How Tax Reform May Impact You

brian-13Written By Brian Cochran, CFP®, Certified Kingdom Advisor® Financial Planner

John Moore and I were in Washington,  D.C. this week attending meetings with one of our favorite professional associations, Kingdom Advisors. One of the highlights was a legislative update with members of the executive branch staff. The timing was remarkable, as the legislative update occurred just hours after the House of Representatives released the framework for the proposed tax reform. The changes are significant. Of the dozens of proposed tax changes, here are a few that we believe will impact the families we serve:

Larger Standard Deduction
Currently, the standard deduction is  $6,350 for individuals and $12,700 for married couples. The proposed bill presents a dramatic increase: $12,000 for individuals and $24,000 for couples. This is especially beneficial if you typically do not have enough deductions to itemize. This will simplify tax filing for millions of families who will no longer need to record deductions on a schedule A. This may be the most impactful part of the proposed tax reform.

New $300 Credit to Replace Personal Exemption
The tradeoff of the higher standard deduction is the elimination of the personal exemption. Tax payers will now receive a $300 credit for the primary tax filer, plus a spouse. For small families, this could still be a net benefit. Large families may be negatively impacted since they will no longer have the personal exemption for all family members.

Fewer Tax Brackets
The number of tax brackets is reduced. Whereas there are currently seven tax brackets, the proposed bill reduces these to four—12%, 25%, 35%, and 39.6%. The 12% bracket applies to married couples with up to $90,000 income. The 39.6% bracket applies to married couples with income over $1,000,000. In combination with the increased standard deduction, the new brackets could benefit middle class families, as well as those with taxable income from $150,000—$400,000, since they will be in a lower tax bracket.

Larger Child Credit
The current child tax credit is $1,000 per child. This will increases to $1,600 per child.

Medical & Student Loan Deductions
Medical expenses and student loan interest are no longer deductible. While this seems like a huge negative, I think it will likely be a wash with the new standard deduction. Keep in mind, medical deductions currently apply only on expenses exceeding 10% of income, and student loan interest is subject to a restrictive income limit.

State Income Tax & Property Tax
The tax reform bill proposes no deduction at all for state income tax, and limits the deduction for property tax to $10,000. This is a big negative for high-income taxpayers in states such as California and New York. It also hurts people with high property values in states with no income tax, such as a Texas or Washington. Low income and middle class families who pay property and state income tax will no longer itemize due to the higher standard dedication.

There is so much more to the proposed tax reform bill, including changes to corporate tax, estate tax and gifting rules.
Check back soon for more details as this proposal evolves. The Senate will have its own bill that could very well stop the House of Representatives’ bill from moving forward. The fastest this could advance would be a House vote the week of Thanksgiving, with something on the President’s desk around mid-December.

Not sure if you and your investments are prepared for potential tax reform?
The team at John Moore Associates will be staying abreast as this evolves, and are happy to answer questions about how the proposed changes may impact your investments. Call John Moore Associates today at (888)815-5100 and talk to one of our financial advisors.

 


The information provided 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 Brian Cochran and not necessarily those of Raymond James. Please note, changes in tax laws or regulations may occur at any time and could substantially impact your situation. While we are familiar with the tax provisions of the issues presented herein, as Raymond James financial advisors, we are not qualified to render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional. Links are being provided for informational purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection of or use of information regarding any website’s users and/or members.

Remembering Market Volatility

brian-13Written By Brian Cochran, CFP®, Certified Kingdom Advisor® Financial Planner

Log into your investment accounts or pull out your last statement. Take a look at your total balance. How would you react if that number was 5% less? What about 10% less?

We have experienced a rare—though not unprecedented—period of low volatility in markets. I cringe a bit when I hear people say that we are “overdue” for a correction, because it implies the market works on some sort of fixed schedule. Still, it would be very reasonable to expect a 10-15% reduction in stock prices in the second half of 2017.

I am not going to complain about the recent period of above average returns without much volatility, but the complacency of the average investor concerns me. It has been over a year since the last 10% drop in the S&P 500, which means volatility is out of our short-term memory. Many investors who panicked in 2008 or wanted to sell during the market corrections since then can no longer recall the intense fear they experience when markets downturn.

Seemingly sudden market drops teach us valuable lessons about our tolerance for volatility. When these lessons are forgotten we risk repeating investment mistakes. I would like to review several lessons so we are all prepared when—not if—the next correction comes.

