Planning a Stress-Free Legacy

Tatyana Bunich joins the “Legacy Therapy” podcast to explore the unintended consequences that can come when someone receives a large inheritance after a family member passes away. Many people choose to have as little withheld as possible when they receive the money… and then are in for a nasty surprise when tax season comes around and they owe hundreds of thousands of dollars. Listen below, just press play!

Launch Podcast on Legacy Therapy

Episode Summary

In this episode, Tatyana Bunich and Stacey Golden-Lisnock discuss:

• Essential pre-death tax tips.
• Large inheritances and the unfortunate circumstances that can sometimes follow.
• A look at the TAX part of an estate.

Key Takeaways:

1. The ins and outs of inheriting homes, money, etc.
2. If there’s no fighting or disagreements, you’re still looking at a minimum of 6 months before the beneficiary receives what was left to them.
3. Often times, due to poor planning, the beneficiary can be an ex-spouse if they never took the time to update it.
4. The importance of understanding what potential mistakes are in your estate because you don’t know any better and/or lack the proper guidance.

The post Listen: Essential Legacy Tax Tips (Podcast) appeared first on Financial 1 Tax.

This special report reviews some of the broader tax law changes along with a wide range of tax reduction strategies. As you read this report, please take note of each tax strategy that you think could be beneficial to you. Not all ideas are appropriate for all taxpayers. We always recommend that you address any tax strategy with your tax professional to consider how one tax strategy may affect another and calculate the income tax consequences (both state and federal). Remember, tax strategies and ideas that have worked in the recent past might not even be available under today’s new tax laws. Always attempt to understand all the details before making any decisions—it is always easier to avoid a problem than it is to solve one.

Please note—your state income tax laws could be different from the federal income tax laws. Visit FindLaw for a wide range of tax information and links to tax forms for all 50 states. All examples mentioned in this report are hypothetical and meant for illustrative purposes only.

Beginning of the 2019 Tax Season

The beginning of tax season 2019 was initially in question due to the government shutdown. On January 7, the Internal Revenue Service (IRS) assured taxpayers they would indeed begin processing tax returns on January 28, 2019. The deadline to file 2018 tax returns is Monday, April 15 for most taxpayers (those who live in Maine or Massachusetts have until April 17 to file due to Patriots’ Day holiday on April 15 and Emancipation Day on April 16 for the District of Columbia).

IRS Commissioner Chuck Rettig said that, despite the government shutdown, “IRS employees have been hard at work over the past year to implement the biggest tax law changes the nation has seen in more than 30 years.” The IRS recalled furloughed employees to assist in the work required to process returns. (Source: IRS.gov)

Even after the federal shutdown, one thing you can count on is tax season. This year’s tax season brings major adjustments for the IRS, taxpayers and tax preparers alike due to the tax law changes and new 2018 Form 1040 required to adhere to the rules created by the Tax Cut and Jobs Act (TCJA).

2018 Tax Law Updates

For 2018, the form 1040 has been completely redesigned. Form 1040, which many taxpayers can file by itself, is supplemented with new Schedules 1 through 6. These additional schedules will be used as needed to complete more complex tax returns. Forms 1040A and 1040EZ are no longer available. We have time to look into tax planning ideas for your 2019 taxes, but here are some things that 2018 tax filers should review. They include:

• Tax brackets have been adjusted.
• The standard deduction has increased.
• The Child Tax Credit has increased.
• Some deductions and exemptions are gone.
• There are changes to state and local tax (SALT) deductions.
• There are new deduction rates for medical expenses.
• Capital gains will still impact your income.
• There is still a 3.8% Medicare Investment Tax.
• Charitable donations are still deductible.
• You might still be able to contribute to retirement plans (or take an RMD) if appropriate.

2018 Tax Tables

Click the charts to enlarge.

2018 Tax Rates and Income Brackets

There are still seven federal income tax brackets for 2018. The lowest of the seven tax rates is 10%, while the top tax rate is now 37%. The income that falls into each is scheduled to be adjusted in 2019 for inflation. For 2018, use the chart in this report to see what bracket your final income falls into.

TAX TIP: If you are not sure how best to file, ask your tax preparer or review IRS Publication 17, Your Federal Income Tax, which is a complete tax resource. It contains helpful information such as whether you need to file a tax return and how to choose your filing status.

2018 Standard Deduction Amounts

Most taxpayers claim the standard deduction. For 2018, the standard deduction has increased for all filers and has almost doubled in size. Previously set at $6,350 for single tax filers and $12,700 for joint filers, the amounts are now $12,000 for single filers and $24,000 for those filing jointly ($18,000 for head of household filers). If you are filing as a married couple, an additional $1,300 is added to the standard deduction for each person age 65 and older. If you are single and age 65 or older, an additional deduction of $1,600 can be made.

Increased Child Tax Credit

For 2018, the maximum child tax credit has doubled to $2,000 per qualifying child, of which $1,400 (up from $1,100) can be claimed for the additional child tax credit. The bill also adds a new, non-refundable credit of $500 for dependents other than children. The modified adjusted gross income threshold at which the credit begins to phase out has increased to $200,000 (previously $110,000) and $400,000 if married filing jointly.

New Tax Law Deduction Changes

Some deductions and exemptions allowed in previous years are now eliminated. In the past, those who used a standard deduction could also include a personal exemption if they were not a dependent. That personal exemption is no longer an option. Also, deductions for interest on home mortgages have been reduced and interest from home equity loans eliminated.

There are also changes to state and local tax deductions. Under the new law, a taxpayer’s state and local tax (SALT) deduction is limited to $10,000. This includes both state income and property taxes. This might most affect taxpayers who live in states with high property taxes and those who pay larger State income tax bills. Several tax articles even suggest that some retirees might find it even more beneficial to move to a more tax-friendly state with lower property taxes in an effort to reduce their tax liabilities.

Medical Expense Deduction

The Tax Cuts and Jobs Act (TCJA) retroactively made the 7.5% threshold available to any individual taxpayer regardless of age for 2017 and it stays there for 2018. The 10% threshold amount returns in 2019. The TCJA tax bill also eliminates the tax penalty for not having health insurance after December 31, 2018.

TAX TIP: For 2018, taxpayers can deduct medical expenses that are over 7.5% of their adjusted gross income as opposed to the higher 10%.

Investment Income

People with enough income to pay taxes at the 37% rate will pay 20% in 2018 on their net long-term capital gains and qualified dividends.

Long-term capital gains are taxed at more favorable rates compared to ordinary income. One tax strategy is to review your investments that have unrealized long-term capital gains and sell enough of the appreciated investments in order to generate enough long-term capital gains to push you to the top of your federal income tax bracket. This strategy could be helpful if you are in the 0% capital gains bracket and do not have to pay any federal taxes on this gain. Then, if you want, you can buy back your investment the same day, increasing your cost basis in those investments. If you sell them in the future, the increased cost basis will help reduce longterm capital gains. You do not have to wait 30 days before you buy back this investment—the 30-day rule only applies to losses, not gains.

Note: This non-taxable capital gain for federal income taxes might not apply to your state.

TAX TIP: Remember that marginal tax rates on long-term capital gains and dividends can be higher than expected. The 3.8% surtax can raise the effective rate to 18.8% for single filers with income from $38,601 to $425,800 and 23.8% for single filers with income above $479,000. It can raise the effective rate to 18.8% for married taxpayers filing jointly with income from $77,201 to $479,000 and to 23.8% for married taxpayers filing jointly with income above $479,000.

Calculating Capital Gains and Losses

With all of these different tax rates for different types of gains and losses in your marketable securities portfolio, it’s probably a good idea to familiarize yourself with some of the rules:

• Short-term capital losses must first be used to offset short-term capital gains.
• If there are net short-term losses, they can be used to offset net long-term capital gains.
• Long-term capital losses are similarly first applied against long-term capital gains, with any excess applied against short-term capital gains.
• Net long-term capital losses in any rate category are first applied against the highest tax rate long-term capital gains.
• Capital losses in excess of capital gains can be used to offset up to $3,000 of ordinary income.
• Any remaining unused capital losses can be carried forward and used in the same manner as described above.

TAX TIP: Please remember to look at your 2017 income tax return Schedule D (page 2) to see if you have any capital loss carryover for 2018. This is often overlooked, especially if you are changing tax preparers.

Please double-check your capital gains or losses. If you sold an asset outside of a qualified account during 2018, you most likely incurred a capital gain or loss. Sales of securities showing the transaction date and sale price are listed on the 1099 generated by the financial institution. However, your 1099 might not show the correct cost basis or realized gain or loss for each sale. You will need to know the full cost basis for each investment sold outside of your qualified accounts, which is usually what you paid for it, but this is not always the case.

3.8% Medicare Investment Tax

The year 2018 is the sixth year of the net investment income tax of 3.8%. It is also known as the Medicare surtax. If you earn more than $200,000 as a single or head of household taxpayer, $125,000 as married taxpayers filing separately or $250,000 as married joint return filers, then this tax applies to either your modified adjusted gross income or net investment income (including interest, dividends, capital gains, rentals, and royalty income), whichever is lower. This 3.8% tax is in addition to capital gains or any other tax you already pay on investment income.

A helpful strategy has been to pay attention to timing, especially if your income fluctuates from year to year or is close to the $200,000 or $250,000 amount. Consider realizing capital gains in years when you are under these limits. The inclusion limits may penalize married couples, so realizing investment gains before you tie the knot may help in some circumstances. This tax makes the use of depreciation, installment sales, and other tax deferment strategies suddenly more attractive.

Medicare Health Insurance Tax on Wages

If you earn more than $200,000 in wages, compensation, and self-employment income ($250,000 if filing jointly, or $125,000 if married and filing separately), the Affordable Care Act levies a special 0.9% tax on your wages and other earned income. You’ll pay this all year as your employer withholds the additional Medicare Tax from your paycheck. If you’re self-employed, plan for this tax when you calculate your estimated taxes.

If you’re employed, there’s little you can do to reduce the bite of this tax. Requesting non-cash benefits in lieu of wages won’t help—they’re included in the taxable amount. If you’re self-employed, you may want to take special care in timing income and expenses (especially depreciation) to avoid the limit.

Charitable Gifts and Donations

When preparing your list of charitable gifts, remember to review your checkbook register so you don’t leave any out. Everyone remembers to count the monetary gifts they make to their favorite charities, but you should count non-cash donations as well. Make it a priority to always get a receipt for every gift. Keep your receipts. If your contribution totals more than $250, you’ll also need an acknowledgement from the charity documenting the support you provided. Remember that you’ll have to itemize to claim this deduction, but when filing, the expenses incurred while doing charitable work often is not included on tax returns.

You can’t deduct the value of your time spent volunteering, but if you buy supplies for a group, the cost of that material is deductible as an itemized charitable donation. You can also claim a charitable deduction for the use of your vehicle for charitable purposes, such as delivering meals to the homebound in your community or taking your child’s Scout troop on an outing. For 2018, the IRS will let you deduct that travel at .14 cents per mile.

Child and Dependent Care Credit

Millions of parents claim the child and dependent care credit each year to help cover the costs of after-school daycare while working. Some parents overlook claiming the tax credit for child care costs during the summer. This tax break can also apply to summer day camp costs. The key is that for deduction purposes, the camp can only be a day camp, not an overnight camp. So, If you paid a daycare center, babysitter, summer camp, or other care provider to care for a qualifying child under age 13 or a disabled dependent of any age, you may qualify for a tax credit of up to 35 percent of qualifying expenses of $3,000 for one child or dependent, or up to $6,000 for two or more children.

Contribute to Retirement Accounts

If you haven’t already funded your retirement account for 2018, consider doing so by April 15, 2019. That’s the deadline for contributions to a traditional IRA (deductible or not) and a Roth IRA. However, if you have a Keogh or SEP and you get a filing extension to October 15, 2019, you can wait until then to put 2018 contributions into those accounts. To start tax-free compounding as quickly as possible, however, try not to delay in making contributions. If eligible, a deductible contribution will help you lower your tax bill for 2018 and your contributions will compound tax-deferred.

To qualify for the full annual IRA deduction in 2018, you must either: 1) not be eligible to participate in a company retirement plan, or 2) if you are eligible, there is a phaseout from $63,000 to $73,000 for singles and from $101,000 to $121,000 for married taxpayers filing jointly. If you are not eligible for a company plan but your spouse is, your traditional IRA contribution is fully-deductible as long as your combined gross income does not exceed $186,000. For 2018, the maximum IRA contribution you can make is $5,500 ($6,500 if you are age 50 or older by the end of the calendar year). For self-employed persons, the maximum annual addition to SEPs and Keoghs for 2018 is $55,000.

