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Thursday, 29 March 2018 00:00

CPA CLIENT BULLETIN SELECT April 2018

What’s inside

Special report on tax planning under the Tax Cut and Jobs Act of 2017

Patience is prudent
Know your true tax rate
Rethinking retirement contributions
Regard Roth conversions carefully
Are state and local taxes reasons for relocation?
Positive prognosis for medical deductions
Home equity hassle
New tax deduction for pass-through entities
Tax calendar

 

Factoid : Up to standard

IRS data for 2015 returns show that 69.2% of taxpayers took the standard deduction, 29.5% took itemized deductions, and the others had income too low for any deductions.

Did you know ?

In 1913, when the 16th Amendment instituted the federal income tax, the form and directions fit on four pages. The top tax rate was 7%. Since then, the peak rate has been as high as 94% in 1944 and as low as 28% from 1988–1990.

Source: Bradford Tax Institute


Article: Patience is prudent

The Tax Cuts and Jobs Act (TCJA) of 2017, passed at year end, has been called the most extensive tax legislation in more than 30 years. It’s certainly far reaching, covering individual income taxes, business income taxes, and estate taxes. The new law has many tax saving opportunities as well as possible pitfalls.

Trying to grasp everything in the TCJA can be overwhelming. Therefore, it’s best not to panic; don’t rush into tax motivated actions just because of gossip or opinions you hear. There’s no need to act rashly this early in the year.

That said, it is important to understand what’s in the TCJA and what it might mean to you. Consider this issue of CPA Client Bulletin as a place to start. You’ll find explanations of some key portions of the law as well as tax planning ideas.

One issue is not sufficient to cover the new law, so we’ll keep you posted throughout the year as uncertainties are addressed and new strategies emerge. Of course, if you have questions about the TCJA and possible planning tactics, please call our office for a personalized response.

Article: Know your true tax rate

It has been widely reported that the TCJA lowers federal income tax rates for many people. The highest tax rate, for example, has fallen from 39.6% to 37%. Many people who are in lower brackets also stand to benefit.

Example 1: Alice Young had $100,000 of taxable income in 2017. As a single filer, Alice was in the 28% tax bracket. If Alice has that same $100,000 in taxable income in 2018, she will be in a 24% bracket. Indeed, Alice could add as much as $57,500 in taxable income this year and maintain her lower 24% tax rate.

Not for everyone

However, there are some quirks in the new tax rates. Some people actually face higher rates.

Example 2: Brad Walker had $220,000 of taxable income in 2017, which put him in a 33% tax bracket. With the same income in 2018, Brad will face a 35% tax rate.

In addition, the federal tax rates such as 24% or 35% are just one factor in determining the true rate you’ll pay by adding taxable income, or the true amount you’ll save with a tax deduction. Many people owe state or even local income tax, which might be fully or partially deductible on a federal tax return or not deductible at all. Various other provisions of the tax code will also impact your marginal tax rate—the percent you’ll owe or save by adding or reducing taxable income.

Knowing your true tax rate can help you make knowledgeable financial decisions, some of which are explained elsewhere in this issue. By starting with your 2017 tax return and incorporating your expectations as well as your plans for 2018, our office can help you determine the value of tax related actions.


Article: Rethinking retirement contributions

The TCJA generally lowered federal income tax rates, with some exceptions. Among the ways in which lower rates impact tax planning, they make unmatched contributions to traditional employer retirement plans less attractive.

Example 1: Chet Taylor has around $100,000 in taxable income a year. Chet contributed $12,000 to his company’s traditional 401(k) in 2017, reducing his taxable income. He was in the 28% tax bracket last year, so his federal tax savings were $3,360 (28% of $12,000). An identical contribution this year will save Chet only $2,880, because the same income would put him in a lower 24% bracket.

Not everyone will be in this situation.

Example 2: Denise Sawyer has around $200,000 taxable income a year. Denise contributed $12,000 to her company’s traditional 401(k) in 2017, reducing her taxable income. She was in the 33% tax bracket last year, so her federal tax savings were $3,960 (33% of $12,000). An identical contribution this year will save her $4,200 because the same income would put her in a higher 35% bracket.

 

Planning pointers

Considering the changes in tax rates, participants in employer sponsored retirement plans should review their contribution plans. If your company offers a match, be sure to contribute at least enough to get the full amount. Otherwise, you’re giving up a portion of your compensation package.

Beyond that level, decide whether you wish to make unmatched tax-deferred contributions to your traditional 401(k) or similar plans. The value here is tax deferral and the ability to compound potential investment earnings without paying current income tax. Deferring tax at, say, 12%, 22%, or 24% in 2018 will be less desirable than similar deferrals were last year, when tax rates were 15%, 25%, or 28%.

 

Link to Full Article

 

Tuesday, 27 February 2018 00:00

CPA Client Bulletin Select January 2018

What’s Inside

Investing In 2018: Dividend Stocks
Investing In 2018: Defensive Funds
Small Companies Need Plans for Natural Disasters
Tax Calendar


Factoid: Slippery Slope

From late 2007 to late 2017, oil prices fell from over $100 a barrel to under $50 a barrel.

 

Did You Know ?