  1. Review your allocation.
    The more money you made on the way up, the more you will likely lose on the way down. Your best-performing holdings may become your biggest losers. If you have experienced an unusually high return over the last year, it may be worth looking at your allocation to determine if this is the right allocation when the market goes through a correction. If your holdings are up 20%, how would you react if you lost 20% in a 2-4 week period?
  2. News is not your friend.
    The media benefits from the panic that typically accompanies a market drop. Dramatic headlines draw more eyeballs, which is good for their ratings and bottom line. The media does not provide advice tailored to your specific financial goals, and the financial “experts” who provide market commentary–often fueling the sense of panic–cannot predict the future any better than you.
  3. Refuse to respond emotionally.
    Obsessively looking at your account balance is not helpful. Investors view their investments online more often during a market downturn. People who previously ignored their statements begin to log in daily to see the damage to their bottom line. You are more likely to make a poor, emotional decision after seeing your account at a loss. One of the greatest challenges in investing is detaching ourselves from emotions.

Not sure if you and your investments are prepared for a potential return to normal market volatility? Call John Moore Associates today at (888)815-5100 and talk to one of our financial advisors. Our investment management is evidence-based rather than emotionally-charged.

 


The information herein 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 Brian Cochran and not necessarily those of Raymond James. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. The information contained in this report does not purport to be a complete description of the securities, markets or developments referred to in this material. Diversification and asset allocation do not ensure a profit or protect against a loss.

Tax Incentives Are Not a Sin | Part Three

brian-13Written By Brian Cochran, CFP®, Certified Kingdom Advisor® Financial Planner

Part 3 of a 3 Part Series

With this Insights, we conclude our reflection on tax season along our theme, Tax Incentives Are Not A Sin. In part one of this three-part series on tax reduction strategies, we explored ways you can save taxes by giving to others. Next, we turned our attention to strategies that help reduce taxes as you save for the future. In this third and final segment, we discuss a few unique and often overlooked opportunities to lower your total taxes.

New Mexico Affordable Housing Tax Credit
If you are a resident of New Mexico, you might be aware of the Affordable Housing Tax Credit. The state of New Mexico offers residents a credit of up to 50% for donations related to affordable housing. This is one way the state funds housing opportunities for low-income families. Keep in mind this is a credit and should not be confused with a deduction. The credit has a high ceiling of $500,000 and gifts of cash, land, services and buildings qualify. Eligible recipients of your gift include Habitat for Humanity and the Mortgage Finance Authority.  You may also benefit simultaneously from a charitable deduction on your federal tax return. The combination of the state credit and the federal deduction could provide a combined tax benefit of up to 90% of the value of your gift. I encourage New Mexico residents to discuss this opportunity with their tax advisor. 

Arizona Credit for Qualifying Charitable Organizations
The state of Arizona generously provides a tax credit for gifts to many charitable organizations. Much like the New Mexico Affordable Housing Tax Credit, Arizona residents receive the benefit of a credit against Arizona state tax and the charitable deduction for federal tax. The Arizona credit counts for 100% of your qualified charitable gift of up to $400 for individuals and $800 for those who file jointly. If you give to a qualifying foster care organization, the maximum credit is $500 for individuals and $1,000 for joint filers. To see a list of qualifying charitable organizations and foster organizations, visit the Arizona Department of Revenue.

Purchasing State Tax Credits
If you owe substantial New Mexico state taxes, consider purchasing tax credits from a tax credit broker. Tax credits are often for sale at a discount to their value, meaning you can pay $80-$90 for $100 worth of New Mexico credits. The credits are not valid forever, so you will want to be sure you can use the full credit before it expires. I recommend you work closely with your tax advisor and a qualified broker to be sure you purchase credits with terms appropriate for your situation.

Additional Credits
There are many more credits to consider. Federal credits are available for education, installing solar powerpurchasing an electric vehicle,  and adoption to name a few.

Together with a proactive financial advisor and a qualified tax professional, you can implement tax credits and deductions properly and with confidence. Contact John Moore Associates to learn more about how we help individuals and families understand and benefit from tax reduction strategies.


