans covered by the PBGC guaranteed “basic” benefits in the event their employer-sponsored defined benefit plans becomes insolvent.  Today, the PBGC protects the retirement incomes of nearly 40 million American workers in nearly 24,000 private-sector pension plans. 

Municipalities, unions and public sector professions are almost never covered by the PBGC.  Private companies, especially larger ones, are usually covered (click here to see if your company plan is).  Each year, companies pay insurance premiums to the PBGC to protect retirees.  Think of the PBCG essentially as FDIC insurance for pensions.  Similar to FDIC coverage ($250,000) that banks offer, there are limits on how much the PBCG will cover if a pension plan fails.  It's important to note that in most cases, the age you happen to be when your company’s pension fails is the age the PBGC uses to determine your protected monthly benefit. 

For example, if you start receiving a pension at age 60 from XYZ company and 5 years later, XYZ goes under when you’re 65, your protected monthly benefit with the PBGC would be $5,2420.45 – assuming you are receiving a straight life payment (see table below).  As we would expect, the older you are, the higher the protected monthly benefit will be due to life expectancy assumptions.    

*chart is from Pension Benefit Guaranty Corporation website

*chart is from Pension Benefit Guaranty Corporation website

When advising you on which pension option to choose, one of the first things we'll want to work together to determine is whether or not your pension is covered by the PBGC.  If your pension is covered, this is a wonderful protection for your retirement income if the unexpected occurs and the company you worked for ends up failing.  If you think it will never happen, let’s not forget 2009 when many unexpected things occurred in the world such as General Motors filing for bankruptcy and Ford nearly doing the same.  If your pension is not covered, we'll want to take this risk into consideration when comparing the monthly income stream options to a lump sum rollover option (if offered). 

While PBCG coverage is one very important element when evaluating a pension, we’ll also want to analyze other aspects of your pension as well, such as the pension’s internal rate of return or "hurdle rate" and various survivor options offered. 

As mentioned previously, the decision surrounding your pension could quite possibly be the largest financial decision you ever make.  When making a financial decision of such magnitude, we’d strongly recommend consulting with a professional to ensure you’re making the best decision possible for your own unique situation.  Let us know if we can help!   

Be sure to check out our pension part 1 blog How to Choose a Survivor Benefit for Your Pension posted April 5th and our next blog Explaining What the “Restore” Option is for Pensions posted May 10.

Nick Defenthaler, CFP® is a CERTIFIED FINANCIAL PLANNER™ at Center for Financial Planning, Inc.® Nick works closely with Center clients and is also the Director of The Center’s Financial Planning Department. He is also a frequent contributor to the firm’s blogs and educational webinars.

The information contained in this blog does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of Nick Defenthaler, CFP© and not necessarily those of Raymond James. This is a hypothetical example for illustration purpose only and does not represent an actual investment. This is a hypothetical example for illustration purpose only and does not represent an actual investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

, , , ,

Tax Reform Series: Business & Corporate Tax, and Pass-Through Entities

, , , ,

Contributed by: Timothy Wyman, CFP®, JD Tim Wyman

20180125.jpg

The Tax Cuts and Jobs Act (TCJA) is now officially law. We at The Center have written a series of blogs addressing some of the most notable changes resulting from this new legislation. Our goal is to be a resource to help you understand these changes and interpret how they may affect your own financial and tax planning efforts.

The elimination of the corporate Alternative Minimum Tax (“AMT”) and a new single 21% tax rate provides significant tax savings for corporations. In general, this is viewed by most as a net positive, at least in the shorter term, for earnings that can influence stock prices and the overall economy.

The purpose of this blog post is to focus on how the TCJA provisions may affect our clients that own businesses and specifically Pass-Through Entities such as partnerships, LLCs, or S corporations.

At this early stage, we see a few potential opportunities and potential trends:

  • Many business owners will want to review the appropriate legal structure of their company in 2018.