 

In 2017, the national median cost of home health aide services was $21.50 an hour. Annualized, based on 44 hours of care per week for 52 weeks, that’s nearly $50,000 a year. Costs are highest in North Dakota (around $64,000 a year) and lowest in Louisiana ($35,000).

Source: Genworth 2017 Annual Cost of Care Survey


Article: Investing In 2018: Dividend Stocks

As of this writing, it appears that 2018 may be a difficult year for investors. Yields on bonds, bank accounts, money market funds, and other savings vehicles are extremely low, with questionable prospects for substantial increases. Stock market indexes, on the other hand, are at or near record levels.
In essence, relatively low-risk places to put your money this year appear to offer scant returns. Equity markets have been rising since early 2009, so the chance of a pullback may be just as great as the possibility of solid gains.
Given this environment, where might investors go for opportunities for respectable returns with some protection against a steep decline? One possibility is in the stock market.

Paying dividends

Equity markets are notoriously difficult to predict. Nevertheless, dividend paying stocks might tilt the risk-reward odds in your favor. During recent bear markets, dividend payers generally fared better than those that didn’t pay dividends.
This seems reasonable because dividend paying companies may be enterprises that generate ample cash flow—enough to distribute some profits to investors. Companies in strong financial condition could be favored by investors in stormy economic weather, and the prospect of ongoing dividend payouts might stem panicked selling.

Floor and ceiling

Whereas dividend paying stocks may offer some protection during down markets, they also might deliver solid returns. The yield on the benchmark Standard & Poor’s 500 Index currently is nearly 2%. That’s the yield for the broad index, so some of the large companies included in the index have dividend yields of 3% or more. When an investment starts with such a payout, it’s less likely to fall into negative territory and is already on the way to possible robust returns.

Dividends can grow, too. Indeed, many public companies have long histories of raising their payouts.

Example: Nancy King is a widow who depends on investment income for her lifestyle. She invests $50,000 in shares of GHI Corp., currently paying a 4% dividend, or $2,000 a year. If GHI raises its annual dividend to $2,500 over the next few years, Nancy will collect a 5% return on her initial investment.

In addition, qualified dividends (see Trusted Advice box) receive favorable tax treatment. Nancy, in a low tax bracket in our example, could owe 0% on qualified dividends. Other taxpayers owe 15% or, for those in the highest ordinary tax bracket, 20%. These rates are lower than ordinary income tax rates. The Trump Administration’s tax reform framework, released in the fall of 2017, does not mention the possibility of ending this tax break.

 

Go with a pro

 

It’s true that dividend paying stocks can offer many advantages. However, investing in equities carries risks; even the most established company, with excellent management, can see its share price tumble in a broad selloff. Selecting individual dividend paying stocks can require thorough research and portfolio monitoring.

 

Therefore, many investors prefer to invest in mutual funds or ETFs that focus on dividend stocks. There are dozens of such funds available, with portfolio managers who are responsible for stock selection. Other funds track a custom index of dividend paying stocks. Dividend stock funds tend to fall into two broad categories:

 

High payout. Some funds are designed to pay higher yields than the S&P 500, perhaps 3% or 4%. They may use “dividend capture” strategies, buying funds just before a dividend payout. High dividends may be appealing, but a robust payout can indicate a relatively low share price due to concerns about the company’s growth prospects.

Dividend growth. These funds may have yields similar to the S&P 500 or lower. However, the stocks they hold are chosen because the companies have enjoyed growing earnings along with rising dividends and are considered likely to continue such profitability. 

 

Quality counts

 

Dividend oriented investors may hold individual stocks, specialized funds, or a combination. They aim to own successful, profitable companies that will provide a steady stream of cash flow, bull market or bad. There’s no magic about dividend paying stocks and there have been instances in which a dividend cut has been followed by a plunging stock price. Still, buying successful companies that pay appealing dividends is one way to approach equity investing this year, with current prices at lofty levels.

 

Download Full Article

 

 

 

 

What’s Inside

 

Investing In 2018: Dividend Stocks

Investing In 2018: Defensive Funds

Small Companies Need Plans for Natural Disasters

Tax Calendar

 

 

Factoid: Slippery Slope[Office1] 

 

From late 2007 to late 2017, oil prices fell from over $100 a barrel to under $50 a barrel.

 

Did You Know[Office2] ?

 

In 2017, the national median cost of home health aide services was $21.50 an hour. Annualized, based on 44 hours of care per week for 52 weeks, that’s nearly $50,000 a year. Costs are highest in North Dakota (around $64,000 a year) and lowest in Louisiana ($35,000).

 

Source: Genworth 2017 Annual Cost of Care Survey

 

 

Article: Investing In 2018: Dividend Stocks[Office3] 

 

As of this writing, it appears that 2018 may be a difficult year for investors. Yields on bonds, bank accounts, money market funds, and other savings vehicles are extremely low, with questionable prospects for substantial increases. Stock market indexes, on the other hand, are at or near record levels.

            In essence, relatively low-risk places to put your money this year appear to offer scant returns. Equity markets have been rising since early 2009, so the chance of a pullback may be just as great as the possibility of solid gains.

            Given this environment, where might investors go for opportunities for respectable returns with some protection against a steep decline? One possibility is in the stock market.