Although contributing to a Roth IRA instead of a traditional IRA will not reduce your 2018 tax bill (Roth contributions are not deductible), it could be the better choice because all withdrawals from a Roth can be tax-free in retirement. Withdrawals from a traditional IRA are fully taxable in retirement. To contribute the full $5,500 ($6,500 if you are age 50 or older by the end of 2018) to a Roth IRA, you must earn $120,000 or less a year if you are single or $189,000 if you’re married and file a joint return.

The amount you save from making a contribution will vary. If you are in the 22% tax bracket and make a deductible IRA contribution of $5,500, you will save $1,210 in taxes the first year. Over time, future contributions could save you thousands, depending on your contribution, income tax bracket and the number of years you keep the money invested. If you have any questions on retirement contributions, please call us.

Roth IRA Conversions

A Roth IRA conversion is when you convert part or all of your traditional IRA into a Roth IRA. This is a taxable event. The amount you converted is subject to ordinary income tax. It might also cause your income to increase, thereby subjecting you to the Medicare surtax. Roth IRAs grow tax-free and withdrawals are tax-free in the future, a time when tax rates might be higher.

Whether to convert part or all of your traditional IRA to a Roth IRA depends on your particular situation. It is best to prepare a tax projection and calculate the appropriate amount to convert. Remember—you do not have to convert all of your IRA to a Roth. Roth IRA conversions
are not subject to the pre-age 59½ penalty of 10%.

Many 401(k) plan participants can convert the pre-tax money in their 401(k) plan to a Roth 401(k) plan without leaving the job or reaching age 59½. There are a number of pros and cons to making this change. Please call us to see if this makes sense for you.

Inherited IRAs

Be careful if you inherit a retirement account. In many cases, the decedent’s largest asset is a retirement account. If you inherit a retirement account, such as an IRA or other qualified plan, the money is usually taxable upon receipt. There is no step-up in basis on investments within retirement accounts and therefore most distributions are 100% taxable.

Non-spouse beneficiaries usually cannot roll over an inherited IRA to their own IRA, but the solution to this problem can be easy: establish an Inherited IRA, also known as a “stretch” IRA. Non-spouse beneficiaries of any age are allowed to start their required minimum distributions (RMDs) the year following the year the owner died and stretch them out over their own life expectancy. This will reduce your income taxes significantly compared to having all of the IRA taxed in one year. Please note that it is very important to take the RMD from an inherited IRA every year as penalties for not doing so are very severe – 50% of the amount you did not take.

These tax laws are very complicated and you must implement the requirements carefully to avoid any unnecessary income taxes and penalties. Please contact us before receiving any distributions from a retirement account you inherit. Remember—it is easier to avoid a problem than it is to solve one!

Required Minimum Distributions (RMD)

If you turned age 70½ during 2018, you still have until April 1, 2019, to take out your first RMD. This is a onetime opportunity in case you forgot the first time. The deadline for taking out your RMD in the future will be December 31 of each year. If you do not pay out your RMD by this deadline, you may be subject to a 50% penalty on the amount you were supposed to take out. If you have any questions on your Required Minimum Distributions please call us.

TAX TIP:  You usually do not have to take out an RMD from your current employer’s retirement account as long as you work there and don’t own over 5% of the company. See your plan administrator if you have any questions.

Other Overlooked Tax Items and Deductions

Reinvested Dividends – This isn’t a tax deduction, but it is an important calculation that can save investors a bundle. Former IRS commissioner Fred Goldberg told Kiplinger magazine for their annual overlooked deduction article that missing this break costs millions of taxpayers a lot in overpaid taxes.

Many investors have mutual fund dividends that are automatically used to buy extra shares. Remember that each reinvestment increases your tax basis in that fund. That will, in turn, reduce the taxable capital gain (or increases the tax-saving loss) when you redeem shares. Please keep good records. Forgetting to include reinvested dividends in your basis results in double taxation of the dividends—once in the year when they were paid out and immediately reinvested and later when they’re included in the proceeds of the sale.

Don’t make that costly mistake.

If you’re not sure what your basis is, ask the fund or us for help. Funds often report to investors the tax basis of shares redeemed during the year. Regulators currently require that for the sale of shares purchased, financial institutions must report the basis to investors and to the IRS.

Student-Loan Interest Paid by Parents – Generally, you can deduct interest only if you are legally required to repay the debt. But if parents pay back a child’s student loans, the IRS treats the transactions as if the money were given to the child, who then paid the debt. So as long as the child is no longer claimed as a dependent, the child can deduct up to $2,500 of student-loan interest paid by their parents each year. (The parents can’t claim the interest deduction even though they actually foot the bill because they are not liable for the debt).

Charitable Gift Directly made from IRA – Individuals at least 70½ years of age can still exclude from gross income qualified charitable distributions (QCD) from IRAs of up to $100,000 per year. Please remember to double check on what counts as a qualified charity and distribution before using this tax strategy.

Seven Helpful Tax Time Strategies

1.)  Although many deductions have been eliminated under the new laws, it might still be helpful to write down or keep all receipts you think are even possibly tax-deductible. Sometimes, taxpayers assume that various expenses are not deductible and do not even mention them to their tax preparer. Don’t assume anything—give your tax preparer the chance to tell you whether something is or is not deductible.

2.)  Be careful not to overpay Social Security taxes. If you received a paycheck from two or more employers, and earned more than $128,400 in 2018 (up from $127,200 in 2017) you may be able to file a claim on your return for the excess Social Security tax withholding.

3.)  Don’t forget items carried over from prior years because you exceeded annual limits, such as capital losses, passive losses, charitable contributions and alternative minimum tax credits.

4.)  Check your 2017 tax return to see if there was a refund from 2017 applied to 2018 estimated taxes.

5.)  Calculate your estimated tax payments for 2019 very carefully. Many computer tax programs will automatically assume that your income tax liability for the current year is the same as the prior year. This is done to avoid paying penalties for underpayment of estimated income taxes. However, in some cases this might not be a correct assumption, especially if 2018 was an unusual income tax year due to the sale of a business, unusual capital gains, the exercise of stock options, or even winning the lottery!

6.)  Remember that IRS.gov is a valuable online resource for tax information.

7.)  Always double check your math where possible and remember it is always wise to consult a tax preparer before filing.

Proactive Tax Planning for 2019

With the passage of the Tax Cuts and Jobs Act (TCJA), tax brackets, thresholds, and tax rates changed for many filers in 2018. We will try to keep our clients updated during the year on potential strategies that could possibly be helpful. For now, please review the 2019 tax brackets for single filers and married taxpayers filing jointly and the planning ideas listed in this report.

Some Things Taxpayers Should Consider to Proactively Tax Plan for 2019:

  Prepare a 2019 tax projection – Taxpayers already know the 2019 rates and by reviewing their 2018 situation and all 2019 expectations of income, a qualified tax preparer could be able to help you with a tax projection for 2019.

  New contribution limits for retirement savings – For 2019, the contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $18,500 to $19,000. The limit on annual contributions to an IRA, which last increased in 2013, is increased from $5,500 to $6,000. The catch-up contribution limits for those 50 and over remain unchanged.

  Explore if a potential Roth IRA conversion is helpful for your situation – A Roth IRA can be beneficial in your overall retirement planning. Investments in a Roth IRA have the potential to grow tax-free and they don’t have required minimum distributions during the lifetime of the original owner. Also, Roth IRA assets may pass to your heirs tax-free. Roth conversions include complex details and are not right for everyone, so please call us to see if this makes sense for you.

  Take advantage of annual exclusion gifts – For 2019, the maximum amount of gift tax exemption is $15,000. This means you can give up to that amount to a family member without having to pay a gift tax. Ideas for gifting can include, contributing to a working child (or grandchild’s) IRA, or gifting to a 529 plan, which is a tax-sheltered plan for college expenses.

  Consider bunching your charitable donations into a Donor Advised Fund (DAF) – Now is the time to explore if it is helpful for your tax situation to deposit cash, appreciated securities or other assets in a Donor Advised Fund, and then distributing the money to charities over time. Up to 50% of your adjusted gross income can be deductible if given as donations to typical charities.

  Look into Health Savings Accounts (HSAs) – In general, to qualify to contribute to a health savings account in 2019, you must have a health insurance policy with a deductible of at least $1,350 for single coverage or $2,700 for family coverage. You can contribute up to $3,500 to an HSA if you have single coverage or up to $7,000 for family coverage in 2019, which is slightly more than the 2018 limits. If you’re 55 or older anytime in 2019, you’ll continue to be able to contribute an extra $1,000. HSA’s include complex details and are not right for everyone, so please call us to see if this makes sense for you.

Conclusion

Filing your 2018 taxes will include many changes from previous years. The new tax rates and many of the changes that were approved are set to expire after 2025. An essential part of maintaining your overall financial health is attempting to keep your tax liability to a minimum. Managing wealth involves careful planning and keeping updated and informed of any changes that affect investors. When filing your 2019 taxes, the rules and laws currently in place do not vary too much from your 2018 taxes One of our primary goals is to keep you informed of the changes that will be affecting investors like you. We believe that taking a proactive approach is better than a reactive approach—especially regarding income tax strategies!

Remember—if you ever have any questions regarding your investments, please be sure to call us first before making any decisions. We pride ourselves in our ability to help clients make decisions! Often, there is a simple solution to your question or concern. Don’t worry about things that you need not worry about.

How long should I keep my records?

According to IRS Publication 17, you must keep your records as long as they may be needed for the administration of any provision of the Internal Revenue Code. Generally, this means you must keep records that support items shown on your return until the period of limitations for that return runs out. The period of limitations is the period of time in which you can amend your return to claim a credit or refund or the IRS can assess additional tax.

This table is modeled after one from IRS Publication 17 and contains the periods of limitations that apply to income tax returns. Unless otherwise stated, the years refer to the period beginning after the return was filed. Returns filed before the due date are treated as being filed on the due date.

Period of Limitations

Questions to Consider!

1. Has your current financial advisor reviewed the tax consequences of your investments?
2. Has your current financial advisor discussed tax planning and your investments?
3. Would you like a COMPLIMENTARY opinion of your situation?

If you answered NO to questions 1 or 2 and/or YES to question 3, call us at 410-908-9293 to we would like to offer you a complimentary, one-hour, Wealth Preservation Strategy Session with one of our professionals at absolutely no cost or obligation to you.

To schedule your financial check-up, please call us at 410.908.9293 and we’d be happy to assist you!

This information is not intended to be a substitute for specific individualized tax, legal or investment planning advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

Registered Representative offering securities and advisory services through Independent Financial Group, LLC (IFG), a registered broker-dealer and investment advisor.  Member FINRA/SIPC.  Financial 1 Wealth Management Group and IFG are unaffiliated entities. Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful. This information is not intended to be a substitute for specific individualized tax, legal or investment planning advice as individual situations will vary. For specific advice about your situation, please consult with a lawyer or financial professional. Past performance is no guarantee of future results. Sources: Forbes, Fortune, MarketWatch, Wall Street Journal, Oppenheimer Funds, Investopedia, Barron’s.

The post Filing 2018 Income Taxes and Proactive Tax Planning for 2019 appeared first on Financial 1 Tax.

One of our main goals as holistic financial advisors is to help our clients recognize tax reduction opportunities within their investment portfolios and overall financial planning strategies. Staying current on the ever-changing tax environment is a key component necessary to help our clients benefit from potential tax reduction strategies.

On December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act (TCJA). The act is complex and impacts numerous tax specializations, including individual, corporate, and international planning. This report focuses on what individual taxpayers can do to save money in 2018. Unless indicated otherwise, the act provisions discussed here take effect in 2018 and expire after 2025.

The objective of this report is to share strategies that could be effective if considered and implemented before year-end.  Please note that this report is not a substitute for using a tax professional. In addition, many states do not follow the same rules and computations as the federal income tax rules. Make sure you check with your tax preparer to see what tax rates and rules apply for your particular state.

New Income Tax Rates for 2018

The seven new tax rates for 2018 are 10%, 12%, 22%, 24%, 32%, 35%, and 37%. They will phase out in eight years.

Tax Reform Update

As we enter into year-end tax planning, our main goal shifts to helping clients understand the impact of the Tax Cuts and Jobs Act and optimizing their tax positions. That is no small task given that there are over 130 new tax provisions. This report offers many suggestions and reviews strategies like loss and gain harvesting that have been useful even before the current round of tax law changes.

The Tax Cuts and Jobs Act created some changes with regards to tax planning opportunities for individuals in 2018.