  • Pass-Through entities may see significant tax reductions

  • Due to the “Pass-Through entity” changes discussed below, some employees will likely consider becoming independent contractors

  • Large service businesses may consider converting to C corporation status

Pass-Through Entities

Pass-Through entities general include partnerships, LLCs, and S corporations.  Essentially, the net income from the business flows through to the owners; meaning they pay federal income tax at their personal marginal rate, as high as 39.6% in the past.

The good news is that many of these entities, and therefore their owners, will experience meaningful reduction in income taxes. The quid pro quo is that the tax system in this area has become more complex.

How might Pass-Through Entities benefit?

The TCJA provides for a 20% deduction on what is termed Qualified Business Income (“QBI”).  In the end, those that would normally be taxed at the new highest marginal rate of 37% may pay at a top rate of 29.6% (80% of their rate). The chart below, from www.Kictes.com, illustrates the lower Pass-Through rate at different income levels.

20180125a.jpg

As you might expect, the devil is always in the details. Do all Pass-Through entities receive said benefits? What exactly is considered Qualified Business Income? In addition, will the provisions truly be “permanent” to name a few. To further complicate the issue, the actual deduction will be claimed on the business owner’s personal tax return and not as an above the line deduction or itemized deduction.  Essentially, the affect is that it will not lower Adjusted Gross Income (which can have an effect on taxation of social security, Medicare premiums, and deductibility of some itemized deductions).  On the plus side, this method of reporting will not affect the ability to take the new increased standard deduction if that is of greater value than your itemized deductions.

Ok, what is the big deal? Paraphrasing commentator Michael Kitces, “for the first time ever, self-employed individuals (either as sole proprietors or as owners of partnerships, LLCs, or S corporations) will have a lower tax rate than employees doing substantively similar work, thanks to the 20% QBI deduction.” 

Switch to Independent Contractor status? Proceed with Caution

As you might imagine, the new rules contemplate and try to prevent owners from simply reclassifying their income or wages to benefit from the 20% deduction. Much like under current rules covering social security taxes, “reasonable compensation” to an S corporation owner does not qualify for the 20% deduction. Additionally, there are other limits that are beyond the scope of this article designed to reduce the 20% deduction that generally come into play once the owner’s taxable income exceeds $157,500 for individuals or $315,000 for married couples and become totally phased out at $207,500 and $415,000 respectively.

A special note to our Medical, Legal, Accounting, and Consulting Clients:

Your lobbying groups were not as effective as those representing engineers and architects! The TCJA defines your business as a “specific service trade or business” and special rules apply that essentially limit or eliminate a Qualified Business Income Deduction.  By the way, this also includes financial services practices such as ours. The law is designed to exclude “any other trade or business where the principal asset of the business is the reputation or skill of 1 or more of its employees.” As a result, some commentators have opined that large service business may consider converting to a C corporation as the top corporate rate is now 21%.

How are specific service trade or businesses affected? If you are a specified service business and your taxable income exceed the thresholds described above ($207,500 for individuals and $415,000 for married couples filing jointly), then you lose the deduction completely. This means you are subject to the old pass-through rules and therefore pay tax at your individual tax rate.

We hope that you enjoyed our early take on the changes that will likely affect businesses and specifically Pass-Through entities. While tax simplification it is not, many business owners should experience a net gain.   We will continue to monitor the tax landscape, including any Technical Corrections to the legislation and look forward to working with you in 2018.

Timothy Wyman, CFP®, JD is the Managing Partner and Financial Planner at Center for Financial Planning, Inc.® and is a contributor to national media and publications such as Forbes and The Wall Street Journal and has appeared on Good Morning America Weekend Edition and WDIV Channel 4. A leader in his profession, Tim served on the National Board of Directors for the 28,000 member Financial Planning Association™ (FPA®), mentored many CFP® practitioners and is a frequent speaker to organizations and businesses on various financial planning topics.