 

Paying dividends

 

Equity markets are notoriously difficult to predict. Nevertheless, dividend paying stocks might tilt the risk-reward odds in your favor. During recent bear markets, dividend payers generally fared better than those that didn’t pay dividends.

            This seems reasonable because dividend paying companies may be enterprises that generate ample cash flow—enough to distribute some profits to investors. Companies in strong financial condition could be favored by investors in stormy economic weather, and the prospect of ongoing dividend payouts might stem panicked selling.

 

Floor and ceiling

 

Whereas dividend paying stocks may offer some protection during down markets, they also might deliver solid returns. The yield on the benchmark Standard & Poor’s 500 Index currently is nearly 2%. That’s the yield for the broad index, so some of the large companies included in the index have dividend yields of 3% or more. When an investment starts with such a payout, it’s less likely to fall into negative territory and is already on the way to possible robust returns.

            Dividends can grow, too. Indeed, many public companies have long histories of raising their payouts.

            Example: Nancy King is a widow who depends on investment income for her lifestyle. She invests $50,000 in shares of GHI Corp., currently paying a 4% dividend, or $2,000 a year. If GHI raises its annual dividend to $2,500 over the next few years, Nancy will collect a 5% return on her initial investment.

            In addition, qualified dividends (see Trusted Advice box) receive favorable tax treatment. Nancy, in a low tax bracket in our example, could owe 0% on qualified dividends. Other taxpayers owe 15% or, for those in the highest ordinary tax bracket, 20%. These rates are lower than ordinary income tax rates. The Trump Administration’s tax reform framework, released in the fall of 2017, does not mention the possibility of ending this tax break.


 [Office1]Email

Include a Factoid section in your next client email, then copy and paste this item.

 

Image tip: Include a photo of a declining arrow or barrels that are full and half full.

 

Twitter

#Factoid: Over the past 10 years, the price of oil has fallen nearly 50% per barrel. [link to newsletter] #Trivia

 

Facebook/LinkedIn/GooglePlus

Factoid:  From late 2007 to late 2017, oil prices fell from over $100 a barrel to under $50 a barrel. That’s a reduction of 50 percent! [link to newsletter] #Factoid #Trivia

 [Office2]Email

Include a “Did You Know” section in your monthly email and include this tip.

 

Image tip: Health care worker

 

Twitter

Trivia: The national, median cost of home health aide services is nearly $50,000 annually. Can you guess which states have the highest and lowest costs? [link to newsletter] #DidYouKnow #HealthCare

 

Facebook/LinkedIn/GooglePlus

How costly are home health aide services?

According to the Genworth 2017 Annual Cost of Care Survey, the national, median cost of annual home health aide services is $50,000. Can you guess which states have the highest and lowest costs? Find out >> [link to newsletter] #DidYouKnow #HealthCare

 [Office3]Email Tip: Include a portion of this story in an email to your clients, then link to the newsletter or your blog page created from this content.

 

Consider the headline, “2018 May Be a Difficult Year for Investors.” Include a snippet from the article, then link to the full story as a “Read more…” [link to newsletter story]

 

Twitter/Instagram

2018 May Be a Difficult Year for Investors
Where to go in case of a steep decline? Here are some ideas. [newsletter link] #Money #Investing [include a popular hashtag for your city/geography]

 

Facebook/Google Plus/LinkedIn

2018 May Be a Difficult Year for Investors

Where might investors go for opportunities for respectable returns with some protection against a steep decline? Here are some ideas. [newsletter link] #Money #Investing [include a popular hashtag for your city/geography]

Tuesday, 27 February 2018 00:00

CPA Client Bulletin Select February 2018

What’s Inside

Solving the Annuity Puzzle
Deducting Employee Business Expenses
Insuring Key People at Small Companies
Tax Calendar

 

Factoid: Annuity Sales

Annuity sales in the first half of 2017 topped $100 billion.


Did You Know ?

Campus Costs

The average total cost at private, nonprofit four-year institutions reached $46,950 in the 2017–2018 school year, up from $45,370 a year ago. Those are the published charges for tuition, fees, room, and board. For in-state students living on campus at public universities, comparable average costs this year are $20,770.

Source: The College Board

 

Article: Solving the Annuity Puzzle

Americans hold billions of dollars in annuities, yet they are widely misunderstood. Used properly, an annuity can serve valuable purposes in personal financial planning. On the other hand, some types of annuities are widely criticized, even scorned, by some financial advisers.

Lifelong income

 

What might be considered the purest type of annuity is a contract with an issuer, often an insurance company, for a stream of cash flow. Such contracts have been called immediate annuities, although they now may be labeled income annuities or payout annuities because those labels may be more appealing to consumers.


Example 1: Marie Jenkins pays $100,000 to an insurer for an income annuity. Every month thereafter the company sends Marie a check. annuities guarantee certain withdrawal amounts. Annuity withdrawals may be fully taxable, and a 10% penalty also may apply before age 59½.

 

Critics charge that some annuities, especially deferred annuities, can be complex, illiquid, and burdened with high fees. Read the fine print of any annuity before making a commitment.

