January 31, 2018

HAPPY NEW YEAR!!

The following tax rates and amounts are effective for 2018:

1. OASDI rate for employees remains at 6.2%.  The wage base increases to $128,400.
2. Medicare rate remains at 1.45% for employers.  The employee portion is 1.45%, and a 0.9% Medicare surtax on earned income will be calculated on single filers with wages over $200,000 and married filers with wages over $250,000 as part of health care reform.
3. Social Security payments will increase by 2.0% beginning in January 2018.  The maximum earnings one can earn before Social Security benefits will be completely withheld is $45,360 for those under age 66.  Those between age 62 and age 66 can earn $17,040.  For each $2 earned above that, $1 of benefits is lost.  There is no limit on earnings for those older than 66.  The retirement age for Social Security continues to rise this year.  Those turning 62 this year are affected.  They will get reduced benefits if they start receiving payments before they attain age 66.  

             The Tax Reform Bill passed in late December 2017 made some important changes to individual, business, estate and gift taxation beginning in the 2018 tax year.  Many of these provisions sunset after 2025.   Items 4 through 25 address changes specific to the new Tax Reform Bill.  While this list is not all inclusive, it represents the items that we feel are of greatest interest to our clients.

4. Personal and dependency exemptions, previously $4,050 per person, have been eliminated under the new tax law.
5. Standard deduction increases to $24,000 for married filing joint couples, plus $1,300 for each spouse 65 or older, or blind or disabled.  The standard deduction for a single filer increases to $12,000, plus $1,600 if you are 65 or older, blind or disabled.  Head of household’s standard deduction increases to $18,000.  For children age 14 who must file returns, it remains the same at $1,050
6. There will still be seven tax brackets, however, the brackets have changed.  Income tax rates will be 10%, 12% (instead of 15%), 22% (instead of 25%), 24% (instead of 28%), 32% (instead of 33%), 35%, and 37% (instead of 39.6%) for single taxpayers earning over $500,001 or married taxpayers earning over $600,001.  The 20% top rate for long term capital gains and qualified dividend starts at a higher level for 2017; singles with taxable income over $425,800 and joint filers above $479,000.  For those earning less than the thresholds, the tax rate has remained at 15%.  Under the 2010 health care law, the new 3.8% Medicare net investment income tax remains effective for single taxpayers earning more than $200,000 and married taxpayers earning more than $250,000.
7. The calculation of the Alternative Minimum Tax has changed significantly.  The rate remains at 26% on the first $191,500 of income for marrieds and 28% over that.  Exemptions from the minimum tax will rise in 2017 to $109,400 for couples and $70,300 for singles.  The phase-out levels were raised to $1 million for joint filers, up from $160,900; and to $500,000 for individuals, up from $120,700.   As a result of the increase in exemption and phase-out level, significantly less taxpayers are expected to be subject to the Alternative Minimum Tax.
8. The exemption from the Kiddie Tax for 2018 remains at $2,100.  A parent will be able to elect to include a child’s income on the parent’s return for 2018 if the child’s income is more than $1,050 and less than $8,500 and the child needs to be less than 20.  If earned income of child is less than ½ the support, the age limit rises to 24.  If Kiddie Tax applies, under the new rules, the child’s net unearned income would be taxed using the brackets that trusts and estates follow; that system has a top bracket of 37 percent, which applies to income that exceeds $12,500.
9. Bonus rate or flat rate withholding for supplemented wages less than $1,000,000 is reduced to 22% from 25%.  If more than $1,000,000 the rate is reduced to 37% from 39.6%.
10. High income taxpayers can continue to convert their IRAs to ROTHs.  The $100,000 AGI cap is gone.  Under the new tax law, the ability to undo a Roth IRA conversion after it has been completed is no longer available. 
11. Federal estate, gift and generation skipping tax exemption will double to $11.2 million.  It applies to the estates of people who die after Dec. 31, 2017 but before Jan. 1, 2026 and to gifts made during this time period.  The maximum Estate and Gift rate remains at 40%.
12. The deduction for state and local income and sales taxes, combined with property taxes has been capped at $10,000.
13. The deduction for mortgage interest has changed.  Previously, taxpayers could deduct mortgage interest on principal balances up to $1 million for multiple homes.   A taxpayer could also deduct home equity mortgage interest on principal up to $100,000.  Under the new law, the deduction for mortgage interest is capped at $750,000 of principal and limited to two homes.  Home equity loan interest is no longer allowed.  Home purchases prior to December 15, 2017 are grandfathered in under the prior laws, as are existing mortgage balances.
14. Mandatory health care payments under the Patient Protection and Affordable Care Act (Obamacare) which were effective after 12/31/13 are no longer required since the tax for being uninsured has been reduced to zero under the new tax law.
15. In 2017 and 2018, a taxpayer may deduct medical expenses when they exceed 7.5% of adjusted gross income.  The 7.5% threshold returns to 10% in 2019.
16. The child tax credit is increased from $1,000 to $2,000 per child and will be refundable up to $1,400.  The phase-out for the credit, begins with adjusted gross income of more than $400,000 for married filing joint couples and more than $200,000 for all other taxpayers.  The phase-out is not indexed for inflation.   The definition of the child tax credit has been expaned to include dependents who are not children. The new law tax includes a $500 nonrefundable credit for dependents who are not children.
17. Pass thru business owners are eligible to deduct 20 percent of their qualified business income from a partnership, S corporation and sole proprietorship. This deduction begins phasing out for the deduction that begins at $157,500 of individual adjusted gross income and $315,000 of adjusted gross income for couples filing jointly.    The deduction does not apply to specified service businesses, except when the income of those taxpayers falls below the phase-out thresholds described above.