Some things to consider include:

 — Evaluating the use of itemized deductions versus the standard deduction

The Tax Cuts and Jobs Act roughly doubles the standard deduction. For single and married filing separately filers the standard deduction is increase from $6,350 to $12,000, while married filing jointly has gone from $12,700 to $24,000. The new laws also eliminate or limit many of the previous laws concerning itemized deductions. An example is the state and local tax deduction (SALT), which is now capped at $10,000 per year, or $5,000 for a married taxpayer filing separately. Additionally, the Tax Cuts and Jobs Act temporarily eliminates miscellaneous itemized deductions subject to the 2% floor (like tax preparation fees and employee business expenses) and limits the home mortgage interest deduction to home acquisition debt of up to $750,000, or $375,000 for a married taxpayer filing separately.

So, what should a taxpayer consider?

For those who typically claim the standard deduction, it is more than likely that their tax bill will decrease for 2018. Although personal exemption deductions are no longer available, a larger standard deduction, combined with lower tax rates and an increased child tax credit, could now result in less tax. According to Accounting Today, some taxpayers who itemized last year won’t itemize this year, or they may be able to itemize for state income tax purposes but not for federal. You should consider running the numbers to assess the impact on your situation before deciding. Depending on the results, you may even need to adjust your estimated quarterly tax payments or think about turning in a new Form W-4 to your employer.

— Considering bunching charitable contributions or using a donor-advised fund

The Tax Cuts and Jobs Act temporarily increases the limit on cash contributions to public charities and certain private foundations from 50 to 60 percent of adjusted gross income. For many taxpayers, the doubling of the standard deduction and changes to key itemized deductions will result in them not itemizing in 2018, therefore benefiting from this increased limit. One way to combat this is to bunch or increase your charitable contributions in alternating years. Another strategy is to consider using a donor-advised fund. A donor-advised fund, or DAF, is a philanthropic vehicle established at a public charity. It allows donors to make a charitable contribution, receive an immediate tax benefit and then recommend grants from the fund over time. Taxpayers can take advantage of the charitable deduction when they’re at a higher marginal tax rate while actual payouts from the fund can be deferred until later. It’s a win-win situation.

— Reviewing your home equity debt interest

Under the Tax Cuts and Jobs Act, home equity debt interest is no longer deductible. Or so it was originally proposed.  According to the IRS, interest paid on home equity loans and lines of credit is deductible if the funds were used to buy or substantially improve the home that secures the loan. In other words, it can be treated as home acquisition debt subject to the new $750,000/$375,000 limit. This is good news for homeowners, if they used the funds for the home.  Please share with your tax preparer how the proceeds of your home equity loan were used. If you used the cash to pay off credit card or other personal debts, then the interest isn’t deductible, even if the payoff occurred prior to 2018.

— Revisiting the use of qualified tuition plans

Qualified tuition plans, also named 529 plans, are a great way to tax efficiently plan the financial burden of paying for college. Earnings in a 529 plan could be withdrawn tax-free only when used for qualified higher education at colleges, universities, vocational schools or other post-secondary schools. However, they changed that so 529 plans can now be used to pay for tuition at an elementary or secondary public, private or religious school, up to $10,000 per year.  Unlike IRAs, there are no annual contribution limits for 529 plans. However, there are maximum aggregate limits, which vary by plan. Under federal law, 529 plan balances cannot exceed the expected cost of the beneficiary’s qualified higher education expenses. Limits vary by state, ranging from $235,000 to $520,000. Some states even offer a state tax credit or deduction up to a certain amount.  If you are paying tuition for children or grandchildren to attend elementary or secondary schools, it might be advantageous to set up or revisit a 529 plan. This is also a strategy that can reduce your estate. If you want to explore setting up a 529 plan, call us.

— Maximizing your qualified business income deduction (if applicable)

One of the most talked about changes from the Tax Cuts and Jobs Act is the new qualified business income deduction under Section 199A. Taxpayers who own interests in a sole proprietorship, partnership, LLC, or S corporation may be able to deduct up to 20 percent of their qualified business income. Please be careful, because this deduction is subject to various rules and limitations.

There are some planning strategies that should be considered for business owners. For example, business owners can adjust their business’s W-2 wages to maximize the deduction. Also, it may be beneficial for business owners to convert their independent contractors to employees where possible, but before doing so, please make sure the benefit of the deduction outweighs the increased payroll tax burden and cost of providing employee benefits. Other planning strategies can include investing in short-lived depreciable assets, restructuring the business, and leasing or selling property between businesses.  This new piece of tax legislation would take an entire report to discuss, so we recommend that if you are a business owner, you should talk with a qualified tax professional about how this new Section 199A could potentially work for you.

Consider All of Your Retirement Savings Options for 2018

If you have earned income or are working, you should consider contributing to retirement plans.

This is an ideal time to make sure you maximize your intended use of retirement plans for 2018 and start thinking about your strategy for 2019.  For many investors, retirement contributions represent one of the smarter tax moves that they can make.

Here are some retirement plan strategies we’d like to highlight:

401(k) contribution limits increased.  The elective deferral (contribution) limit for employees under the age of 50 who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is $18,500, up from $18,000. (On November 1, 2018, the IRS announced an increase to $19,000 for 2019.)  The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan remains at an additional $6,000 ($24,500 total).  As a reminder, these contributions must be made in 2018.

IRA contribution limits unchanged. The limit on annual contributions to an Individual Retirement Account (IRA) remains unchanged at $5,500. (On November 1, 2018, the IRS announced an increase to $6,000, the first adjustment since 2013). The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000 (for a total of $6,500). IRA contributions for 2018 can be made all the way up to the April 15, 2019 filing deadline.

Higher IRA income limits. The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (MAGI) of $63,000 and $73,000 for 2018.  For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is $101,000 to $121,000 for 2018.  For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out in 2018 as the couple’s income reaches $189,000 and completely at $199,000 for 2018. For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is $0 to $10,000 for 2018. Please keep in mind, if your earned income is less than your eligible contribution amount, your maximum contribution amount equals your earned income.

Increased Roth IRA income cutoffs. The MAGI phase-out range for taxpayers making contributions to a Roth IRA is $189,000 to $199,000 for married couples filing jointly in 2018. For singles and heads of household, the income phase-out range is $120,000 to $135,000 in 2018.  For a married individual filing a separate return, the phase-out range is $0 to $10,000 for 2018. Please keep in mind, if your earned income is less than your eligible contribution amount, your maximum contribution amount equals your earned income.

Larger saver’s credit threshold. The MAGI limit for the saver’s credit (also known as the Retirement Savings Contribution Credit) for low- and moderate-income workers is $63,000 for married couples filing jointly in 2018, $47,250 for heads of household and $31,500 for all other filers.

Be careful of the IRA one rollover rule. IRA investors were always limited to one rollover per year, per IRA. Investors are still limited to make only one rollover from all of their IRAs to another in any 12-month period. A second IRA-to-IRA rollover in a single year could result in income tax becoming due on the rollover, a 10% early withdrawal penalty, and a 6% per year excess contributions tax as long as that rollover remains in the IRA. Individuals can only make one IRA rollover during any one-year period, but there is no limit on trustee-to-trustee transfers. Multiple trustee-to-trustee transfers between IRAs and conversions from traditional IRAs to Roth IRAs are allowed in the same year. If you are rolling over an IRA or have any questions on this, please call us.

Roth IRA Conversions

Some IRA owners may want to consider converting part or all of their traditional IRAs to a Roth IRA. This is never a simple or easy decision. Roth IRA conversions can be helpful, but they can also create immediate tax consequences and can bring additional rules and potential penalties. Under the new laws, you can no longer unwind a Roth conversion by re-characterizing it. It is best to run the numbers with a qualified professional and calculate the most appropriate strategy for your situation. Call us if you would like to review your Roth IRA conversion options.

Capital Gains and Losses

Looking at your investment portfolio can reveal a number of different tax saving opportunities. Start by reviewing the various sales you have realized so far this year on stocks, bonds and other investments. Then review what’s left and determine whether these investments have an unrealized gain or loss. (Unrealized means you still own the investment, versus realized, which means you’ve actually sold the investment.)

Know your basis. In order to determine if you have unrealized gains or losses, you must know the tax basis of your investments, which is usually the cost of the investment when you bought it. However, it gets trickier with investments that allow you to reinvest your dividends and/or capital gain distributions. We will be glad to help you calculate your cost basis.

Consider loss harvesting. If your capital gains are larger than your losses, you might want to do some “loss harvesting.” This means selling certain investments that will generate a loss. You can use an unlimited amount of capital losses to offset capital gains. However, you are limited to only $3,000 if married filing jointly ($1,500 if married filing separately) of net capital losses that can offset other income, such as wages, interest and dividends. Any remaining unused capital losses can be carried forward into future years indefinitely.

Be aware of the “wash sale” rule. If you sell an investment at a loss and then buy it right back, the IRS disallows the deduction. The “wash sale” rule says you must wait at least 30 days before buying back the same security in order to be able to claim the original loss as a deduction. The deduction is also disallowed if you bought the same security within 30 days before the sale.  However, while you cannot immediately buy a substantially identical security to replace the one you sold, you can buy a similar security, perhaps a different stock, in the same sector. This strategy allows you to maintain your general market position while utilizing a tax break.

Sell worthless investments. If you own an investment that you believe is worthless, ask your tax preparer if you can sell it to someone other than a related party for a minimal amount, say $1, to show that it is, in fact, worthless. The IRS often disallows a loss of 100% because they will usually argue that the investment has to have at least some value.

Always double-check brokerage firm reports. If you sold a security in 2018, the brokerage firm reports the basis on an IRS Form 1099-B in early 2019. Unfortunately, sometimes there could be problems when reporting your information, so we suggest you double-check these numbers to make sure that the basis is calculated correctly and does not result in a higher amount of tax than you need to pay.

Zero Percent Tax on Long-term Capital Gains

You may qualify for a 0% capital gains tax rate for some or all of your long-term capital gains realized in 2018.  If this is the case, then the strategy is to figure out how much long-term capital gains you might be able to recognize to take advantage of this tax break.

NOTE:  The 0%, 15% and 20% long-term capital gains tax rates only apply to “capital assets” (such as marketable securities) held longer than one year. Anything held one year or less is considered a “short-term capital gain” and is taxed at ordinary income tax rates.

This strategy might be helpful if in 2018 if you were temporarily unemployed, are someone whose income varies from year to year, or are under the age of 70 and may soon be transitioning into retirement or already retired.

If you’re ineligible for the 0% capital gains tax rate but you have adult children in the 0% bracket, consider gifting appreciated securities to them. Your adult children who file their own tax returns might pay less in capital gains tax than if you sold the stock yourself and gifted the cash to them.

Some Notable Tax Changes for 2018

Several itemized deductions are significantly different under the new tax laws. They include:

The floor for deductible medical expenses is reduced to 7.5 percent (from 10 percent) for 2018, and 2019. It makes sense to schedule discretionary medical procedures in 2018 and 2019 if doing so will lead to a medical expense deduction.

State and local income, sales, and real and personal property taxes (SALT) are limited to $10,000.

Although existing mortgages are grandfathered in subject to the prior $1 million cap, interest expense on acquisition indebtedness for up to two homes is capped at $750,000 total for loans incurred after December 15, 2017 through 2025. Interest on home equity loans is not deductible after 2017 through 2025.

The deduction for casualty and theft losses is allowed only for presidentially declared disaster areas.

Miscellaneous itemized deductions disallowed after 2017 include:  tax preparation fees, investment expenses, and unreimbursed employee expenses. Individuals with significant unreimbursed employee expenses, including mileage, internet/phone charges, and education costs should consider setting up an excludable working condition fringe benefit arrangement or accountable plan from their employers.

Alimony deduction changes. Under prior law, alimony and separate maintenance payments were deductible by the payor and includible in income by the payee. For divorce and separation instruments executed or modified after December 31, 2018, alimony and separate maintenance payments are not deductible by the payor-spouse, nor includible in the income of the payee-spouse. These changes will profoundly affect the structure of divorce settlements.

The moving expense deduction is suspended, except for the in-kind moving and storage expenses for members of the Armed Forces (or their spouse or dependents) on active duty who move pursuant to a military order and incident to a permanent change of station.

Alternative Minimum Tax (AMT) Changes

When Tax Law changes were initially discussed, there were high hopes that the dreaded individual alternative minimum tax (AMT) would be repealed. Unfortunately, it still exists under the new Tax Cuts and Jobs Act. However, the AMT rules are now more taxpayer-friendly.