 

Trusted Advice

 

Taxation of Annuity Payouts

 

Periodic annuity payments are amounts paid at regular intervals—weekly, monthly, or yearly—for a period of time greater than one year.

Between the simplified and general methods of computing income tax on such payments, you must use the general method if your annuity is paid under a nonqualified plan, rather than under a qualified plan such as a 401(k) or an IRA.

With the general method, you determine the tax-free part of each annuity payment based on the ratio of the cost of the contract to the total expected return. 

The expected return is the total amount you and other eligible recipients can expect to receive under the contract, as per life expectancy tables from the IRS.

Our office can help you make the required calculation.

 

Article: Deducting Employee Business Expenses 

 

If you work for a business, you might incur certain expenses that are related to your job. In some cases, those expenses can be substantial. As of this writing, in late 2017, Congress is considering legislation that would eliminate miscellaneous itemized deductions, but it appears that they will be available on 2017 returns. That said, you may be able to deduct such expenses incurred last year when you file your 2017 federal income tax return.

 

The process of claiming this deduction for employee business expenses might not be simple. You must go through several steps, and you’ll need relevant records to substantiate the deduction if you’re challenged by the IRS.

 

The broad look

 

In general terms, here is an explanation of how to arrive at an employee business expense deduction. First, you need to see how much you have spent on items that are ordinary and necessary for your role at work. These must be outlays that were not reimbursed in some manner. Therefore, the amounts you hope to deduct must be your actual out-of-pocket costs.

 

Once you calculate this number, it is incorporated as a miscellaneous itemized deduction on Schedule A of your tax return. If you take the standard deduction instead of itemizing on Schedule A, you can’t deduct your employee business expenses.

 

Other costs also go into the category of miscellaneous deductions. They might include tax preparation and investment fees. Once you have a total of miscellaneous items, that amount is deductible on Schedule A to the extent it exceeds 2% of adjusted gross income (AGI).

 

Example: Al and Bonnie Carson are both employees at different companies. Al has no unreimbursed employee expenses, but Bonnie had $2,500 of such costs in 2017. Together, the Carsons’ miscellaneous items total $4,100 for last year.

 

On their 2017 joint tax return, the Carsons report AGI of $110,500. In this example, 2% of AGI is $2,210. Subtracting $2,210 from $4,100 leaves $1,890, the amount of miscellaneous deductions they can claim on Schedule A. 

 

Download Full Article

 

 

 

 

 

 

 

annuities guarantee certain withdrawal amounts. Annuity withdrawals may be fully taxable, and a 10% penalty also may apply before age 59½.

Critics charge that some annuities, especially deferred annuities, can be complex, illiquid, and burdened with high fees. Read the fine print of any annuity before making a commitment.

As of 01/01/18 we are happy to announce that the firm of O’Neal and Associates, CPA’s is now part of the Smith, Adcock And Company family. Ed, Jessica, Carole and the O’Neal clients are welcome additions to Smith Adcock.

Ed, Jessica and Carole will continue to provide the high level of service O’Neal and Associates has provided in the past, now coupled with the additional services and backing Smith, Adcock can provide.

Wednesday, 06 December 2017 00:00

Client Bulletin Select Dec 2017

What’s Inside

Pros and Cons of Asset Management Fees
Win With a Roth IRA Reversal
Year-End Thank You Gifts From Business Owners
Tax Calendar

 

Factoid : Pet Purchases

Pet industry spending in the United States during 2016 set a record high at $66.75 billion, led by food ($28.23 billion), veterinary care ($15.95 billion), and supplies and over-the-counter medicine ($14.71 billion).

Did You Know ?

Individual standalone long-term care insurance sales declined nearly 60% from 2012 to 2016. Premiums fell from $550 million to $228 million. During that period, new premiums for life and long-term care insurance combination policies increased from $2.4 billion to $3.6 billion.

 

Source: LIMRA

 

Article: Pros and Cons of Asset Management Fees 

 

A transition is underway within investment firms. Increasingly, the people you hire to manage your money don’t refer to themselves as brokers or stockbrokers. Instead, they’re now financial advisers, financial planners, or financial consultants.

 

The titles may not be important, but the method of compensation can be crucial. Traditionally, brokers were paid by commissions. When you bought or sold stocks or certain mutual funds, you paid money to the broker. That’s still true for some investment professionals.

 

However, many financial advisers are reducing or eliminating commission income in favor of fees; therefore, the money you pay these advisers does not depend on the trading you do. Various types of fees may apply, but an “assets under management (AUM)” approach is probably the most common.

 

With AUM, you pay a fee to the adviser that’s based on your portfolio value.

 

Example 1: Nora Collins has a $500,000 portfolio that’s managed by a financial adviser. The adviser has a 1% AUM fee. Thus, Nora pays $5,000 (1% of $500,000) a year to the adviser. If her portfolio increases to $550,000, Nora’s annualized fee would increase to $5,500; if her portfolio drops to $450,000, the fee would be $4,500, and so on. (Many advisers reduce AUM percentages as portfolio size increases.)

 

Common interest

 

Advisers who favor the AUM method may contrast it with the traditional way of paying commissions on trades. Some brokers have been charged with “churning” clients’ accounts—trading heavily to boost their income, even if there was no good reason to do so. With AUM, churning isn’t an issue; Nora will pay the 1% fee no matter how many or how few trades are made.