18. Qualified withdrawals from 529 plans have been expanded to allow up to $10,000 to be withdrawn annually for private elementary and secondary school expenses.  Previously, 529 plan qualified withdrawals were only allowed for higher education expenses.
19. Investment fees, tax preparation fees, and unreimbursed employee business expenses will not be deductible as Miscellaneous Itemized Deductions.  Previously, these items were deductible but subject to a 2% of adjusted gross income threshold.
20. Casualty losses beginning in 2018 will only be deductible if they are caused by a Federally declared disaster.  Personal losses, such as thefts and a house fire not caused by a Federal declared disaster, would no longer be deductible.  We suggest you review your insurance policies to see if you have adequate coverage.
21. Alimony payments for divorce agreements entered into after January 1, 2019 will not be deductible. Alimony payments received will not be taxable.   Special rules exist for those wishing to modify divorce agreements entered into prior to that date but maintain the deductibility of their alimony payments.
22. Moving expenses will generally no longer be deductible.  Some exceptions apply to members of the military.
23. The domestic production activities deduction has been repealed for pass through entities beginning January 1, 2018.  All other taxpayers, such as C Corporations, can continue to deduct 9% of income from U.S. production activities for one additional year.   The deduction repeals for those taxpayers on January 1, 2019.
24. Business meal deductibility remains at 50%.  Business entertainment deductibility has been repealed.
25. The Tax Reform Bill increased the maximum amount a taxpayer may expense under Sec. 179 to $1 million, up from $500,000 and increased the phase-out threshold to $2.5 million. These amounts will be indexed for inflation after 2018.   Bonus depreciation was extended and modified to deduct 100% of eligible property placed into service through 2022.  The amount of allowable bonus depreciation will then be phased down over four years: 80% will be allowed for property placed in service in 2023, 60% in 2024, 40% in 2025, and 20% in 2026.
26. Back up withholding rate remains at 28%.
27. 401(k), 403(b), and 457 contribution pay-in limitation increases $500 to $18,500, with $6,000 additional for employees 50 and older.  Ceiling on SIMPLE plans stays at $12,500 but folks age 50 or older can put in an additional $3,000 in 2018.
28. Maximum level of pay on which pay-ins to plans can be based upon increases to $275,000 from $270,000 with the maximum pay-in for defined contribution plans increasing to $55,000.  Percentage of compensation that can be put in remains at 100%.  Profit Sharing percentage remains at 25%. 
29. Phaseout for Traditional IRA deductions start at $101,000 and ends at $121,000 for couples.  Phaseout for singles is from $63,000 to $73,000.  If only one spouse is covered by a plan, the phaseout zone for deducting a payin for the spouse who is not covered begins at $189,000 of AGI and ends at $199,000.  Phaseout for Roth IRA deductions start at $189,000 for couples and end at $199,000, and start at $120,000 and end at $135,000 for singles.  Contribution limit remains at $5,500.  If 50 or older, can contribute up to $6,500.
30. The interest exclusion on U.S. Savings Bonds redeemed to pay qualified higher education expenses starts to phase out at AGI above $119,550 for marrieds.
31. Eligible portion of long term care premium rises to $5,200 for those age 71 and older, $4,160 between ages 60 and 70, $1,560 between ages 50 and 60, $780 from 41 to 50 and $420 for age 40 and under, deductible as medical expenses.  Limit for tax-free payouts remains at $360 per day.
32. Medicare Part B premium is $134.00 monthly for most singles with AGI under $85,000, although many taxpayers will pay less than that.  The maximum premium rate is $428.60 per month.
33. The Nanny tax threshold increases to $2,100 from $2,000.  No social security tax is due for domestics paid $2,100 or less this year.  It is not indexed for inflation.  FUTA is still due whenever a domestic employee is paid $1,000 or more in a calendar quarter in the current or prior year.
34. Low and middle income savers can still get a tax credit of up to $1,000 for contributions made to IRAs and qualified plans.  Credit disappears for marrieds when AGI hits $63,000, $31,500 for singles.
35. Adoption tax credit increased to $13,840 of expenses, from $13,570.  Phaseout starts at $207,580 AGI.
36. The Lifetime Learning credit phaseout for MFJ starts at $114,000, $57,000 for singles. 
37. Gift tax exclusion increases $1,000 to $15,000 per donee for gifts made in 2018.
38. The limit on deducting payins to Health Savings Accounts increases to $6,900 for family coverage and $3,450 for individual coverage.  Account owners age 55 and older can put in an additional $1,000.  Ceiling on out of pocket cost increases to $13,300 for family coverage and $6,650 for individual coverage.  HSAs can be rolled into IRAs.
39. Monthly limitation on contributions to transit flexible spending accounts for tax-free parking and transit increases $5 to $260.
40. U.S. taxpayers working abroad have a higher exclusion, $104,100, up from $102,100.
41. Federal minimum wage remains unchanged at $7.25, food service employees, $2.13.  New Jersey increased to $8.60 and New York increased to $10.40.  Different rates apply for the New York hospitality industry.  Connecticut minimum wage remains at $10.10.  Pennsylvania minimum wage remains at $7.25 with tipped employees $2.83.
42. Credit and Debit Card companies will continue to issue 1099s on payments made to merchants in 2018.  Third party networks such as Paypal will issue 1099s to payees with over 200 sales transactions and more than $20,000 in sales income.
43. S Corporations and partnerships will continue to owe a penalty of $195 per owner or partner per month for up to 12 months for failure to file on time.  This includes returns that are required when no business activity takes place.
44. Nearly all businesses must wire tax deposits to the IRS.
45. Standard mileage allowance for business increases 1¢ to 54.5¢ per mile.  The rate decreases to 18.0¢ a mile for medical purposes and job related moves.  Remains at 14¢ per mile for charitable driving.
46. Tax-free direct payouts from IRAs to charity of up to $100,000 for individuals age 70½ and older continue to be allowable.
47. Professional development costs continue to be deductible as part of the $250 of teacher classroom supplies deduction.