The AMT calculation can be complicated and you should discuss your situation with your tax professional, but here are some basic facts. In 2017, the AMT exemption amount was $54,300 for unmarried individuals ($84,500 for married individuals filing a joint return). This exemption is phased out at a 25 percent rate when alternative minimum taxable income (AMTI) exceeds $120,700 ($160,900 for married individuals filing a joint return). In 2018, the exemptions significantly increase to $70,300 for unmarried individuals ($109,400 for married individuals filing a joint return). More importantly, the phaseout thresholds are increased to $1 million for married individuals filing a joint return and $500,000 for other individual taxpayers. High-income taxpayers, particularly those in high-tax states like California, New York, and New Jersey, are going to lose significant amounts of deductions because of the $10,000 cap on state and local taxes, but they could have some relief because of the lower tax rates and changes made to the alternative minimum tax.

Although the new tax laws reduce the odds that you will owe the AMT for 2018-2025, if your AMT bill exceeds your regular tax bill, you owe the higher AMT amount. The good news could be that if you owe the AMT under the new rules for 2018-2025, you probably owe less (maybe a lot less) than under the old rules.

Other Family and Education Planning Changes

Child and family credit. The act increases the child tax credit to $2,000 per qualifying child, with $1,400 of this amount being refundable. The act also adds a $500 nonrefundable credit for qualifying dependents other than children. More importantly, the act increases the phaseout for the child tax credit to $400,000 from $110,000 for married taxpayers filing a joint return and to $200,000 from $75,000 for other taxpayers.

The “kiddie tax.” The tax on unearned income of children is completely overhauled by the act. Parents’ income and the unearned income of siblings no longer factor into the equation. Instead, earned income of a child is taxed according to an unmarried taxpayer’s rates. Taxable income attributable to net unearned income is taxed according to the unfavorable tax rates applicable to trusts and estates.

Education benefits. Although they were in jeopardy, education benefits – the student loan interest deduction, education credits, exclusion for savings bond interest, tuition waivers for graduate students, and the educational assistance fringe benefit – remain intact.

ABLE accounts. Contributions to ABLE accounts are now eligible for the retirement saver’s credit and a child’s 529 account can be rolled over to an ABLE account for the child.

Qualified Charitable Distribution

The law allowing taxpayers age 70½ and older to make a qualified charitable distribution (QCD) in the form of a direct transfer of up to $100,000 directly from their IRA over to a charity, satisfying all or part of the required minimum distribution (RMD) was made permanent in 2015.  If you meet the qualifications to utilize this strategy, the funds must come out of your IRA by your RMD deadline (i.e. December 31, 2018).

Additional Year-end Tax Strategies and Ideas

Make use of the annual gift tax exclusion. You may gift up to $15,000 tax-free to each donee in 2018. These “annual exclusion gifts” do not reduce your $11,180,000 lifetime gift tax exemption. This annual exclusion gift is doubled to $30,000 per donee for gifts made by married couples of jointly-held property or when one spouse consents to “gift-splitting” for gifts made by the other spouse.

Help someone with medical or education expenses. There are opportunities to give unlimited tax-free gifts when you pay the provider of the services directly. The medical expenses must meet the definition of deductible medical expenses. Qualified education expenses are tuition, books, fees, and related expenses, but not room and board. You can find the detailed qualifications in IRS Publications 950 and the instructions for IRS Form 709 at www.irs.gov.

Contribute to a Qualified Tuition Plan (529 Plan) on behalf of a beneficiary. The effective annual contribution limit to 529 Plans for 2018 is $15,000.  Transfers to 529 Plans count as annual exclusion gifts. Withdrawals (including earnings) used for qualified education expenses (tuition, fees, books and other related expenses) are income tax free. The tax law even allows you to give the equivalent of five years’ worth of contributions up front ($15,000 x 5 = $75,000) with no gift tax consequences. Earnings on non-qualifying distributions are subject to income tax and a 10% penalty. Overall contribution limits vary by state. Many states also provide contribution incentives such as tax deductions, tax credits or matching grants. If you’d like to learn more about what your state’s parameters are for 529 plans, please call us and we can assist you.

Estate, Gift, and Generation-Skipping Tax Changes

Exemption amounts for gift, estate, and generation-skipping taxes have almost doubled from $5.6 million to $11.18 million ($22.36 million for couples), and the income tax basis step up/down to fair market value at death continues under the act. These changes provide high net worth individuals a significant planning window to make gifts and set up irrevocable trusts.

Remember, as of now, the exemption amounts will revert in 2026 to 2017 levels (although the exemption amount has never decreased before), claiming the portable exemption will remain an important discussion topic for decedents with more than $3 million in assets.

Conclusion

One of our primary goals is to keep clients aware of tax law changes and updates. This report is not a substitute for using a tax professional. Please note that many states do not follow the same rules and computations as the federal income tax rules. Make sure you check with your tax preparer to see what tax rates and rules apply for your particular state.

There are many other additional tax reduction strategies that will vary depending on your financial picture. We encourage you to come in so that we can review your particular situation and hopefully take advantage of those tax rules that apply to you.  As always, we appreciate the opportunity to assist you in addressing your financial matters and look forward to seeing you soon!

Questions to Consider!

1. Has your current financial advisor reviewed the tax consequences of your investments?
2. Has your current financial advisor discussed tax planning and your investments?
3. Would you like a COMPLIMENTARY opinion of your situation?

If you answered NO to questions 1 or 2 and/or YES to question 3, call us at 410.908.9293 to we would like to offer you a complimentary, one-hour, Wealth Preservation Strategy Session with one of our professionals at absolutely no cost or obligation to you.

To schedule your financial check-up, please call us at 410.908.9293 and we’d be happy to assist you!

Registered Representative offering securities and advisory services through Independent Financial Group, LLC (IFG), a registered broker-dealer and investment advisor.  Member FINRA/SIPC.  Financial 1 Wealth Management Group and IFG are unaffiliated entities. Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful. This information is not intended to be a substitute for specific individualized tax, legal or investment planning advice as individual situations will vary. For specific advice about your situation, please consult with a lawyer or financial professional. Past performance is no guarantee of future results. Sources: Forbes, Fortune, MarketWatch, Wall Street Journal, Oppenheimer Funds, Investopedia, Barron’s.

Before investing in a 529 plan, you should consider whether the state you or your designated beneficiary reside in or have taxable income in has a 529 plan that offers favorable state income tax or other benefits such as financial aid, scholarship funds or protection from creditors that are only available if you invest in that state’s 529 plan.

The post Year-End Tax Moves for 2018 appeared first on Financial 1 Tax.

Tatyana Bunich CEP.RFC — 410-908-9293

Welcome to 2018! We hope that you and your family had an enjoyable holiday season. Each New Year symbolically offers the opportunity to make a fresh start for everyone.

As always, our primary goal this year is to continue our tradition of helping clients achieve their personal financial goals. To make that process more efficient, please review the 2018 CHECKLIST in this letter and identify any of the items you anticipate you’ll need addressed this year. Then bring it to your next review or call us and we can help you plan accordingly.

As we enter into 2018, we cannot predict what exactly may occur, but we do know one thing – there will be new changes and challenges in tax laws. 2018 is being ushered in by the momentous Tax Cuts and Jobs Act which will affect the overall financial landscape. On December 20, the House approved the Tax Cuts and Jobs Act and President Trump signed it into law on December 22nd. We will be monitoring the new tax laws and how they will affect you and your individual situation.

We take pride in our ability to understand and effectively respond to our clients’ needs and concerns and enjoy providing timely information and holistic service to our clients. One of our company’s main objectives is to always offer our clients a first-class experience. For 2018, we will continue to offer the following services in addition to your personal meetings with our office:

• Quarterly economic updates;
• Tax reports to keep you updated on opportunities and changes;
• Regularly scheduled educational workshops on timely topics;
• A continuous flow of meaningful articles on financial, tax, and estate planning topics;
• Client Appreciation events; and,
• A Client Introduction Program that thanks clients who support our “Growth Initiative.”

  View 2018 Tax Rates in our Guide | View PDF

A theme you will hear from our office in 2018 is that we are having a “Growth Initiative.” We would like to offer our services to several other clients like you. When we reviewed the growth of our company, we found that many of our new relationships have often started with introductions from our best clients. Through these introductions we have been able to meet high quality people who may benefit from our services. Recognizing that, we are asking for your support. Throughout the year, we will be asking you to either add someone’s name to our mailing list or bring them to one of our educational workshops so we can share the information we provide about the current economic, estate planning, and tax environment.

Not only do we look to grow, but most importantly, we strive to maintain strong, long-term relationships with our clients. We appreciate the confidence that you have shown in our practice. We are always available to provide the proper attention that you and your finances deserve by offering a strong and frequent line of service, commitment and communication.

As a valuable client, we thank you for giving us the opportunity to help you work towards your financial goals. We look forward to a great year!

Looking Ahead to 2018

2017 was a good year for equity investors. With new records continually being set in the stock market, bond yields remained low and volatility was kept at a minimum. 2017 also had its share of excitement including: tax reform, natural disasters, geopolitical unrest and U.S political division. Although these events kept investors wondering how each would affect equity markets, for an entire year the economy continued on a strong upward trend and ended the year on a high note.

2017 was the eighth straight year of positive returns with the stock market piling up milestones right through the last trading day of the year. While 2017 was a strong year for investors, it is still important to remain cautious and not become complacent. For 2018, the mantra of “proceed with caution” is still a central theme among many experts. The Tax Cuts and Jobs Act has created tax changes and one of our challenges is to stay updated on how it may affect your personal situation.

While equity markets are described as “a little expensive” by some analysts, most feel that 2018 should bring in positive returns. Bank of America/Merrill Lynch calls for modest returns in their 2018 Outlook and so does Morgan Stanley Research. In addition to the new tax laws, rising short-term interest rates, inflation and stock market volatility are also potential catalysts at the forefront of a changing economic environment.

Reviewing your situation is always wise and will be especially integral for 2018. As always, our primary mission is to provide our clients with guidance and support on the road to their financial goals. This is a good time to review and discuss your plans with us. We can help you determine if you’re still on track to meet your long-term objectives, confirm your time horizons and your risk tolerance. If you have any questions or concerns, please call our offices and we’d be happy to assist you.

Things to watch for in 2018

Potential interest rate changes

On December 13, the Fed raised interest rates for the third time in 2017, increasing it to a range of 1.25-1.5%. The Fed is scheduled to raise rates again in 2018 and many economists are expecting to see two or three more interest rate increases throughout the year. Numerous factors go into the Fed officials decision to increase rates and 2018 should bring its share of challenges. We will continue to keep a close eye on interest rate changes this year.

Tax Reform

Congress approved the Tax Cuts and Jobs Act and on December 22nd President Donald J. Trump signed into law the most sweeping overhaul of the U.S. tax code in 31 years.

Please keep in mind that each individual or household situation is different and in our upcoming first quarter Tax Report, we will discuss how the Tax Cuts and Jobs Act will affect tax payers and investors. Many variables could potentially affect each person’s tax scenario and tax planning strategies differently so we suggest you consult a qualified tax professional each time you implement a tax strategy.

Stock market volatility

Goldman Sachs Research Economists predict a generous 4% GDP growth in 2018. With what some call the Goldilocks Economy in effect (moderate economic growth, low inflation and market-friendly monetary policy) and decreasing unemployment rates, economic prognosticators forecasts are bullish for 2018 and are looking for economic growth.

While 2017 was a non-volatile year for equity investors, market volatility is a part of investing and could return in 2018. As advisors, we will attempt to carefully monitor market conditions and our client’s timeframes. For now, investors need to prepare for what could be an interesting year in both equity and debt markets.

Your personal situation

Your personal situation is our highest concern. We make it a priority to keep our clients informed throughout the year. If you find you need to meet with us before your next scheduled review, please call our office and we will be glad to schedule time with you. Once again, we thank you for the opportunity to help you with your financial goals.

Here is a checklist of events and information that can help us advise you in 2018.

Please help us identify which items you would like us to address with you this year.

Do you anticipate changes to your investment goals?
Has your risk tolerance changed?
Have your 2018 income or savings needs changed?
Do you plan on retiring or changing jobs?
Will there be a change in your marital status?
Do you plan on moving, refinancing or selling/transferring a major asset such as a home or business?
Did you recently receive or anticipate receiving a gift or inheritance?
Will you have any changes in your income needs +/- (i.e. vacation, assisted living needs, selling home, child/grandchild assistance)
Do you expect any additional family members or dependents?
Do you anticipate any additional dependents such as an elderly parent or other family member? Will they require assisted living?
Do you have a child/grandchild you will be assisting with their educational cost needs through a 529 plan?
Do you anticipate any major transfer of wealth?
Do you plan on gifting to heirs or donating money to charity?
Do you need to adjust your estate plan?
Do you maximize your ability to use retirement plans?
Do you want to explore converting a traditional IRA to a Roth IRA?
Do you or a dependent family member have a severe illness?
Do you anticipate any life, financial, or employment (retiring) changes that may require you to make adjustments to your life and health insurance policies?
Did you contribute to an IRA? If not, would you like to discuss contributing to an IRA before April’s tax deadline.
Is there anything else we should know to help you plan for 2018?