The information provided 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 Brian Cochran and not necessarily those of Raymond James. Please note, changes in tax laws or regulations may occur at any time and could substantially impact your situation. While we are familiar with the tax provisions of the issues presented herein, as Raymond James financial advisors, we are not qualified to render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional. Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection of or use of information regarding any website’s users and/or members.

Tax Incentives Are Not A Sin | Part Two

brian-13Published on Monday, June 26, 2017
Written By Brian Cochran, CFP
®, Certified Kingdom Advisor® Financial Planner

Part 2 in a 3 Part Series

Our reflection on tax season continues along our theme, Tax Incentives Are Not A Sin. In part one of our three-part series on tax reduction strategies, we explored ways you can save taxes by giving to others. Now, we turn our attention to strategies that help reduce taxes as you save for the future.

Throughout the second half the 20th century, lawmakers passed legislation to provide tax advantages for saving for retirement. In an attempt to incentivize saving for retirement, we now have many retirement savings tools to help meet the needs of our economically diverse country. Despite the numerous tax-incentivized solutions for saving, most Americans are generally uneducated and extremely unprepared when it comes to retirement.

Everyone should consider regularly saving for retirement using a plan with tax benefits. For many working Americans, the best place to start is with a company-sponsored plan such as a 401k, 403b or 457. In 2017, you can contribute $18,000 to such employer plans with an additional $6,000 allowed for employees over 50 years old. The typical retirement plan offers pre-tax savings for retirement, meaning that every dollar you save reduces your taxable income. Some employer plans offer a Roth IRA option, with which your investment grows tax-free, rather than reducing your taxable income.

If you don’t have access to an employer plan, look at self-employed plans such as SIMPLE or SEP IRAs. The John Moore Associates team is happy to explain the difference between these two plans, and evaluate which is best for you. The Traditional IRA or Roth IRA may also be options to consider. You can contribute $5,500 in 2017 plus an additional$1,000 for individuals over 50 years old. Your eligibility to contribute to an IRA or Roth IRA is determined by your income.

“How much should I be saving for retirement?” is an extremely common question. The amount you should save is based on your retirement timeline and income. Everyone has a different amount they should save based on their timelines, but I offer these general guidelines based on a percentage of your income:

  • In your 20’s, save up to your employer match or 5%
  • In your 30’s, save 10%
  • In your 40’s, save 15%
  • In your 50’s, maximize your employer plan

Retirement savings can seem complex and overwhelming. Contact John Moore Associates to learn more about how we help families prepare for retirement.


The information herein 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 Brian Cochran and not necessarily those of RJFS or Raymond James. Please note, changes in tax laws or regulations may occur at any time and could substantially impact your situation. While we are familiar with the tax provisions of the issues presented herein, as Raymond James financial advisors, we are not qualified to render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional. Opinions expressed in the attached article are those of the author and are not necessarily those of Raymond James. All opinions are as of this date and are subject to change without notice. Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection of or use of information regarding any website’s users and/or members.

Tax Incentives Are Not a Sin | Part One

brian-13Published on Tuesday, May 23, 2017
Written By Brian Cochran, CFP
®, CKA® Financial Planner

Part 1 in a 3 Part Series

The dust has settled after another tax season. This time every year, I hear from frustrated clients who, upon reviewing their tax returns, ask, “How can I pay less taxes next year?” In the weeks ahead, I will provide insight across three themes that could help you lower your taxes for 2017 and beyond.

  1. Charitable Giving
  2. Tax-advantaged Savings
  3. Special Deductions and Credits

Before we explore strategies to limit taxes, let’s put taxes in the appropriate spiritual context. At John Moore Associates we believe taxes are indicative of God’s provision. I understand why you may not feel like praising God after writing a big check to the US Treasury, however taxes come with prosperity. Almost half of US households have so little income that they pay no federal taxes.

With that context in mind, we have tax laws in place that incentivize certain behaviors through tax credits and deductions. Taking advantage of honest and legal strategies to mitigate taxes is not sinful. It’s smart.

taxplanning-imageThe charitable deduction is one of the most common methods for reducing taxes. In 2011, 75% of households with a household income of $100,000-$200,000 reported a charitable contribution on their tax returns, and 92% of households with a household income of $500,000-$1,000,000 made a tax-deductible gift or donation*. For many families, giving is sporadic at best. But at John Moore Associates, we encourage you to take full advantage of the tax benefits of charitable deduction by developing a more consistent and intentional giving strategy.