 

Instead, AUM supporters assert they are on “the same side of the table” as investors. The better these advisers perform, the more money clients will have and the more fees advisers can collect. Investment losses, on the other hand, will decrease AUM fees. So, advisers charging this way have ample incentive to perform well.

 

After all, if Nora sees her account grow by $50,000, she probably won’t mind paying an extra $500 to her adviser, will she?

 

Getting your money’s worth

 

Those reasons have merit, but there are possible drawbacks to paying AUM to an adviser. For instance, the amounts involved may not be inconsequential. Nora might be paying $4,000–$6,000 a year to her adviser, depending on investment results. 

 

Will Nora be getting value for her money with a truly personalized investment plan? Will her adviser help her reduce the tax impact on her investment activity? Will he or she advise her on which investments go inside her 401(k) plan and which go into taxable accounts? Ultimately, it’s up to Nora and other clients paying advisers by AUM to decide if the investment advice they’re receiving, perhaps supplemented by other financial planning, is worth the money they pay every year.

 

In addition, some investors may not have easy access to advisers who charge AUM fees.

 

Example 2: Mark Lane invests largely in real estate and has relatively little in stocks, bonds, or mutual funds. Advisers who work on an AUM basis may have a minimum portfolio size for clients, so Mark won’t qualify. 

 

The same is true for Mark’s sister, Kathy, who runs a small business and puts most of her spare cash back into the company. However, Mark and Kathy both have some investment assets that could benefit from astute advice, as well as a substantial need for personal financial guidance.

 

Other options

 

Besides AUM, what alternatives do you have for investment management? You can do it yourself, if you have the time and inclination, by choosing no-load mutual funds and perhaps paying discount brokerage commissions for selected securities transactions. Another possibility is to work with an adviser who still charges commissions, if the total of those commissions is less than an AUM fee.

 

Some financial advisers work on a retainer basis for clients such as Mark and Kathy, who have significant net worth but relatively little in the way of liquid assets to manage. The retainer typically is based on the adviser’s estimate of the time necessary for financial planning. The retainer might be high for a new client, reflecting considerable planning, but then drop in subsequent years until an event such as a business sale requires more effort again. 

 

Hourly fees and flat fees for an upfront financial plan also may be among possible modes of compensation for financial advice. Some advisers will offer a combination of compensation arrangements to suit a client’s needs. For investors, the key is to get complete disclosure of an adviser’s compensation method and periodically confirm that you’re getting value for the amount you pay.

 

Download Full Article

 

 

 

 

Factoid[Office1] : Pet Purchases

 

Pet industry spending in the United States during 2016 set a record high at $66.75 billion, led by food ($28.23 billion), veterinary care ($15.95 billion), and supplies and over-the-counter medicine ($14.71 billion).

 

Did You Know[Office2] ?

 

Individual standalone long-term care insurance sales declined nearly 60% from 2012 to 2016. Premiums fell from $550 million to $228 million. During that period, new premiums for life and long-term care insurance combination policies increased from $2.4 billion to $3.6 billion.


 [Office1]Email

Include a Factoid section in your next client email, then copy and paste this item.

 

Image tip: Include a photo of a domesticated animal in your posts.

 

Twitter

#Factoid: In 2016, the #Pet industry outspent the food industry by 136% in $Billions. That’s a lot of kibble! #Pets #Trivia

 

Facebook/LinkedIn/GooglePlus

Factoid:  That’s a lot of kibble.

In 2016, the pet industry spending in the United States set a record high at $66.75 billion. That’s 136 percent higher than the next industry—food. [link to newsletter] #Factoid #Trivia #Pets

 [Office2]Email

Include a “Did You Know” section in your monthly email and include this tip.

 

Image tip: Consider a graph with a declining arrow.

 

Twitter

Individual, standalone LTC #insurance decreased 60% since 2012. But new premiums …  [link to newsletter] #DidYouKnow #Business

 

Facebook/LinkedIn/GooglePlus

Long-Term Care Insurance Declined—New Premiums Increase

Did you know? Individual standalone, long-term care insurance sales declined nearly 60% from 2012 to 2016. Premiums fell from $550 million to $228 million. During that period, new premiums for life and long-term care insurance combination policies increased from $2.4 billion to $3.6 billion. [link to newsletter] #DidYouKnow #Insurance #Business 

Tuesday, 14 November 2017 00:00

CPA Client Bulletin Select Nov 2017

CPA Client Bulletin Select


November 2017

What’s Inside

Uncertainty Hampers Year-End Tax Planning
Year-End Planning for Investors
Year-End Retirement Tax Planning
Year-End Tax Planning for Charitable Donations
Year-End Business Tax Planning
Tax Calendar

 

Factoid : Shrinking Share

Union membership in the United States peaked in 1954 at nearly 35% of all U.S. wage and salary workers, but that number is now around 11%.

 

Did You Know?

Baby boomers are delaying retirement. In the first quarter of 2017, the 55 and older age group had 4.8% job growth, more than any other age group. Key implications are that many older boomers still need to work, and there is strong demand for these workers and their skills.