Important Birthdays

50 — Allows for catch-up contributions to IRAs and qualified retirements plans.

55 — If you are retired, allows you to take distributions from your 401(k) without the 10% penalty

59½ — Allows you to take distributions from an IRA, annuity, or other retirement plan without penalty

60 — Allows for start of widow/ widower benefits from Social Security

62 — Allows for starting early Social Security benefits

65 — Allows for enrollment in Medicare and the government drug plan

65-67 — Allows for full retirement benefits from Social Security

70 — Start date for enhanced Social Security benefits if you deferred claiming benefits previously.

70½ — Mandatory required minimum distribution from retirement accounts must be taken no later than April 1st of the year after the year you turn 70½

If you have an important birthday in 2018, please let us know!

Please share this report with others!

This year, our goal is to offer services to several other clients just like you! If you would like to share this report with a friend or colleague, or if you are currently not a client of Financial 1, please call 410-908-9293 and we would be happy to assist you!

Sources: Goldmansachs.com; Bank of America Global Outlook; Morgan Stanley “On the Markets”. Registered Representative offering securities and advisory services through Independent Financial Group, LLC (IFG), a registered broker-dealer and investment advisor. Member FINRA/SIPC. Financial 1 Wealth Management Group and IFG are unaffiliated entities. This article is for informational purposes only. Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful. This information is not intended to be a substitute for specific individualized tax, legal or investment planning advice as individual situations will vary. For specific advice about your situation, please consult with a lawyer or financial professional. Past performance is no guarantee of future results. Sources: Forbes, Fortune, MarketWatch, Wall Street Journal, Oppenheimer Funds, Investopedia, Barron’s. Contents Provided by The Academy of Preferred Financial Advisors, Inc 2017

The post Things to Watch for in 2018 appeared first on Financial 1 Tax.

One of our major goals is to help our clients identify opportunities that coordinate tax reduction with their investment portfolios. In order to achieve this goal, we stay current on ever-changing tax reduction strategies. On November 8, voters elected Donald Trump to serve as the 45th President of the United States. Comprehensive tax reform was one of his priorities, however, his ideas and proposal will not affect 2016 tax returns. This special report covers the details of numerous year-end tax strategies for 2016.

Remember— every situation is different and not all strategies will be appropriate for you. Please discuss all tax strategies with your tax preparer prior to making any final decisions.

Income Tax Rates for 2016

Tax brackets changed slightly for 2016. For example, for the 2015 tax year, the top of the 15% federal income tax bracket for married couples filing jointly was $74,900. In 2016, that figure increased to $75,300. Below is a table of federal income tax rates for 2016.

Click table to enlarge.

Year End Tax Planning For 2016

As you read through this report you will find some key aspects of the current 2016 tax laws and how they may apply to your situation. The current Presidential election of Donald Trump brings forward some proposals that were announced on the campaign trail, but these are far from being law and will not affect 2016 tax returns. Late-breaking rules and decisions in Washington, D.C. always make it difficult to plan ahead and this year investors must still wait to see if there are any final opportunities or challenges.

The Protecting Americans from Tax Hikes Act (PATH Act) passed in late 2015 changed, revised and also made permanent some tax breaks that were previously in need of extension. Despite all the uncertainty surrounding future tax rules, there are many year-end tax moves that focus on income and expenses you can make to lessen your tax liability. To the extent that income or expenses can be moved or recognized in either 2016 or 2017 can make a difference for many investors. Year-end tax planning is often about determining the best year to earn additional income or to incur more tax deductions. Now is the time to focus on how to optimize your situation between these two years.

The goal of this report is to share strategies that could be effective if considered and implemented before year-end. Choosing the appropriate strategies will depend on your income as well as a number of other personal circumstances. As with all tax strategies, it is always in your best interest to discuss your personal situation with your tax preparer before making any moves or final decisions.

Things To Review Before Year-end

While everyone’s situation is unique, please begin your final year-end planning now!

Consider All of Your Retirement Savings Options for 2016

If you have earned income or are working, retirement savers should consider contributing to retirement plans. This is an ideal time to make sure you maximize your intended use of retirement plans for 2016 and start thinking about your strategy for 2017. For many investors, retirement contributions represent one of the smarter tax moves that they can make. Here are some retirement plan highlights:

Higher 401(k) contribution limits. The elective deferral (contribution) limit for employees under the age of 50 who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is $18,000. The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is an additional $6,000 ($24,000 total). As a reminder, these contributions must be made in 2016.

IRA contribution limits unchanged. The limit on annual contributions to an Individual Retirement Arrangement (IRA) remains unchanged at $5,500. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000 (for a total of $6,500). IRA contributions can be made all the way up to the April 17, 2017 filling deadline (the 15th is on a Saturday).

Higher IRA income limits. The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (AGI) of $61,000 and $71,000 for 2016. For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is 98,000 to $118,000 for 2016. For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out in 2016 as the couple’s income reaches $184,000 and completely at $194,000 for 2016. For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is $0 to $10,000 for 2016. Please keep in mind, if your earned income is less than your eligible contribution amount, your maximum contribution amount equals your income.

Increased Roth IRA income cutoffs. The AGI phase-out range for taxpayers making contributions to a Roth IRA is $184,000 to $194,000 for married couples filing jointly in 2016. For singles and heads of household, the income phase-out range is $117,000 to $132,000 in 2016. For a married individual filing a separate return, the phase-out range is $0 to $10,000 for 2016. Please keep in mind, if your earned income is less than your eligible contribution amount, your maximum contribution amount equals your income.

Larger saver’s credit threshold. The AGI limit for the saver’s credit (also known as the Retirement Savings Contribution Credit) for low- and moderate-income workers is $61,500 for married couples filing jointly in 2016, $46,125 for heads of household, $30,750 for all other filers.

Be careful of the IRA one rollover rule. IRA investors were always limited to one rollover per year, per IRA. Investors are still limited to make only one rollover from all of their IRAs to another in any 12-month period. A second IRA-to-IRA rollover in a single year could result in income tax becoming due on the rollover, a 10 percent early withdrawal penalty, and a 6 percent per year excess contributions tax as long as that rollover remains in the IRA. Individuals can only make one IRA rollover during any one-year period, but there is no limit on trustee-to-trustee transfers. Multiple trustee-to-trustee transfers between IRAs and conversions from traditional IRAs to Roth IRAs are allowed in the same year. If you are rolling over an IRA or have any questions on this, please call us.

Roth IRA Conversions

Some IRA owners are considering converting part or all of their traditional IRAs to a Roth IRA. This is never a simple and easy decision. Roth IRA conversions can be helpful, but they can also create immediate tax consequences and can bring additional rules and potential penalties. It is best to run the numbers with a qualified professional and calculate the most appropriate strategy for your situation. Call us if you would like to review your Roth IRA conversion options.

Capital Gains and Losses

Looking at your investment portfolio can reveal a number of different tax saving opportunities. Start by reviewing the various sales you have realized so far this year on stocks, bonds and other investments. Then review what’s left and determine whether these investments have an unrealized gain or loss. (Unrealized means you still own the investment and haven’t yet sold it, versus realized, which means you’ve actually sold the investment.)

Know your basis. In order to determine if you have unrealized gains or losses, you must know the tax basis of your investments, which is usually the cost of the investment when you bought it. However, it gets trickier with investments that allow you to reinvest your dividends and/or capital gain distributions. We will be glad to help you calculate your cost basis.

Consider loss harvesting. If your capital gains are larger than your losses, you might want to do some “loss harvesting.” This means selling certain investments that will generate a loss. You can use an unlimited amount of capital losses to offset capital gains. However, you are limited to only $3,000 if married filing jointly ($1,500 if married filing separately) of net capital losses that can offset other income, such as wages, interest and dividends. Any remaining unused capital losses can be carried forward into future years indefinitely.

Be aware of the “wash sale” rule. If you sell an investment at a loss and then buy it right back, the IRS disallows the deduction. The “wash sale” rule says you must wait at least 30 days before buying back the same security in order to be able to claim the original loss as a deduction. The deduction is also disallowed if you bought the same security within 30 days before the sale. However, while you cannot immediately buy a substantially identical security to replace the one you sold, you can buy a similar security—perhaps a different stock in the same sector. This strategy allows you to maintain your general market position while utilizing a tax break.

Sell worthless investments. If you own an investment that you believe is worthless, ask your tax preparer if you can sell it to someone other than a related party for a minimal amount, say $1, to show that it is, in fact, worthless. The IRS often disallows a loss of 100% because they will usually argue that the investment has to have at least some value.

Always double check brokerage firm reports. If you sold a stock in 2016, the brokerage firm reports the basis on an IRS Form 1099-B in early 2017. Unfortunately, sometimes there could be problems when reporting your information, so we suggest you double-check these numbers to make sure that the basis is calculated correctly and does not result in a higher amount of tax than you need to pay.

Zero Percent Tax on Long-term Capital Gains

You may qualify for a 0% capital gains tax rate for some or all of your long-term capital gains realized in 2016.

The strategy is to figure out how much long-term capital gain you might be able to recognize to take advantage of this tax break. The 0% long-term capital gains tax rate is for taxpayers who end up in the 10% or 15% ordinary income tax brackets, which is up to $37,650 for single filers and $75,300 for joint filers. If your taxable income goes above this threshold, then any excess long-term capital gains will be taxed at a 15% capital gains tax rate and/or 20% capital gains tax rate, depending on how high your taxable income is for the year.

NOTE: The 0%, 15% and 20% long-term capital gains tax rates only apply to “capital assets” (such as marketable securities) held longer than one year. Anything held one year or less is considered a “short-term capital gain” and is taxed at ordinary income tax rates.

If you are eligible for the 0% capital gains tax rate, it might be a good time to consider selling some appreciated investments to take advantage of it. Sell just enough so your gain pushes your income to the top of the 15% tax bracket, then buy new shares in the same company. The “wash sale” requirement to wait 30 days does not apply for gains. With “gains harvesting,” you can actually sell the stock and buy it back on the same day. Of course, there will be transaction costs such as commissions and other brokerage fees. At the end of the day you will have the same number of shares, but with a higher cost basis. Please remember, you must also review your state income tax rules to determine whether or not these gains will be tax-free at the state level.

This strategy might be helpful if in 2016 you are temporarily unemployed, are someone whose income varies from year to year or are between the ages of 55 and 70 and may soon be transitioning into retirement or already retired.

If you’re ineligible for the 0% capital gains tax rate but you have adult children in the 0% bracket, consider gifting appreciated stock to them. Your adult children will pay a lot less in capital gains tax than if you sold the stock yourself and gifted the cash to them (make sure the Kiddie tax doesn’t apply—e.g. students up to age 23).

Medicare Tax

In 2016, a 3.8% Medicare surtax on “net investment income” remains in place for wealthy taxpayers. The 3.8% Medicare surtax is on top of ordinary income and capital gains taxes, meaning long-term capital gains and qualified dividends may be subject to taxes as high as 23.8%, while short-term capital gains and other investment income (such as interest income) could be taxed as high as 43.4%!

The Medicare surtax is imposed only on “net investment income” and only to the extent that total “Modified Adjusted Gross Income” (“MAGI”) exceeds $200,000 for single individuals and $250,000 for taxpayers filing joint returns. Not all income is subject to this Medicare Tax. For example, interest and dividends are included and wages are not. Check with your tax preparer if you are subject to this tax and we can discuss future planning.

Taxation of Social Security Income

Social Security income may be taxable, depending on the amount and type of other income a taxpayer receives. If a taxpayer only receives Social Security income, this income is generally not taxable (and it is possible that the taxpayer might not even need to file a federal income tax return).

If a taxpayer receives other income in addition to Social Security income, then up to 85% of the Social Security income could be taxable. There is a “floor” ($32,000 married filing jointly; $0 married filing separately; $25,000 all other taxpayers) whereby a portion of Social Security benefits become taxable and the 85% inclusion kicks in once provisional income goes above a “ceiling” ($44,000 married filing jointly; $0 married filing separately; $34,000 all other taxpayers). For married taxpayers filing a joint return and for married persons filing separately who do not live apart from their spouses for the whole year, the “provisional income” threshold is $0. A complicated formula is necessary to determine the amount of Social Security income that is subject to income tax. (We suggest using the worksheet in IRS Publication 915 to make this determination.)

Finally, it is important to note that Social Security income is included in the calculation of “Modified Adjusted Gross Income” (“MAGI”) for purposes of calculating the 3.8% Medicare surtax on “net investment income” (as discussed earlier). Therefore, taxpayers having significant net investment income might have more reason to defer Social Security benefits.