The information contained in this blog does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of Timothy Wyman and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person's situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

, ,

Tax Reform Series: Changes to Medical Deductions

, ,

Contributed by: Sandra Adams, CFP® Sandy Adams

20180123.jpg

The Tax Cuts and Jobs Act (TCJA) is now officially law. We at The Center have written a series of blogs addressing some of the most notable changes resulting from this new legislation. Our goal is to be a resource to help you understand these changes and interpret how they may affect your own financial and tax planning efforts.

With most of the focus on new tax rates after tax reform was recently given the green light, it is easy to forget that some of the biggest changes don’t have anything to do with tax rate — they are about deductions.  In 2018, the standard deductions will increase, (reference MT’s blog on changes to standard deductions) and many limitations will be put in place for those who typically itemize deductions (historically only about 30% of Americans according to available IRS data).  Here we will focus on Changes to Medical Deductions and provide general information on how they work.

One of the more controversial a proposed limitations on itemized deductions during the tax reform debates was the potential repeal of medical expense deductions.  According to the IRS, nearly three-quarters of tax filers who have claimed the medical expense deduction are age 50 or older and live with chronic conditions or illnesses, and seventy percent of filers who claimed this deduction have incomes below $75,000.  The final tax bill DID NOT eliminate the medical expense deduction; in fact, the deduction was temporarily expanded.  Under the final Tax Cuts and Jobs Act, the 10% of AGI threshold for medical deductions is reduced to just 7.5% of AGI both retroactively for the 2017 tax year and for the 2018 tax year (the threshold will return back to the 10% of AGI threshold for tax year 2019 and beyond).

How do Medical and Dental Expense Itemized Deductions Work?

For 2017 and 2018 tax years, any amount of Medical and Dental Expenses (see IRS Publication 502 for a list of items that qualify for the medical/dental expense deduction) above an individual’s 7.5% of AGI “floor” are deductible.  For example, if your AGI is $40,000 and your medical expenses were $5,000 (assuming you itemized), you could claim $2,000 as a deduction [$5,000 in expenses less the floor (7.5% x $40,000 = $3,000)].  Note that you are not allowed to deduct expenses that were paid with pretax dollars or reimbursed by an insurance company.

Your ability to use itemized deductions versus the standard deduction in future years will likely depend not only on the amount of medical expenses you have to deduct, but those expenses in combination with other possible deductions that will have significant changes in 2018 and beyond.  For changes to additional itemized deductions, please see our additional posts to get more information, and please consult your professional planning team, including your financial planner and your tax advisor, as you develop for forward looking tax strategy.

Sandra Adams, CFP® is a Partner and Financial Planner at Center for Financial Planning, Inc.® Sandy specializes in Elder Care Financial Planning and is a frequent speaker on related topics. In addition to her frequent contributions to Money Centered, she is regularly quoted in national media publications such as The Wall Street Journal, Research Magazine and Journal of Financial Planning.

This information has been obtained from sources deemed to be reliable but its accuracy and completeness cannot be guaranteed. Neither Raymond James Financial Services nor any Raymond James Financial Advisor renders advice on tax issues, these matters should be discussed with the appropriate professional.

, , , ,

Tax Reform Series: Changes to the Mortgage Interest Deduction (including home equity loans/LOC implications)

, , , ,
20180118.jpg

The Tax Cuts and Jobs Act (TCJA) is now officially law. We at The Center have written a series of blogs addressing some of the most notable changes resulting from this new legislation. Our goal is to be a resource to help you understand these changes and interpret how they may affect your own financial and tax planning efforts.

Washington has been busy and after many twists and turns sweeping tax reform was signed into law on December 22, 2017.  There are key changes for homeowners regarding the mortgage and home equity line of credit (HELOC) interest deductions.

Mortgage

If you own a home, mortgage interest is still deductible. The debt cap of deductibility, however, has been lowered.  The new cap limits interest deductibility to the first $750,000 of debt principal.  Debt principal refers to acquisition indebtedness or loans used to acquire, build, or substantially improve a primary residence.  The new $750,000 cap is a reduction from $1,000,000 and an additional $100,000 of home equity debt. 

