January 2018 Newsletter to ClientsSubmitted by Moneywatch Advisors on January 5th, 2018
Enjoy this month’s edition that features an update on the new federal tax law plus notes on the market’s performance during 2017 and the resulting capital gains impact.
As of this writing (01/04/2018 10:03 am), the Dow Jones has surpassed the 25,000 mark. One of our long-time CNBC contributors described it best.
“I will tell you what is happening, this is capitalism!” Rick Santelli, CNBC.
According to Wikipedia, Capitalism is an economic system and an ideology based on private ownership of the means of production and their operation for profit. Characteristics central to capitalism include private property, capital accumulation, wage labor, voluntary exchange, a price system and competitive markets. In a capitalist market economy, decision-making and investment are determined by the owners of the means of production in financial and capital markets, whereas prices and the distribution of goods and services are mainly determined by competition in goods and services markets. https://en.wikipedia.org/wiki/Capitalism
Tax Cuts & Jobs Act (Effective 1/1/18): As most of you already know, Congress passed and President Trump signed a significant overhaul of the nation’s tax laws in December that took effect the first of this year. Below are a few of the new details:
- Larger Standard Deduction: Single filers $12,000, over 65 $13,550; Heads of household $18,000; Joint filers $24,000, over 65 $26,500 but no more personal exemptions (a loss of $4,050 per person).
- Increased Child Tax Credit (under 17): $2,000; Phase out at adjusted grow income over $400,000.
- Lower Tax Rates: e.g. top tax rate declines from 39.6% to 37% on income over $600,000 (joint return).
- Reduced Homeowner Tax Breaks: $750,000 residential mortgage debt limit. No deduction for interest on home-equity loans.
- Limits on State & Local Taxes: $10,000 limit on the combination of real estate and state & local income and sales taxes.
- Casualty Losses: Allows deduction on if a loss occurs in a presidentially declared disaster area.
- Doubled Estate Tax Change: $11-million for singles, $22-million married couples.
- Medical Deductions: 2017 & 2018 limit 7.5% of Adjusted Gross Income; 10% thereafter.
- Alternate Minimum Tax Higher Threshold: Exemption increased for joint filers from $86,200 to $109,400.
- Moving Expense: deduction eliminated.
- Miscellaneous Deductions: like tax preparation fees, unreimbursed employee business expenses and investment fees are eliminated.
- 529 Plans: allows families to cover up to $10,000 for K-12 expenses for a private or religious school.
We are prepared to discuss the new tax law with each client so do not hesitate to reach out.
Stock Market 2017: We are now 8+ years into a Bull market where the S&P 500 has gained over 251% since March 2009. That is a return of 15% per year, annualized. Even with that tremendous run, the market outdid itself during 2017, increasing almost 19% from the start of January.
Below is a graphical representation of this year’s S&P 500*.
* Performance data quoted reflect past performance and are no guarantee of future results. Current performance may be higher or lower than the performance quoted.
As a result of this outstanding performance, capital gains were fairly large this past year (2017). Clients’ taxable accounts were carefully reviewed in an effort to offset gains by selling funds that are currently valued less than when they were purchased. The market’s increase last year made it difficult to harvest losses to ameliorate your gains. In most of the cases where we were able to realize losses, we endeavored to replace the sold assets with similar assets so as to not alter the client strategy, i.e. the balance between income and growth investments. We feel strongly about avoiding taxation to preserve your wealth.
Thank you for your continuing confidence.
Past performance is no guarantee of future results. The opinions expressed are those of Moneywatch Advisors, Inc. and are no guarantee of the future performance of any particular fund. This information is for educational purposes only and is not intended as investment advice. Please consult your financial advisor for more detailed information or for advice regarding your individual situation.