Did I really make that much?

2017 was a banner year for the markets and the statement above is one said to me recently by two clients. I cannot take total credit for their capital gains being as large as they were in 2017, but I will take some. My clients are having to re-adjust the withholding tax applied to the areas of income they are receiving due to the increase in capital gains credited to them. Will you have to also?
One client said he was “crying with two loaves of bread in his arms.” Things could be worse.
As you work on your 2017 tax returns, see if you need to adjust your withholding tax for a possible repeat of the markets in 2018.


How much can I contribute?

Many of us have completed, or are close to completing, our 2017 tax returns. As we finish this fun task, thoughts turn to 2018. Many of my clients want to know with the new tax laws, if the amount they can contribute to their retirement plans has changed. Let’s take a look at the contribution limits for 2018:

Traditional or Roth IRA accounts: $5,500 or if you are over age 50, the limit is $6500.
SEP IRA: 25% of your compensation up to a max of $55,000. This is an increase.
401(k): $18,500, this is an increase. The over age 50 increase is still an additional $6000.
Simple IRA: $12,500 or if you are over age 50, you can contribute an additional $3,000.

Don’t sell yourself short, contribute the maximum that you can comfortably contribute. Use all of the time you have on your side.


You didn’t lose $20k.

At a recent meeting with a client, I was asked if I noticed that she lost $20k. I asked what she was looking at, she said her February statement. My next comment to her was, ”I didn’t sell anything, did you?” My explanation for this comment was, her market value went down because the markets had a bad month in February. We did not sell anything, therefore, nothing has been lost. True, her market value went down, but also true was that by the time of our meeting, her value was back up $10k.
As we always say, “We are not trying to time the markets. It is time in the markets that matter.”


You know what happens when you assume!

Many people think assumptions are a big part of my business, but in reality, the facts are what matter most. There are a number of assumptions people have in mind when thinking about retirement planning and these assumptions can often de-rail a retirement plan. Let’s look at a few common assumptions:
“I can earn income for as long as I wish to.”
Many things that are out of our control can change this assumption such as:
A change in your company may down-size you out of a job.
A family member’s health decline may require your help
Your own health may change in an adverse way.
“Inflation will always stay low.”
As we are seeing right now, rates can increase. Monetary policy from the Federal Reserve is constantly under scrutiny and ever changing. We have been hearing of the potential for multiple rate increases this year. A portfolio review will be necessary to see what impact interest rate increases will have on your retirement.

“I will always be healthy.”
As I mentioned in the first assumption, health issues have a way of de-railing the best laid plans. An illness, accident, or injury happening to yourself or a loved one can take a lot of time and money. You may have Long Term Care Insurance to cover yourself and your spouse, but what about a parent, child, or grandchild that is in need? Take it from me, a prolonged illness from a parent takes a financial, physical, and emotional toll that can be greater than you can imagine.

Please, don’t get caught on the wrong side of an assumption.


Don’t leave money on the table.

I am pretty tax adverse and I don’t like paying any more than I am required to. I try to make sure I have taken every deduction possible while still paying my fair share of income tax. Here are a few items for you to look at to see if you can reduce your tax bill:

Investment management fees:
My clients pay me a fee to manage their assets and in some cases, the fee is deductible. If you pay investment management fees that exceed 2% of your adjusted gross income, you can deduct them.
Mortgage interest:
This one is a bit tricky. You had to buy before 12/15/17 to still deduct mortgage interest up to 1 million and/or home equity loan interest. If you signed your mortgage note after that date, you will limited to $750,000 and home equity interest limited to improvements for the home purchased only.
Are you taking care of an Elderly family member?
Many of us now have primary responsibility for a parent to the extent that we are responsibly for more than 50% of their care and wellbeing. If this situation applies, you’re allowed to claim your parent as a dependent and take the corresponding deduction.
Read the 2017 tax code carefully to make sure you don’t leave anything on the table.


I’ve said it before, I’ll say it again, “the IRS is not going to call you at home.”

This years’ tax scam is receiving an unauthorized refund. Tax payers are receiving phone calls at home telling them that the refund they have received was sent in error. Taxpayers are then being told to wire the funds to an account provided by the caller.
If the IRS needs to contact you, they will do so by regular mail. The IRS does not call or email taxpayers. If you receive a call as I have outlined, please report it to the IRS.


You don’t want to raise these flags.

Tis the season – tax season, the season we love to hate. This is the last return to be filed under our “old” tax system and 2018 should be a lower tax year for most taxpayers. While no one likes paying taxes, there are a few things you want to avoid with your 2017 return so you don’t raise any red flags.
Having higher than average deductions. As a self-employed person I fall into this category. If the deductions on your return are disproportionately large compared with your income, the IRS may pull your return for review. But if you have the proper documentation for your deduction, don’t be afraid to claim it. There’s no reason to ever pay the IRS more tax than you actually owe. In 2015, we had to prove we were paying what we claimed in health insurance premiums, we had all of the documentation, submitted everything to the IRS, then received a letter stating everything was accepted.
Taking an alimony deduction can be tricky. Alimony paid by cash or check is deductible by the payer and taxable to the recipient, provided certain requirements are met. For instance, the payments must be made under a divorce or separate maintenance decree or written separation agreement. The document can’t say the payment isn’t alimony. And the payer’s liability for the payments must end when the former spouse dies. You’d be surprised how many divorce decrees run afoul of this rule.
IRA withdrawals done early can cause a problem if not reported correctly.
The IRS wants to be sure that owners of traditional IRAs and participants in 401(k)s and other workplace retirement plans are properly reporting and paying tax on distributions. Special attention is being given to payouts before age 59½, which, unless an exception applies, are subject to a 10% penalty on top of the regular income tax. An IRS sampling found that nearly 40% of individuals scrutinized made errors on their income tax returns with respect to retirement payouts, with most of the mistakes coming from taxpayers who didn’t qualify for an exception to the 10% additional tax on early distributions. So the IRS will be looking at this issue closely


Not yet Chicken Little

The headlines are screaming, “Largest point drop ever for the Dow.” The actual percentage drop was 2.5%. It takes a drop of 10% to be called a correction, we are not there yet. Over the past twelve months the Dow is up 21.3% according to MSN. Prior to yesterday, many investors were concerned that the Dow was too high to buy. The dips we have seen over the past few days should be considered a gift for those who either have cash or make regular deposits to their accounts. When the markets go down, we can buy on sale. Who doesn’t love a sale?!
Keep in mind, you are an investor. You are in it for the long haul. Take advantage of the dips. We regularly re-balance our clients’ portfolios to protect their portfolios. We sell gains and re-allocate to be able to keep those gains and buy on the dips.
No Chicken Little – it is not time to come out of your coop.


You are so lucky because you have money.

Occasionally, my position requires me to wear the hat of family counselor. I have a few clients that I am working with right now that are “lucky” to have money that their family members feel should be shared. A few of them are chronically requesting “loans” to pay rent, make a car payment, and various other items. Some of the children or siblings of my “lucky” client feel that cars should be bought for them, or credit card balances should be paid off for them.
My “lucky” clients have worked hard all of their lives, often, more than one job at a time. They have lived below their means, and the money that they have is all that they have. If my clients keep giving to their family members, will these family members care for them when they are broke?
By the way, most of my “lucky” clients have this extra money because they no longer have their parents, siblings, or spouse. Who is the lucky one?