 

Source: Automatic Data Processing

 

Article : Uncertainty Hampers Year-End Tax Planning

As of this writing, year-end tax planning is clouded by questions about federal legislation. President Trump and many of the Republicans in Congress favor changes that would affect the tax code. Currently, the success they’ll have in their efforts is difficult to predict.

One undecided issue is the future of the Affordable Care Act (known as Obamacare), which might be retained, replaced, or repealed. Although this act addresses health insurance, it includes several provisions relating to taxes. For instance, it includes a 3.8% surtax on net investment income reported by certain high-income taxpayers—this surtax could be abolished.

In addition, President Trump urged far-reaching changes to the Internal Revenue Code. Full details of this plan have yet to be revealed but could include lower tax rates for individuals and businesses. As an offset, some itemized deductions, including those for medical expenses, as well as state and local taxes, could be eliminated.

 

Be prepared

 

How can you plan for tax savings at year-end in this environment? One vital step is to arrange for a tax planning meeting in late 2017. By November or December, we may know more about changes to the tax code and the effective dates.

For now, a basic strategy might be to delay certain income-generating events until 2018 and to accelerate deductions into 2017, when practical. 

Example: Marge Wilson is planning a sale of income-producing property, which she expects to produce a substantial long-term capital gain. Marge anticipates that such a gain would be taxed at a 20% rate, as well as the 3.8% surtax on net investment income. Unless there is a pressing reason to close the deal by the end of 2017, Marge could wait until 2018 in the hope of avoiding the 3.8% surtax.

Regarding health insurance, business owners and employees and self-employed individuals should weigh the pros and cons of high deductible plans when choosing coverage for next year. High deductible policies may be linked with health savings accounts (HSAs), if certain requirements are met. HSAs, in turn, offer unique tax benefits: deductible contributions, untaxed investment income inside the account, and tax-free distributions for qualified healthcare. However, high deductible health plans may lead to greater expenses for medical care before the insurance takes effect.

 

Taxing issues

 

Deferring income may pay off if Trump’s tax plan leads to lower rates. Self-employed individuals might consider delaying year-end billing for work done in hopes they’ll owe tax at, say, 25% instead of 28% or 33%.

 

That said, the proposed demise of certain itemized deductions might be worrisome. In some circumstances, accelerating expenses for medical bills, state estimated tax, and property tax from 2018 to 2017 could provide deductions in 2017 that might no longer be available in 2018. At year-end tax planning meetings, our office can recommend moves that are suitable in your specific situation.

 

Article : Year-End Planning for Investors

 

Regardless of future legislation, some tried and true strategies will help investors trim their tax bill in 2017. Year-end loss harvesting can be worthwhile.

 

 Link to full Article

Be prepared

 

How can you plan for tax savings at year-end in this environment? One vital step is to arrange for a tax planning meeting in late 2017. By November or December, we may know more about changes to the tax code and the effective dates.

            For now, a basic strategy might be to delay certain income-generating events until 2018 and to accelerate deductions into 2017, when practical.

            Example: Marge Wilson is planning a sale of income-producing property, which she expects to produce a substantial long-term capital gain. Marge anticipates that such a gain would be taxed at a 20% rate, as well as the 3.8% surtax on net investment income. Unless there is a pressing reason to close the deal by the end of 2017, Marge could wait until 2018 in the hope of avoiding the 3.8% surtax.

            Regarding health insurance, business owners and employees and self-employed individuals should weigh the pros and cons of high deductible plans when choosing coverage for next year. High deductible policies may be linked with health savings accounts (HSAs), if certain requirements are met. HSAs, in turn, offer unique tax benefits: deductible contributions, untaxed investment income inside the account, and tax-free distributions for qualified healthcare. However, high deductible health plans may lead to greater expenses for medical care before the insurance takes effect.

Wednesday, 11 October 2017 00:00

CPA CLIENT BULLETIN Select October 2017

CPA CLIENT BULLETIN Select
October 2017

 

What’s Inside

Prepare Your Kids for Financial Independence
New IRS Ruling May Rescue Estate Plans
Tax Court Approves 100% Business Meal Deduction
Tax Calendar

Factoid : Costlier Care

The maximum monthly premium paid by high income seniors for Medicare Part B medical insurance grew from $161.40 in 2007 to $428.60 this year (a 10-year increase of 166%).


Did You Know ?

Nationwide, the median home sales price in the second quarter of 2017 rose 7.7% to $253,000, the biggest annual increase since the first quarter of 2014. However, the average weekly wage in the United States fell 1.4%, leading to a decrease in home affordability. Median priced homes are relatively affordable in the Detroit, Philadelphia, Cleveland, Pittsburgh, and St. Louis metro areas, but such homes require a high portion of wages in the San Francisco, New York, Los Angeles, and San Diego areas.

Source: Attom Data Solutions


Article: Prepare Your Kids for Financial Independence

 

An AICPA survey discovered that parents are more likely to talk with their children about manners, eating habits, school grades, and substance abuse than about finances. All these topics are important, but it’s also vital to teach your kids the basics of handling money.