     Investment Management Performance Reports

              All of our investment management clients are automatically enrolled in Albridge, which is a sophisticated financial aggregation software.  One of the abilities of Albridge is to be able to provide performance reports for various periods of time.
    

              The most common period of time for performance reporting is the preceding year.  The most common performance report metric is the benchmark chosen that you want to be compared to.  Our chosen benchmark is one created by us, is the one that we think most closely approximate that of a balanced portfolio, that is one that has income (bond) and growth (equity) characteristics.  Our benchmark is 40% income (Barclay’s Bond Aggregate) and 60% growth (Standard & Poors 500 Index) which is commonly used for balanced portfolios.
               
              If you would like to see how your portfolio did in 2017, and as against the benchmark, we encourage you to go to the Albridge website and use your password information to enter and then go to Reports.  Once in Reports, you should choose Last Year’s performance, Program 1 and composite Benchmark 40/60 which you will be able to view.  Of course, now that you know how to run a report, you can choose other time periods to run your own reports.  If it is too difficult or cumbersome for you to do this, you can send us an email affirmatively authorizing us to prepare the report either on a one time basis or annually and provide us with the email address you would like the report sent to.  This is necessary in order to satisfy both Compliance and Privacy concerns.
    
               If you have any questions about this additional benefit we are providing to you free of charge, please call us.
    
              As always, if you have any questions about these or any other matters, do not hesitate to call us.

               Remember, We’re Here For You!