Itemized Deductions & Exemptions

Taxpayers are entitled to take either a standard deduction or itemize their deductions on IRS Form 1040, Schedule A. Itemized deductions include, but are not limited to, mortgage interest, certain types of taxes, charitable contributions and medical expenses. Unfortunately, itemized deductions are subject to several limitations. For example, in 2016 medical expenses are deductible only to the extent that they exceed 10% of AGI this year. However, if you or your spouse are over 65, the deduction limit is still at 7.5% until December 31, 2016.

Consider “bunching” your deductions. Many taxpayers don’t have enough itemized deductions to reduce their taxes more than if they take the standard deduction. If you find you often miss the threshold by only a small amount per year, it may be best to “bunch” your deductions every other year, taking a standard deduction in the alternate years. The standard deduction for 2016 is $6,300 for singles, $6,300 for married persons filing separate returns, $9,300 for heads of households and $12,600 for married couples filing jointly.

Charitable Giving

This is a great time of the year to clean out your garage and give your items to charity. Please remember that you can only write off these donations to a charitable organization if you itemize your deductions. Sometimes your donations can be difficult to value. You can find estimated values for your donated clothing at http://turbotax.intuit.com/personal-taxes/itsdeductible/.

Send cash donations to your favorite charity by December 31, 2016, and be sure to hold on to your cancelled check or credit card receipt as proof of your donation. If you contribute $250 or more, you also need a written acknowledgement from the charity.

If you plan to make a significant gift to charity this year, consider gifting appreciated stocks or other investments that you have owned for more than one year. Doing so boosts the savings on your tax returns. Your charitable contribution deduction is the fair market value of the securities on the date of the gift, not the amount you paid for the asset, and therefore you avoid having to pay taxes on the profit!

Do not donate investments that have lost value. It is best to sell the asset with the loss first and then donate the proceeds, allowing you to take both the charitable contribution deduction and the capital loss. Also remember, if you give appreciated property to charity, the unrealized gain must be long-term capital gain in order for the entire fair market value (FMV) to be deductible. (The amount of the charitable deduction must be reduced by any unrealized ordinary income, depreciation recapture and/or short-term gain.)

The laws allowing taxpayers age 70½ and older to transfer up to $100,000 directly from their IRA over to a charity, satisfying all or part of the required minimum distribution (RMD) were made permanent in 2015. If you want to do this please make sure it is done before year end.

Other Year-End Tax Strategies and Ideas

Make use of the annual gift tax exclusion. You may gift up to $14,000 tax-free to each person in 2016. These “annual exclusion gifts” do not reduce your lifetime gift tax exemption. (NOTE: The annual exclusion gift is doubled to $28,000 per recipient for joint gifts made by married couples or when one spouse consents to a gift made by the other spouse.)

Help someone with medical or education expenses. There are opportunities to give unlimited tax-free gifts when you pay the provider of the services directly. The medical expenses must meet the definition of deductible medical expenses. Qualified education expenses are tuition, books, fees, and related expenses but not room and board. You can find the detail qualifications in IRS Publications 950 and the instructions for IRS Form 709, which are available for free at www.irs.gov.

Contribute to a 529 plan on behalf of a beneficiary. This qualifies for the annual gift-tax exclusion. Withdrawals (including earnings) used for qualified education expenses (tuition, books and computers) are income tax free. The tax law even allows you to give the equivalent of five years’ worth of contributions up front with no gift-tax consequences. Non-qualifying distribution earnings are taxable and subject to a 10% tax penalty.

Make gifts to trusts. These gifts often qualify for the annual exclusion ($14,000 in 2016) if the gift is direct and immediate. A gift that meets all the requirements removes the property from your estate. The annual exclusion gift can be contributed for each beneficiary of a trust. We are happy to review the details with your estate planning attorney.

If possible, prepare a tax projection for 2016 and 2017 to determine if you will have a change in your tax situation. Then consider the following strategies if they apply to your situation.

Click table to enlarge.

It is important to note that some itemized deductions (such as state income taxes, real estate taxes and miscellaneous itemized deductions) are not allowed when computing the “Alternative Minimum Tax” (“AMT”). If you are subject to the AMT, it is often best to delay payment on the disallowed deductions and push them off until 2017 or later tax years (when AMT is no longer an issue). It is always possible you might be able to use the deductions next year. Therefore, we suggest that you talk with your tax preparer about AMT prior to using any of the deduction and exemption strategies we have mentioned.

Popular PATH Act Permanent “Extenders”

American Opportunity Tax Credit. The PATH Act made the American Opportunity Tax Credit (AOTC) permanent. The AOTC is equal to 100% of the first $2,000 of qualified tuition and related expenses, plus 25% of the next $2,000 of qualified tuition and related expenses.

Teachers’ classroom expense deductions. The PATH Act permanently extended the above-the-line deductions of up to $250 for elementary and secondary school administrators’ and teachers’ classroom expenses. Eligible educators (such as teachers, administrators and others) may claim this above-the-line deduction in lieu of a miscellaneous itemized deduction.
State and local sales tax deduction. The PATH Act made permanent the itemized deduction for states and local general sales taxes. That deduction may be taken in lieu of state and local income taxes when itemizing deductions.

PATH Act “Extenders” Expiring at the End of 2016

Tuition for fee deductions. The PATH Act extended the above-the-line deduction for qualified tuition and related expenses for two years, for expenses paid before January 1, 2017. The maximum amount of the tuition and fee deductions is $4,000 for an individual whose AGI for the tax year does not exceed $65,000 ($130,000 in the case of a joint return) or $2,000 for other individuals whose AGI does not exceed $80,000 ($160,000 in the case of a joint return).

Mortgage insurance premium deductions. The PATH Act extended the treatment of qualified mortgage insurance premiums as qualified residence interest proactively for two years, to apply to amounts paid or accrue through 2016 and not properly allocable to a period after December 31, 2016.

President-elect Trump’s Tax Positions

While campaigning for the position of President, Donald Trump shared some views of his tax position. President-elect Trump stated that comprehensive tax reform to significantly lower individual and business tax rates was one of his top priorities. According to CCH’s Tax Briefing, his proposals included a simpler tax system with 3 tax brackets: 12, 25 and 33%. He also shared that he would recommend no change in capital gains rates and a repeal of the 3.8% Medicare Tax. Another item discussed was capping deductions at $100,000 for single filers and $200,000 for joint returns. Many experts feel that tax reform will advance in 2017. Remember, ideas and proposals are far from actual laws, but with a Republican Senate and House, change is considered possible and as things become finalized we will keep you updated.

Conclusion

One of our primary goals is to keep clients aware of tax law changes and updates. This report is not a substitute for using a tax professional. Please note that many states do not follow the same rules and computations as the federal income tax rules. Make sure you check with your tax preparer to see what tax rates and rules apply for your particular state.

Two life events that could affect your tax situation are marriage and retirement. Marital status (single, married or divorced) for the entire tax year is determined on December 31st. Because the income tax brackets vary depending upon filing status, a marriage penalty or a marriage benefit may result for any particular couple. Retiring taxpayers may want to take a look at a number of different provisions at year-end in anticipation of retiring, at the point of retirement, or after retirement. Many of these provisions have opportunities and deadlines keyed to the tax year. One thing to watch closely by year-end is the Minimum Distribution Requirements. Most retirement arrangements (other than Roth IRAs) require that participants begin to take annual payments of benefits in the year they turn age 70½. While distributions generally must be made at the end of the calendar year, distributions for the first year can be delayed until April 1 of the succeeding year. If you have questions about your Required Minimum Distributions, please call us.

There are many other additional tax reduction strategies that will vary depending on your financial picture. We encourage all of our clients and prospects to come in so that we can review your particular situation and hopefully take advantage of those tax rules that apply to you.

Financial 1 WMG 2016 Client Advocate Program

If you are currently not a client of Financial 1 Wealth Management Group, we would like to offer you a complimentary, one- hour, consultation with one of our professionals. Please call, 410.908.9293.

As always, we appreciate the opportunity to assist you in addressing your financial matters and look forward to seeing you soon!

This information is not intended to be a substitute for specific individualized tax, legal or investment planning advice.  ­We suggest that you discuss your specific tax issues with a qualified tax advisor.

Financial 1 Wealth Management Group
10211 Wincopin Circle
Suite 620
Columbia, MD 21044-3431

This article is for informational purposes only. This information is not intended to be a substitute for specific individualized tax, legal or investment planning advice as individual situations will vary. For specific advice about your situation, please consult with a lawyer or financial professional. A Roth IRA distribution is qualified if you’ve had the account for at least five years and/or the distribution is made after you’ve reached age 59 ½. Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Please note that rebalancing investments may cause investors to incur transaction costs and, when rebalancing a non-retirement account, taxable events will be created that may increase your tax liability.

The post Year-End Tax Moves for 2016 appeared first on Financial 1 Tax.

Special Report!

Tax season has arrived — again. That means that it’s now time to finish and file your tax returns for 2015. This year you have until April 18 to file your federal tax return. (That is not a typo. April 15 is generally Tax Day, but the deadline was pushed back this year in recognition of Emancipation Day, a holiday observed in Washington D.C. to commemorate the signing of the Compensated Emancipation Act).  Because Emancipation Day falls on a Saturday this year, it will be observed on Friday, thus pushing the tax-filing deadline to Monday for most of the nation, the IRS says.

There are some exceptions. The deadline will be Tuesday, April 19, in Maine and Massachusetts, because of Patriots’ Day, a holiday in those states commemorating the battles of Lexington and Concord in 1775.

The year 2015 did not generate major tax law changes. With 2016 being a presidential election year many experts are expecting tax law changes in the future.  Tax planning should always be an essential focus when reviewing your personal situation. However, when planning ahead for 2016 and beyond, you should not count on all tax rules remaining the same forever.  One of our goals as financial professionals is to attempt to point out as many tax savings opportunities and strategies as possible for our clients.  This special report reviews some of the broader recent tax law changes along with a wide range of tax reduction strategies. As you read this report, please note each tax strategy that you think could be beneficial to you. Not all ideas are appropriate for all taxpayers. We always recommend you address any tax strategy with your tax professional to consider how one tax strategy may affect another and calculate the income tax consequences (both state and federal). Remember, tax strategies and ideas that have worked in the recent past might not even be available under today’s tax laws.

Always attempt to understand all the details before making any decisions—it is always easier to avoid a problem than it is to solve one! Remember that you always have the option to do nothing. Again, please discuss any of your ideas with your tax preparer before taking action.

Please note—your state income tax laws could be different from the federal income tax laws. Visit www.sisterstates.com for a wide range of tax information and links to tax forms for all 50 states.  All examples mentioned in this report are hypothetical and meant for illustrative purposes only.

Tax Law “Extenders”

On Dec. 18, 2015, President Obama signed into law a package of tax extenders called “The Protecting Americans from Tax Hikes Act of 2015,” or PATH.  Tax extenders are nothing new. Historically, as tax provisions expire, extenders are put forward to temporarily keep them active. While PATH helped extend some provisions, it did nothing to develop the kind of certainty that many in the business community wants when planning for the future. The only change included in PATH was that some of the tax extenders were made permanent, including a few that benefit individuals as well as businesses.

Here are some of the highlights from PATH:

For businesses:  there are enhancements and permanent extensions to the Research and Development Tax Credit; the Code Sec. 179 expensing limitation of $500,000 and the $2 million phase-out limit are retroactively and permanently extended, and both are indexed for inflation for tax years beginning this year; and Bonus Depreciation, which allows retailers and restaurants to initially depreciate half of remodeling and improvement fees.

For individuals:  the Child Tax Credit, American Opportunity Tax Credit and the Earned Income Tax Credit are all strengthened and made permanent.

Moving forward into 2016, here are some other notable items from the PATH Act:

• A deduction for state and local general sales tax in lieu of state income tax is retroactively extended and made permanent. You can deduct either your state and local income taxes or your state and local general sales taxes—but not both. This is a very important break for millions of people who live in states with no state income tax.

• Individuals at least 70½ years of age may now exclude from gross income qualified charitable distributions from IRAs of up to $100,000 per year. Please remember to double check on what counts as a qualified charity and distribution before using this tax strategy.

• Permanent deduction for educator expenses. This rule expired at the end of 2014 and is now permanent. An eligible educator can deduct as much as $250 of unreimbursed costs of classroom supplies, such as books, computer equipment and software. This applies to “a kindergarten through grade 12 teacher, instructor, counselor, principal or aide in school for at least 900 hours during a school year,” an IRS publication says. This is especially valuable since they can deduct it from their total income, using line 23 on Form 1040, rather than as a miscellaneous itemized deduction, the IRS says.