This conversation can begin when children are very young—even before they start kindergarten. One tactic is to give each child a piggy bank, which might hold spare change and even dollar bills. Once the children reach the age when they start learning counting skills, you can explain how five pennies make a nickel, two nickels make a dime, and so on, until you have dollars that can buy things in a store.
Parents also can open up bank accounts for youngsters; banks may have low or no minimums for children’s savings accounts. Parents can take their kids to the bank to make deposits and show them the results on bank statements. If the child’s account earns interest, that can offer another teaching opportunity.

Personal finance

At some point, children may receive an allowance, earn money for doing household chores, or both. Parents might explain the choices they’ll then face. Do they want to spend the money on something they want right away, put the money in their piggy bank to save for a larger purchase, or put it in the regular bank for a long-term goal? Yet another possibility is to give some of their income to those who are less fortunate. Altogether, such an exercise can give your kids the idea that there are many options for handling money, and they should consider the alternatives carefully.
Taking your child with you when you go to the supermarket, pharmacy, or hardware store can also be an educational experience. Children can see goods that are available at different prices; for example, buying a larger package often will require more money. Again, kids can see that handling finances involves making decisions. Even at a young age, children might be allowed to pick out one cereal from the rest or one type of treat for the family pet.
As children grow older, their desired items likely will become more expensive (such as an electronic device or an article of clothing). Through online, catalog, or in-store shopping, you can show them the price of the thing they’ve requested and explain that this is so many weeks of allowance or hours of household chores. You might set up a plan to save for this outlay, with a parental match as an incentive.
One worthwhile activity is to have your child keep a record of all the things he or she would like to have. The child can then organize those items based on “need” or “want.” New shoes might be needed, for instance, but a smartphone might be wanted.

From this list, you could lead into a discussion of what’s needed versus what’s wanted for you as a parent. Milk and juice from the supermarket might fall into the needed category, but a new car every year may be wanted yet not necessary. Explain that it’s fine to have things you want, but you may have to save for them over a time and forgo other items on the want list.
With preteens and teens, other topics can be discussed. You might show your child your checkbook, for example, and describe how you balance it every month. As they approach college, it’s time to talk about college costs at various schools and the results of using student loans to pay for higher education. When children get their first credit card, they should be told how credit scores are calculated and the importance of maintaining a good record of debt repayment.

 

Link to full article

I am happy to announce we have secured a date for our volunteer project with Atlanta Community Food Bank on Friday, August 4th, from 9am – 12pm. We will be working at the food sorting facility, same place as last year for those of you that volunteered. We will be inspecting, sorting, and packing grocery items and health and beauty products for distribution to over 600 non-profit organizations in the Metro Atlanta and North Georgia Area. ACFB is an awesome organization, you can read more about it here: http://acfb.org/what-we-do

 

 

Tuesday, 15 August 2017 00:00

CPA Client Bulletin Select August 2017

What’s Inside

College Costs Really Are Increasing Again
Start FAFSA Planning Earlier
Asset Allocation in 529 Plans
Outlining the Trump Tax Plan
How Small Business Retirement Plans Compare
Tax Calendar

 

Factoid: Vacation Destinations 

 

Among recent vacation home buyers, 36% purchased in a beach location, 21% bought lakefront property, and 20% bought elsewhere in the country. 

 

 

Did You Know ?

 

In the 2016–17 academic year, the average undergraduate cost for tuition and fees was $9,650 at public, four-year colleges for in-state residents. On average, out-of-state students paid $24,930. Therefore, the amount paid by out-of-staters at public colleges is closer to the cost for private institutions ($33,480 on average) than to the amounts paid by state residents at their schools.

 

Source: The College Board


Article: College Costs Really Are Increasing Again 

 

The College Board reports that the average published charges for tuition, fees, room, and board at private, nonprofit, four-year schools were over $45,000 in the 2016–17 academic year. At public universities, the average charge was around $20,000 for state residents. Both numbers are the highest on record.

 

Such expenses for higher education are daunting, but the reality may be less onerous. Many collegians receive some form of financial aid that brings down the actual cost. The College Board also reports “net” prices, estimating the true cost of a year in college after recognizing financial aid and the savings from certain education-related tax benefits. 

 

For the 2006–07 academic year to 2010–11, net prices declined in constant 2016 dollars. Even as published prices continued to rise, the average net price at private colleges fell from $24,580 to $23,620.

 

Since then, however, net prices have begun to move up. In 2016–17, the average figure at four-year private colleges reached $26,080. In-state students at public universities saw average net prices hold steady in the $11,000–$12,000 range from 2006–07 to 2010–11, but shoot up to $14,210 in 2016–17. In recent years, increases in grants have not kept up with rising published prices, creating more expensive net prices for higher education.

 

For parents of collegians and younger students, the message is that they may have to put more effort into competing for college grants. Some strategies for dealing with the Free Application for Federal Student Aid (FAFSA) can be found on page 2 of this issue of the CPA Client Bulletin. Savvy investing of college funds can also help; on page 3, you’ll find suggestions on how to manage 529 college savings accounts.

 

Article: Start FAFSA Planning Earlier 

 

The “new” FAFSA schedule (introduced in 2016) makes summer the time for FAFSA prep. On October 1, 2017, financial aid applications for the 2018-19 school year can be filed. In prior years, students had to wait until January 1 to request financial aid for the coming academic year.