  • The reduction to $750,000 expires December 31, 2025 and reverts back to $1,000,000 beginning in 2026.

  • Mortgage debt incurred before December 15, 2017 is grandfathered under the $1,000,000 cap

  • In the future, a mortgage refinance for debt incurred prior to December 15, 2017 will retain the $1 million debt limit (but only for the remaining debt balance and not any additional debt). In addition, any houses that were under a binding written contract by December 15th to close on a principal residence purchased by January 1, 2018 (and actually close by April 1st) will be grandfathered.

Home Equity Line of Credit (HELOC)

Home equity lines of credit give homeowners the ability to borrow or draw money using equity in the home as collateral.  New restrictions mean that home equity loan interest is not necessarily eligible for a deduction. 

While you may have read that interest on HELOC’s is no longer deductible, this is only if the loans are cash out or for purposes other than home purchase or improvement.  It’s important to note that deductibility is not based on whether the loan is a home equity loan or home equity line of credit. Instead, the determination is based on how the proceeds are used.

  • If the money is used to consolidate debt, pay for college or used for any other personal spending not associated with home acquisition or substantial improvement, the interest is not deductible; without grandfathering.

  • Interest on a HELOC up to the total $750,000 cap that is used to build an addition or substantially improve the home is deductible for taxpayers that itemize.

We are here to assist in any way we can.  This summary of mortgage and HELOC interest deductibility changes highlights key areas to keep in mind for 2018 tax planning.  If you have any questions regarding your personal situation, don’t hesitate to contact us.

Laurie Renchik, CFP®, MBA is a Partner and Senior Financial Planner at Center for Financial Planning, Inc.® In addition to working with women who are in the midst of a transition (career change, receiving an inheritance, losing a life partner, divorce or remarriage), Laurie works with clients who are planning for retirement. Laurie is a member of the Leadership Oakland Alumni Association and is a frequent contributor to Money Centered.

The information contained in this blog does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Laurie Renchik and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. This material is being provided for information purposes only. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person's situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional. Raymond James Financial Services and your Raymond James Financial Advisors do not solicit or offer residential mortgage products and are unable to accept any residential mortgage loan applications or to offer or negotiate terms of any such loan. You will be referred to a qualified Raymond James Bank employee for your residential mortgage lending needs.

, , ,

Tax Reform Series: Changes to State and Local Income Tax

, , ,

Contributed by: Matthew E. Chope, CFP® Matt Chope

20180117_2.jpg

The Tax Cuts and Jobs Act (TCJA) is now officially law.

We at The Center have written a series of blogs addressing some of the most notable changes resulting from this new legislation. Our goal is to be a resource to help you understand these changes and interpret how they may affect your own financial and tax planning efforts.

The original proposals for tax reform would have completely eliminated any deductions for taxes paid to a state or local government, including local property taxes.

 “State And Local Tax” (SALT) provision varied, and controversially was projected to have a disproportionate impact on states with big cities with high state and local tax rates (like New York, California, and Maryland have some of the highest state income tax rates, and therefore the higher state income tax deductions).  Many people in these states are considering moving to lower taxed states due to this tax law change.

However, in the final version of the Tax Cuts and Jobs Act of 2017, households will be given the option to deduct their combined state and local property and income taxes, but only up to a cap of $10,000. Notably, it is a $10,000 limit on the combined total of property and income taxes, not $10,000 each! The $10,000 limit applies for both individuals and married couples (which is an indirect marriage penalty for high-income couples), and is reduced to $5,000 for those who are married filing separately.

In addition, to prevent households from attempting to maximize their state and local tax deductions in 2017 before the cap takes effect in 2018, the new rules explicitly stipulate that any 2018 state income taxes paid by the end of 2017 are not deductible in 2017 and instead will be treated as having been paid at the end of 2018. However, this restriction applies only to the prepayment of income taxes (not to property taxes), and applies only to actual 2018 tax liabilities.  