Contribute to Retirement Accounts

If you haven’t already funded your retirement account for 2015, consider doing so by April 18, 2016. That’s the deadline for contributions to a traditional IRA (deductible or not) and a Roth IRA. However, if you have a Keogh or SEP and you get a filing extension to October 15, 2016, you can wait until then to put 2015 contributions into those accounts. To start tax-free compounding as quickly as possible, however, try not to delay in making contributions.  Making a deductible contribution will help you lower your tax bill for 2015 and your contributions will compound tax-deferred.

To qualify for the full annual IRA deduction in 2015, you must either: 1) not be eligible to participate in a company retirement plan, or 2) if you are eligible, you must have adjusted gross income of $61,000 or less for singles, or $98,000 or less for married couples filing jointly. If you are not eligible for a company plan but your spouse is, your traditional IRA contribution is fully-deductible as long as your combined gross income does not exceed $183,000. For 2015, the maximum IRA contribution you can make is $5,500 ($6,500 if you are age 50 or older by the end of the year). For self-employed persons, the maximum annual addition to SEPs and Keoghs for 2015 is $53,000.

Although choosing to contribute to a Roth IRA instead of a traditional IRA will not reduce your 2015 tax bill (Roth contributions are not deductible), it could be the better choice because all withdrawals from a Roth can be tax-free in retirement. Withdrawals from a traditional IRA are fully taxable in retirement. To contribute the full $5,500 ($6,500 if you are age 50 or older by the end of 2015) to a Roth IRA, you must earn $116,000 or less a year if you are single or $183,000 if you’re married and file a joint return.

The amount you save from making a contribution will vary. If you are in the 25% tax bracket and make a deductible IRA contribution of $5,500, you will save $1,375 in taxes the first year. Over time, future contributions could save you thousands, depending on your contribution, income tax bracket and the number of years you keep the money invested.

Included in this report is a table of retirement plan limits for both 2015 and 2016.  If you have any questions on retirement contributions, please call us at 410-908-9293.

Roth IRA Conversions

A Roth IRA conversion is when you convert part or all of your traditional IRA into a Roth IRA. This is a taxable event. The amount you converted is subject to ordinary income tax. It might also cause your income to increase, thereby subjecting you to the Medicare surtax.  Roth IRAs grow tax-free and withdrawals are tax-free in the future, a time when tax rates might be higher.

Whether to convert part or all of your traditional IRA to a Roth IRA depends on your particular situation. It is best to prepare a tax projection and calculate the appropriate amount to convert. Remember—you do not have to convert all of your IRA to a Roth. Roth IRA conversions are not subject to the pre-age 59½ penalty of 10%.

Another benefit of a Roth IRA conversion is that it allows you the flexibility to re-characterize your conversion by October 15th of the following tax year. This gives you the benefit of hindsight. If you do a conversion and the value of the Roth IRA goes down, you can change your mind and re-characterize it back to the traditional IRA without any tax consequence.

Consider using multiple Roth IRA accounts. If you decide to re-characterize, you must use all of the assets of a particular Roth IRA. You have the ability to choose which Roth IRA to re-characterize, but you do not have the right to re-characterize some of the investments within a Roth IRA. For example, if you use multiple Roth IRA accounts and one of the accounts drops in value while the others increase, you can switch the under-performing account back to a traditional IRA tax and penalty free while still keeping the other Roth IRAs.  Roth 401(k)s, first available in 2006, continue to evolve. ATRA allows plan participants to convert the pre-tax money in their 401(k) plan to a Roth 401(k) plan without leaving the job or reaching age 59½. There are a number of pros and cons to making this change. Perhaps the biggest downside to an in-plan conversion is that there is no way to re-characterize the conversion. Your converted amount stays inside of the 401(k). Please call us at 410-908-9293 to see if this makes sense for you.

Inherited IRAs

Be careful if you inherit a retirement account. In many cases, the decedent’s largest asset is a retirement account. If you inherit a retirement account, such as an IRA or other qualified plan, the money is usually taxable upon receipt. There is no step-up in basis on investments within retirement accounts and therefore most distributions are 100% taxable.

Non-spouse beneficiaries usually cannot roll over an inherited IRA to their own IRA, but the solution to this problem can be easy: establish an Inherited IRA, also known as a “stretch” IRA. Non-spouse beneficiaries of any age are allowed to start their RMDs the year following the year the owner died and stretch them out over their own life expectancy. This will reduce your income taxes significantly compared to having all of the IRA taxed in one year.

These tax laws are very complicated and you must implement the requirements carefully to avoid any unnecessary income taxes and penalties. Please contact us at 410-908-9293 before receiving any distributions from a retirement account you inherit.  Remember—it is easier to avoid a problem than it is to solve one!

Required Minimum Distributions (RMD)

If you turned age 70½ during 2015, you still have until April 1, 2016, to take out your first RMD. This is a one-time opportunity in case you forgot the first time. The deadline for taking out your RMD in the future will be December 31 of each year. If you do not pay out your RMD by this deadline, you will be faced with a 50% penalty on the amount you should have taken.

If you have any questions on your Required Minimum Distributions please call us at 410-908-9293.

Note:  you usually do not have to take out an RMD from your current employer’s retirement account as long as you work there and don’t own more than 5% of the company.  See your plan administrator if you have any questions.

2015 Tax Rates and Income Brackets

There are still seven federal income tax brackets for 2015.  The lowest of the seven tax rates is 10%, while the top tax rate is 39.6%. The income that falls into each is scheduled to be adjusted each year for inflation. Typically, it is advisable to file jointly if you’re married, because married couples who file separate returns tend to face higher taxes.  Heads of household get wider income brackets than single filers, meaning their taxes are a bit lower. As a single filer, you will pay a top ordinary tax rate of 39.6% if your taxable income is more than $413,200 ($464,850 for married couples filing jointly). For higher income earners, the net investment income tax might not only take a bite out of taxpayers’ bank accounts, but it could also cause headaches for their tax professionals as they work through the tax regulations. For 2015, there is a phase-out of itemized deductions and personal exemptions for taxpayers whose income is greater than $305,050 if married filing jointly or $254,200 if single.

Not sure how to file? Then ask your tax preparer or review IRS Publication 17, Your Federal Income Tax, which is a complete tax resource. It contains helpful information such as whether you need to file a tax return and how to choose your filing status.

2015 Standard Deduction Amounts

Most taxpayers claim the standard deduction. The amounts for each of the filing statuses are adjusted annually for inflation. For taxpayers younger than age 65, the standard deduction for married joint filers is double the single amount. Head of household taxpayers get a larger deduction since they are supporting dependents. Older taxpayers and visually impaired filers get bigger standard deduction amounts.

Investment Income

Recent tax laws permanently raised rates on long-term capital gains and dividends for top-bracket taxpayers.  People that have enough income to pay taxes at the 39.6% rate will pay 20% in 2015 on the net long-term capital gains and dividends.

One tax strategy is to review your investments that have unrealized long-term capital gains and sell enough of the appreciated investments in order to generate enough long-term capital gains to push you to the top of your 15% Federal income tax bracket. This strategy could be helpful if you do not have to pay any Federal taxes on this gain. Then, if you want, you can buy back your investment the same day, increasing your cost basis in those investments. If you sell them in the future, the increased cost basis will help reduce long-term capital gains. You do not have to wait 30 days before you buy back this investment—the 30-day rule only applies to losses, not gains. Note: this non-taxable capital gain for federal income taxes might not apply to your state.

Remember that marginal tax rates on long-term capital gains and dividends can be higher than expected. The 3.8% surtax raises the effective rate on tax-favored gains and dividends to 18.8% for filers affected that are below the 39.6% tax bracket and 23.8% for people in the highest tax bracket.

Calculating Capital Gains and Losses

With all of these different tax rates for different types of gains and losses in your marketable securities portfolio, it’s probably a good idea to familiarize yourself with some of the rules:

• Short-term capital losses must first be used to offset short-term capital gains.
• If there are net short-term losses, they can be used to offset net long-term capital gains.
• Long-term capital losses are similarly first applied against long-term capital gains, with any excess applied against short-term capital gains.
• Net long-term capital losses in any rate category are first applied against the highest tax rate long-term capital gains.
• Capital losses in excess of capital gains can be used to offset up to $3,000 of ordinary income.
• Any remaining unused capital losses can be carried forward and used in the same manner as described above.
• Please remember to look at your 2014 income tax return Schedule D page 2 to see if you have any capital loss carryover for 2015. This is often overlooked, especially if you are changing tax preparers.

Please try to double-check your capital gains or losses. If you sold an asset outside of a qualified account during 2015, you most likely incurred a capital gain or loss. Sales of securities showing the transaction date and sale price are listed on the 1099 generated by the financial institution.  However, your 1099 might not show the correct cost basis or realized gain or loss for each sale.  You will need to know the full cost basis for each investment sold outside of your qualified accounts, which is usually what you paid for it, but this is not always the case.  Remember:  the tax rates on long-term capital gains were permanently increased in 2013. 

3.8% Medicare Investment Tax

The year 2015 commemorates the third year of the net investment income tax of 3.8%. It is also known as the Medicare surtax. If you earn more than $200,000 as a single taxpayer or $250,000 as a married joint return, then this tax applies to either your modified adjusted gross income or net investment income (including interest, dividends, capital gains, rentals, and royalty income), whichever is lower.  This 3.8% tax is in addition to capital gains or any other tax you already pay on investment income.

At this time, there’s little you can do to reduce this tax for 2015, but you can try to reduce its impact in 2016.  A helpful strategy is to pay attention to timing, especially if your income fluctuates from year to year or is close to the $200,000 or $250,000 amount. Consider realizing capital gains in years when you are under these limits. The inclusion limits penalize married couples, so realizing investment gains before you tie the knot may help in some circumstances. This tax makes the use of depreciation, installment sales, and other tax deferment strategies suddenly more attractive.

Medicare Health Insurance Tax on Wages

If you earn more than $200,000 in wages, compensation, and self-employment income ($250,000 if filing jointly, or $125,000 if married and filing separately), the Affordable Care Act also levies a special 0.9% tax on your wages and other earned income. You’ll pay this all year as your employer withholds the additional Medicare Tax from your paycheck. If you’re self-employed, be sure to plan for this tax when you calculate your estimated taxes.

If you’re employed, there’s little you can do to reduce the bite of this tax. Requesting non-cash benefits in lieu of wages won’t help—they’re included in the taxable amount.  If you’re self-employed, you may want to take special care in timing income and expenses (especially depreciation) to avoid the limit.

Medical Expenses

Deducting medical expenses in 2015 has become a little more difficult. Prior to 2013, anyone could deduct medical expenses once they passed 7.5% of your adjusted gross income (AGI). For 2015, you can only deduct them to the extent they exceed a whopping 10% of your AGI. If you or your spouse is over age 65, the old 7.5% floor still stands until 2017.

This higher floor makes the bunching of medical expenses even more necessary. If you have big medical expenses, try to pay them in a year when you can take advantage of the deduction. Medical expenses are deductible in the year you pay them, not necessarily when you incur them.  For example, if your children need braces on their teeth and you are making payments over time to the orthodontist, you may never get a deduction for the expense. However, if you pay it all in one year, you might pass the 10% floor and get some consolation in the form of a tax deduction.

Energy Credits

You can still get an energy efficiency tax credit for qualifying energy-efficient products such as solar hot water heaters, solar electric equipment and wind turbines. The credit is 30% of the cost of these products you installed in or on your home.  There is no limit to the amount of credit you can take, and you can carry forward any unused credit to future tax years. This credit was extended to 2016 and can be claimed by filing Form 5695 with your tax return.

Charitable Gifts and Donations

When preparing your list of charitable gifts, remember to review your checkbook register so you don’t leave any out.  Everyone remembers to count the monetary gifts they make to their favorite charities, but you should count noncash donations as well. Make it a priority to always get a receipt for every gift. Keep your receipts. If your contribution totals more than $250, you’ll also need an acknowledgement from the charity documenting the support you provided. Remember that you’ll have to itemize to claim this deduction, but when filing, the expenses incurred while doing charitable work often is not included on tax returns.

You can’t deduct the value of your time spent volunteering, but if you buy supplies for a group, the cost of that material is deductible as an itemized charitable donation. Similarly, if you wear a uniform in doing your good deeds (for example, as a hospital volunteer or youth group leader), you can also count the costs of that apparel and any cleaning bills as charitable donations.

You can also claim a charitable deduction for the use of your vehicle for charitable purposes, such as delivering meals to the homebound in your community or taking your child’s Scout troop on an outing. For 2015, the IRS will let you deduct that travel at 14 cents per mile.