 

Why is this important? Some observers believe that financial aid may be granted on a first come, first served basis, so the early filer may have more of a chance to receive aid. Also, filing a FAFSA early may increase the chance for merit (not need-based) aid because some colleges require the FAFSA for such grants.

 

In addition, FAFSA will now have real family income numbers from federal income tax returns, rather than estimates.

 

Example 1: Mark Thompson will start college in the fall of 2020. In October 2019, Mark can file the FAFSA. He’ll use his family’s income from 2018 based on the tax return filed in 2019. (Even if Mark’s family gets a filing extension from April 15, 2019, the return must still be filed by October 15 of that year, so the 2018 income numbers will be available for a FAFSA filing in October 2019.)

 

Under the previous FAFSA schedule, Mark would have filed the FAFSA in early 2020, using estimated income numbers for 2019. Then, he would have amended the FAFSA, if necessary, to conform with the actual 2019 numbers. That won’t be necessary now that the Thompsons’ 2018 income will help determine Mark’s need-based aid in the 2020-21 school year. 

 

Link to Full Article

 

 

 

 

Factoid: Vacation Destinations[Office1] 

 

Among recent vacation home buyers, 36% purchased in a beach location, 21% bought lakefront property, and 20% bought elsewhere in the country.

 

 

Did You Know[Office2] ?

 

In the 2016–17 academic year, the average undergraduate cost for tuition and fees was $9,650 at public, four-year colleges for in-state residents. On average, out-of-state students paid $24,930. Therefore, the amount paid by out-of-staters at public colleges is closer to the cost for private institutions ($33,480 on average) than to the amounts paid by state residents at their schools.

 

Source: The College Board


 [Office1]Email

Include a Factoid section in your next client email, then copy and paste this item.

 

Twitter/Instagram

Factoid: 36% of #vacation home buyers bought at a beach location. Can you guess where 21% bought? #RealEstate

 

Facebook/LinkedIn/GooglePlus

Where would you buy a vacation home? Among recent vacation home buyers, 36% buy at the beach, 21% buy near a lakefront, and 20% bought elsewhere. #Vacation #RealEstate

 [Office2] [Office2]Email

Include a “Did You Know” section in your monthly email and include this tip.

 

Twitter

Did U Know? Out-of-State #College students pay nearly the same as if they went to a private school. [link] #Education

 

Facebook/LinkedIn/GooglePlus

Did You Know?
College students paying public, out-of-state tuition spend nearly the same as in-state students going to a private institution.
Source: The College Board [Link to CPA Client Bulletin or blog page] #College #Education

Wednesday, 12 July 2017 00:00

CPA Client Bulletin Select July 2017

CPA Client Bulletin Select
July 2017

What’s Inside

Calculating Retirement Needs
Taxable Versus Tax-Deferred Accounts
Small Companies Can Do Well While Doing Good
Tax Calendar


Factoid: Exporting Energy

From January to February 2017, U.S. oil exports jumped by 35% to a record high of over 1 million barrels per day.

Did You Know?
Up to 43% of U.S. employees spend some time working outside of the office. Moreover, 35% of employees say they would change jobs to have flexible working locations where they can choose to work off-site full time. Employees who sometimes work remotely show greater levels of engagement; the optimal engagement boost occurs when employees spend 60—80% of their workweek (or three to four days) working off-site.
Source: Gallup


Article: Calculating Retirement Needs

A staple in retirement planning is the search for “your number.” That is, how much money do you need to accumulate in savings and investment accounts so you can afford to stop working? Life expectancy is increasing, so the amount you have when you retire might have to last for decades.
To find the number, you can start with a target for cash flow in retirement. Then determine how much you can expect from all anticipated sources of income: Social Security, a pension, rental income from investment property, and so on. The gap will probably be filled from your financial resources.
Example 1: Linda Morgan, age 52, hopes to retire at 65. Linda expects to need about $75,000 a year for a comfortable retirement, with approximately $25,000–$30,000 coming from Social Security. She will not receive a pension from any employer and has no other obvious source of retirement income. Therefore, Linda will need about $45,000–$50,000 a year from her savings and investment accounts.

Doing the math

How can Linda find “her number,” the amount of financial assets she’ll need to generate $45,000–$50,000 a year in retirement? One tactic is to go online, where she’ll find many retirement calculators to crunch the numbers. Social Security, for instance, has a “Quick Calculator” at ssa.gov/OACT/quickcalc/ to help you estimate future payouts from that source.
Many other websites offer more comprehensive retirement calculators. Frequently, they allow people to enter their personal information, then make various adjustments to future plans to see what methods might increase their chances for financial security after the paychecks stop.
Example 2: Linda uses a retirement calculator provided by the AICPA at www.360financialliteracy.org/Calculators/Retirement-Planner.
She enters the information from example 1 and other requested data into the calculator. In this hypothetical illustration, Linda is single, earning $100,000 a year, and saving 15% of her earnings for retirement. Her future expectations include salary increases (2% a year), investment returns (6%), inflation (3%), and living until age 95. Linda has $300,000 in current retirement savings.

 

Download Full Article

 

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