Matthew E. Chope, CFP ® is a Partner and Financial Planner at Center for Financial Planning, Inc.® Matt has been quoted in various investment professional newspapers and magazines. He is active in the community and his profession and helps local corporations and nonprofits in the areas of strategic planning and money and business management decisions.

This information has been obtained from sources deemed to be reliable but its accuracy and completeness cannot be guaranteed. Neither Raymond James Financial Services nor any Raymond James Financial Advisor renders advice on tax issues, these matters should be discussed with the appropriate professional.

, , ,

Tax Reform Series: Changes to Standard Deduction, Personal Exemption, Misc. Deductions, and the Child Credit

, , ,

Contributed by: Matt Trujillo, CFP® Matt Trujillo

20180115.jpg

The Tax Cuts and Jobs Act (TCJA) is now officially law. We at The Center have written a series of blogs addressing some of the most notable changes resulting from this new legislation. Our goal is to be a resource to help you understand these changes and interpret how they may affect your own financial and tax planning efforts.

Key Highlights:

  • Personal exemptions, which were previously used to reduce adjusted gross income, have been eliminated entirely

  • The standard deduction has been increased to $12,000 for single filers (previously $6,350) and $24,000 for joint filers (previously $12,700)

  • Several deductions that used to be available to tax filers that itemized their deductions have been eliminated or reduced such as:

    • The deduction for state and local taxes is now capped at $10,000 as opposed to the unlimited amount that was deductible under previous tax law

    • Lowers the threshold for mortgage interest deductibility; now only the interest on debt up to $750,000 is eligible to be deducted as opposed to $1,000,000 under previous tax law

    • Miscellaneous itemized deductions have been eliminated entirely as a category; these deductions included things like unreimbursed business expenses, tax preparation fees, and investment fees.

  • The child tax credit is expanded to $2,000 per child and is refundable meaning even if you have zero tax liability you can still get a check back from the IRS for this credit

    • This credit was previously $1,400 per child and would begin to phase out for joint filers at $110,000 of adjusted gross income; the credit now doesn’t begin to phase out until you reach $400,000 of adjusted gross income (for joint filers)

If you are curious to know more about how the changes may impact your specific situation please contact our office to discuss!

Matthew Trujillo, CFP®, is a Certified Financial Planner™ at Center for Financial Planning, Inc.® Matt currently assists Center planners and clients, and is a contributor to Money Centered.

The information contained in this blog does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. This material is being provided for information purposes only. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person's situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.

, , ,

Tax Reform Series: Changes to Federal Income Tax Brackets

, , ,

Contributed by: Robert Ingram Robert Ingram

20180111.jpg

The Tax Cuts and Jobs Act (TCJA) is now officially law. We at The Center have written a series of blogs addressing some of the most notable changes resulting from this new legislation. Our goal is to be a resource to help you understand these changes and interpret how they may affect your own financial and tax planning efforts.

The TCJA brings many changes to both corporate and individual tax laws in 2018.  You may be asking yourself, “what do these changes mean for me?” A good place to start may be with the new personal income tax brackets.

How tax brackets work

When calculating our Federal tax liability on regular income, we apply a tax rate schedule to our taxable income. The taxable income is a filer’s income after any adjustments and exclusions (adjusted gross income) and after subtracting applicable deductions and exemptions. Specific rates are then charged on different ranges of income (tax brackets) as determined by tax filing status. Currently, in 2017 there are 7 brackets where the rates are 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%. The tax bracket structures and how the taxes would be assessed for two of the most common filings statuses (single and married filing joint returns) are as follows:

Current 2017 Individual & Married Tax Brackets

20180111aa.jpg
20180111bb.jpg

Under the current 2017 tax brackets, for example, a married couple filing jointly with taxable income of $150,000 would have the first portion of their income up to $18,650 taxed at 10%.  The amount from $18,651 up to $75,900 would be taxed at 15% and then the remaining amount of their income from $75,901 up to the $150,000 would be taxed at 25%.