Giving Strategy

  1. Make A Plan. Develop a giving plan early in the year. Research shows that families give as much as 30% more if they have a giving plan in place. Start with the percentage of income you would like to give. If you are not sure how much to give, I recommend 10% of your gross income plus 1% of your assets. You can pre-determine the recipient of most of your gifts and set up automatic contributions from your bank account, but leave some flexibility so you can respond to God’s prompting throughout the year.

Once you have this year’s giving planned, consider a strategy for increasing your giving each year. You may not have the capacity to give 10% this year, but it may be possible to at 5% and increase your giving over time.

  1. Give Growing Assets. As you develop a giving plan, consider assets as a resource, not just income. Many families have never considered sharing from their net worth, but it is a powerful concept that opens a whole new capacity to give. Specifically, consider a gift of appreciated investments. By giving an investment that has appreciated, you receive a deduction for the full value of the gifted asset, without paying the capital gains taxes on the appreciated amount. A qualified financial advisor can look at your investments and help you determine which investments are the most compatible with your giving plan.
  1. Give In Retirement. If you are over the age of 70 ½, you may have an additional opportunity to give assets. You likely have a Required Minimum Distribution (RMD) that you must take from your retirement accounts. In 2015, Congress voted to allow a distribution of up to $100,000 directly from your retirement account to a qualified charity. The distribution to charity counts toward the annual RMD and could result in significant tax benefits. You do not have to itemize your deductions to receive financial benefit from giving your RMD to charity.

The John Moore Associates team has extensive experience in gifting assets. It would be our joy to assist you in planning and executing your own asset-based gift. And although it is ultimately our clients’ decision how much they give, our guidance in maximizing the benefits of their gifts has led to over $15 Million in charitable giving in the past five years.

Learn more about John Moore Associates Generosity Tracker.

 

*Source: Congressional Research Service analysis of the IRS’s Statistics of Income 2011 Data.


The information herein 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 Brian Cochran and not necessarily those of RJFS or Raymond James. Please note, changes in tax laws or regulations may occur at any time and could substantially impact your situation. While we are familiar with the tax provisions of the issues presented herein, as Raymond James financial advisors, we are not qualified to render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional.

 

Gallup poll election economy graph

Political Ideology and Investing

brian-13Published on Wednesday, March 15, 2017
Written by Brian Cochran, CFP®, CKA®, Financial Planner

It is hard to watch the news, scan social media or participate in casual conversation these days without engaging in political conversations or debate. Politics has certainly infiltrated every aspect of our lives and the results are not always positive.

I understand why politics is so important to people. The issues that currently dominate the news and social media—immigration, health care, abortion, education—are emotionally charged issues that no one should take lightly. As responsible citizens, we owe it to ourselves to be educated and involved in the issues of the day. We should also act on our beliefs in the way we live and vote.

That being said, I am concerned about the number of people who are allowing their political ideology to possibly impact their financial decision-making. Since the election I have witnessed both fear and euphoria among the clients we serve. My experience is not anecdotal based on the following poll from Gallup:

Gallup poll election economy graph

Within  one week of the election the public’s outlook for the economy changed drastically. Rational? I think not. If these were only feelings, I would not be as concerned; but such feelings tend to influence our financial decision-making.

One of the greatest challenges in investing is detaching ourselves from the many emotions and biases we may face. The allocation of your investments—or whether you are investing at all—should not be determined by an emotional response to who is occupying the White House.

To help avoid letting your feelings hurt your finances I recommend a simple—albeit steely—process for investing.

  1. Determine an investment allocation based on your goals and needs and personal tolerance for volatility and risk.
  2. Commit to a strict, evidence-based strategy for implementing and maintaining your personal investment allocation.
  3. Avoid the temptation to change your strategy by limiting your consumption of news, looking at your accounts no more than monthly and ignoring stock tips and investment advice from your neighbor, plumber and brother-in-law.

A knowledgeable and principle-driven financial advisor can bring value to each of these steps. As an objective and independent third party, an advisor can identify emotional errors that you cannot see in yourself. At John Moore Associates, our investment process focuses entirely on your financial goals, and our investment management is evidence-based rather than emotionally-charged.

Learn more about John Moore Associates’ Investing on Purpose approach.

 


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 Brian Cochran 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. Investing involves risk and you may incur a profit or loss regardless of strategy selected.