What is changing?

While the House of Representatives’ original tax reform proposal would have consolidated the 7 brackets down to 4, the final Tax Cuts and Jobs Act retains 7 brackets but reduces the tax rates on most the brackets by a couple of percentage points and adjusts the income ranges within them.  The examples for those filing as single and for married couples filing jointly are below.

New 2018 Individual & Married Tax Brackets Under the TCJA

20180111cc.jpg
20180111dd.jpg

If the bracket rates are generally lower, does that mean my taxes will be lower?

Well, the good news is that the answer is…maybe.

If taxpayers apply the new tax rates in 2018 to the same level of taxable income they would have in 2017, many people would see a lower overall, effective tax rate on that taxable income. (Good news, right?)  However, other changes outlined in the TCJA, such as the new standard deduction amount, the elimination of the personal exemptions, and the cap on the amount of state and local taxes that are deductible could have an impact on your taxable income amount.  As a result, the actual taxes applied may or may not see as much of a reduction. 

Ultimately, how your own tax situation may change in this new tax landscape will depend on a combination of factors and decisions.  It is important to consult with your advisors.  As always, if you have any questions surrounding these changes, please don’t hesitate to reach out to our team!

Robert Ingram is a Financial Planner at Center for Financial Planning, Inc.®

This information and all sources have been deemed to be reliable but its accuracy and completeness cannot be guaranteed. Neither Raymond James Financial Services nor any Raymond James Financial Advisor renders advice on tax matters. Tax matters should be discussed with the appropriate professional.

, , , ,

2017 Year-End Financial Planning

, , , ,

Contributed by: Josh Bitel Josh Bitel

20171206.jpg

With the fourth quarter upon us, tedious tasks like assessing your financial situation can often fall by the wayside.  With that in mind, this is a good time for us to share some important items to consider before the end of the calendar year. Here are a few things to consider before you take on 2018.

Establish or tighten up your emergency fund.

As we often recommend, keeping three to six months worth of expenses saved in an easily liquidated and accessible account can protect you against any unforeseen perils that may arise. Getting an emergency fund in place before the year wraps up is a great way to jump-start your budget for 2018.

Check your flexible Spending Account

Make sure you don’t end the year with a balance inside your FSA plan. Most of these plans have a ‘use it or lose it’ feature. So if you’re putting off that pesky doctor’s visit or are overdue for a new pair of prescription glasses, use your pre-tax dollars you’ve elected to cover these expenses!

Review your retirement accounts to make sure you’re on track to maximize your contributions

Whether it is an IRA account, either traditional or Roth, or an employer sponsored plan, the end of the year is a great time to assess your contributions and make sure you’re on track to meet your goals. This is important for your tax situation as well, as you may be able to deduct contributions to certain retirement plans. Although IRA accounts can be funded up until April 15th of the following year (up to $5,500 if you’re under age 50), it’s never too early to make sure you’re on track!

Give a tax-deductible charitable contribution

The end of the year is a time when we’re all thinking about giving. If you are charitably inclined, the end of the year is a great time to donate to any causes you are passionate about so you can receive a write off on your taxes for 2017. Don’t forget, donating appreciated securities from a taxable account is often more advantageous for you and the cause you believe in! Make sure you are making this donation for something you really believe in and not just for the potential tax write-off, the holiday season is a great time to asses this.

As always, in regard to your financial life, we are here to assist in anyway we can. These are just a few of the things you should keep in mind as the year wraps up. If you have any questions regarding your personal situation, contact us here at The Center for Financial Planning.

Josh Bitel is a Client Service Associate at Center for Financial Planning, Inc.®

Neither Raymond James Financial Services nor any Raymond James Financial Advisor renders advice on tax issues, these matters should be discussed with the appropriate professional.

Live YOUR Plan™