Child and Dependent Care Credit

Millions of parents claim the child and dependent care credit each year to help cover the costs of after-school day care while working. Some parents overlook claiming the tax credit for child care costs during the summer. This tax break also applies to summer day camp costs. The key is that for deduction purposes, the camp can only be a day camp, not an overnight camp.

Remember the dual nature of the credit’s name: child and dependent. If you have an adult dependent that needs care so that you can work, those expenses can possibly be claimed under this tax credit.

The Health Insurance Mandate

The Patient Protection and Affordable Care Act requires that you must carry a minimum level of health insurance for yourself, your spouse and your dependents. If you fail to do so, you could possibly pay a fine. This fine in 2015 could be up to 2% of your yearly income or $325 per person ($162.50 per child under 18) for the year, with a maximum of $975, whichever is higher. These penalties are scheduled to increase in 2016. This is a newer item on your 2015 tax return, because the mandate began in 2014.

Other Overlooked Tax Items and Deductions

Reinvested Dividends – This isn’t a tax deduction, but it is an important calculation that can save investors a bundle.  Former IRS commissioner Fred Goldberg told Kiplinger magazine for their annual overlooked deduction article that missing this break costs millions of taxpayers a lot in overpaid taxes.

Many investors have mutual fund dividends that are automatically used to buy extra shares. Remember that each reinvestment increases your tax basis in that fund. That will in turn reduce the taxable capital gain (or increases the tax-saving loss) when you redeem shares. Please keep good records. Mark Luscombe, Principal and Federal Tax Analyst for Wolters Kluwer Tax & Accounting says, “A lot of people with reinvested dividends fail to add those previously taxed dividends to their basis in determining the taxable gain on the sale of a stock.” Forgetting to include reinvested dividends in your basis results in double taxation of the dividends—once in the year when they were paid out and immediately reinvested and later when they’re included in the proceeds of the sale.

Don’t make that costly mistake.

If you’re not sure what your basis is, ask the fund or us for help. Funds often report to investors the tax basis of shares redeemed during the year. In 2012, regulators started requiring that for the sale of shares purchased, financial institutions must report the basis to investors and to the IRS.

Student-Loan Interest Paid by Parents – Generally, you can deduct interest only if you are legally required to repay the debt. But if parents pay back a child’s student loans, the IRS treats the transactions as if the money were given to the child, who then paid the debt. So as long as the child is no longer claimed as a dependent, the child can deduct up to $2,500 of student-loan interest paid by their parents each year. And he or she doesn’t have to itemize to use this money-saver. (The parents can’t claim the interest deduction even though they actually foot the bill because they are not liable for the debt).

Helpful Tax Time Strategies

• Write down or keep all receipts you think are even possibly tax-deductible. Many taxpayers assume that various expenses are not deductible and do not even mention them to their tax preparer. Don’t assume anything—give your tax preparer the chance to tell you whether something is or is not deductible.
• Be careful not to overpay Social Security taxes. If you received a paycheck from two or more employers, and earned more than $118,500 in 2015, you may be able to file a claim on your return for the excess Social Security tax withholding (this amount is currently scheduled to stay the same for 2016).
• Don’t forget deductions carried over from prior years because you exceeded annual limits, such as capital losses, passive losses, charitable contributions and alternative minimum tax credits.
• Check your 2014 tax return to see if there was a refund from 2014 applied to 2015 estimated taxes.
• Calculate your estimated tax payments for 2016 very carefully. Most computer tax programs will automatically assume that your income tax liability for the current year is the same as the prior year. This is done in order to avoid paying penalties for underpayment of estimated income taxes. However, in many cases this is not a correct assumption, especially if 2015 was an unusual income tax year due to the sale of a business, unusual capital gains, exercise of stock options, or even winning the lottery!
• Remember that gov is an online resource that has everything you need to help file your tax return.
• Always double check your math where possible!

Conclusion

Even though 2015 offered a fairly stable tax environment, an essential part of maintaining your overall financial health is attempting to keep your tax liability to a minimum. Managing wealth involves careful planning and keeping updated and informed of any changes that affect investors.

Looking ahead to 2016, taxpayers need to keep a watchful eye on the Presidential election.  Several leading candidates from both sides have already announced some suggested proposals that would affect investments, estate planning and retirement planning through changes in the tax laws. Although these proposals are not likely to be enacted into law in their current form, they still need to be monitored. One of our primary goals is to keep you informed as tax laws that affect investors change.

We hope that all these tax laws and changes do not confuse you.  We believe that taking a proactive approach is better than a reactive approach—especially regarding income tax strategies!

Remember—if you ever have any questions regarding your finances, please be sure to call us first before making any decisions. We pride ourselves in our ability to help clients make decisions! Many times there is a simple solution to your question or concern.  Don’t worry about things that you don’t need to worry about!

P.S.  Some humorists after filing taxes have suggested that it might have been easier to just use this 1040EZ-ALL form. As one famous comedian once said, “I put all my money into taxes.  They’re the only thing that’s sure to go up!”

This information is not intended to be a substitute for specific individualized tax, legal or investment planning advice.  ­We suggest that you discuss your specific tax issues with a qualified tax advisor.

Share this report with a friend!

Do you know someone who could benefit from this report?

If you’d like to share this tax report with a friend or colleague, please call us at (410) 908-9293 and we’d be happy to help.

Financial 1 Wealth Management Group
10211 Wincopin Circle
Suite 620
Columbia, MD 21044-3431

Note:  The views stated in this letter are not necessarily the opinion of Financial 1 Tax Services. and should not be construed, directly or indirectly, as an offer to buy or sell any securities mentioned herein.  Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed.  Please note that statements made in this newsletter may be subject to change depending on any revisions to the tax code or any additional changes in government policy. Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Past performance is no guarantee of future results. Please note that individual situations can vary.

Sources: Wall Street Journal, www.IRS.gov, CCH Tax Briefings

The post Reduce Your 2015 Taxes and Plan for 2016 appeared first on Financial 1 Tax.

Identity theft occurs when a criminal takes your personal information (such as your social security number, address, birth date, bank account number, credit card number, etc.) and uses it to steal money or obtain services under your name. With every advance in technology, it seems there are those who will quickly find a way to put it to use for their own unlawful gain. For example, some thieves access your information by hacking into personal or business computer systems or stealing laptops that contain personal data. But even more often, they use good old-fashioned techniques like stealing your purse or wallet. Copies of bank or credit card statements, bills or other personal papers can be stolen out of your home, your trash, the trash of businesses you’ve patronized, or your incoming or outgoing mail. Some thieves simply talk people into giving them information by posing as someone who would have a right to know it or claiming they need you to verify your account information.

Identity theft is a serious crime!

Once thieves have this information, they can wreck havoc with your good financial name. They can run up charges on your credit card, changing the billing address so it will be awhile before you realize what has happened. They can open new accounts in your name, including bank, phone and utility accounts; write counterfeit checks; drain your bank account; pay taxes or file for bankruptcy in your name; or get official ID issued in your name. It has even been known to happen that an identity thief will give the victim’s name if they get arrested, and when they don’t show up for court, the police come after you! In addition to the expense of resolving the problem, identity theft victims can also be harassed by collections agents, have their utilities cut off, or have trouble obtaining loans, credit or new bank accounts. They may also be unable to access their existing bank accounts or use their existing credit cards. The bottom line is identity theft can have a serious negative impact on the victim so you need to be informed.

FINANCIAL 1 WEALTH MANAGEMENT GROUP
Financial 1 Tax Services

10211 Wincopin Circle, Suite 620
Columbia, MD 21044-3431
(410) 908-9293

3701 Old Court Road, Suite 24
Baltimore, MD 21208-3901
(410) 908-9293

Tatyana Bunich, CEP, provides financial and tax services through Financial 1 Wealth Management Group and Financial 1 Tax Services.

How Bad Is The Problem?

Identity theft remains the top category of fraud affecting consumers. In the Federal Trade Commission’s “Consumer Sentinel Network Complaint Data Book” report for 2012, it shows the number of identity thefts remained high last year from 278,385 in 2009 to 279,156 in 2011. Identity theft represents 14% of all consumer fraud complaints, followed by third-party and creditor debt collection (10%), banks and lenders (7%), and imposter scams (6%). And while contemplating this enormous number, keep in mind that it doesn’t include those victims who chose not to file a claim, or filed under other categories, such as theft or mail or internet fraud.

With numbers on the rise again, it is even more important that you refresh your memory on the signs of identity theft and the simple precautions you can take to lessen your chance of becoming one of the statistics! Still don’t think it’s all that important? Read on.

The average cost to the consumer stayed in the thousands from $2,297 in 2011 to $2,294 in 2013. Luckily, a full 44% paid nothing at all, because in most cases, victims are not legally responsible for unauthorized charges or accounts. Looking only at victims who did have to pay out-of-pocket expenses, the median amount paid was $535.

The list below is a nationwide ranking of states by number of identity theft complaints for January 1 – December 31, 2013.

Age-wise, people under 50 bear the brunt of identity theft fraud. The graph below shows that nationwide, people are less likely to be victimized the older they get. Of all 2013 victims, 63% of victims were under 50, 17% were in their 50s, 12% were in their 60s, and 8% were over 70.

Government documents or benefits fraud was the most common form of reported identity theft (34%). Credit card fraud was second (17%) followed by phone or utilities (14%) and bank fraud (8%). Other significant types of identity theft reported by victims were employment related (6%) and loan fraud (4%).

It’s no wonder so many people across the nation are becoming slightly paranoid about their personal information and who has access to it. Almost everyone has heard at least one person’s horror story of the long and difficult path to clearing their name (and credit rating!) after identity theft has occurred, and after hearing it, my guess is that everyone shared the same thought—“I hope that never happens to me!”

A New Method For Identity Thieves – Stimulus Scams

Stimulus scams are a new way identity thieves are acquiring your personal information and stealing your money. The Federal Trade Commission sent out an FTC Consumer Alert informing us that the promise of stimulus money in return for a fee or financial information is always a scam. These scams occur primarily via email, an online ad or website saying you are eligible to get an economic stimulus payment. The FTC urges you to ignore it, delete it and throw it out! They strongly suggest you do not even click onto any links or open any emails or attachments. This may cause the installation of spyware, a harmful program which could send your personal information to an identity thief. The IRS does not send emails like this asking for personal information and these emails or websites should not be trusted, regardless of how legitimate it sounds.

What Can I do To Protect Myself?

We understand your concerns on this issue and we wanted you to know that there are things you can do to help protect yourself from identity theft. The following steps are very simple and could save you a huge headache down the road!

Don’t give out personal information.

Don’t ever provide personal information over the phone, by mail or on the internet unless you have initiated the contact and know exactly how the information will be used and whether it will be shared with others. If someone contacts you and you think it might be legitimate, break the contact and use a listed phone number or web address that you know to be valid to reestablish contact. Never use a number or email link that they provide, as these may be traps set up to look or sound like the real website or automated phone system.

Protect your social security number.

Never have it printed on your checks or driver’s license, and never carry your card in your wallet. Only give out your number when necessary, such as applying for store credit, where it is used to perform a credit check. Even then, ask if you may give your number verbally without putting it in writing.

Don’t leave personal or financial information out in the open.

The latest data in the FTC’s most recent Identity Theft Survey Report shows a shocking 16% of identity theft victims personally knew the thief—family members, friends, neighbors, in-home employees and coworkers were all implicated in these cases. With that in mind, it is always best to keep all personal or financial information in a safe place in your home. Don’t leave it lying around, especially if you are having work done on your home or hire outside help.

Don’t carry unnecessary personal information.

We just discussed not carrying your social security card in your wallet, but there are other documents people sometimes carry with them that identity thieves would just love to get their hands on. Bank account numbers, PIN numbers, passports, birth certificates and blank checks can all provide a huge amount of information to a thief. Don’t carry them unless absolutely necessary.

Destroy personal documents before disposal.

Before throwing anything in the trash, shred or otherwise destroy documents such as credit card receipts, old credit cards, credit offers, or bank, medical or insurance statements. You don’t want these documents lying around on the curb waiting for trash collection.

Protect your mail.

Collect your mail promptly, and use a post office collection box for outgoing bills. Whenever you go on vacation, ask the post office to hold your mail or get a post office box.

You can reduce the amount of unsolicited credit offers arriving in your mailbox (which an identity thief could snatch and use as their own). Call 1-888-5-OPTOUT (1-888-567-8688) and ask them to stop any pre-screened offers from being sent to you. Or, on the Direct Marketing Association’s website (www.the-dma.org, in the section “For Consumers”) you can opt out of direct mail marketing, email marketing or telephone marketing conducted by many companies. You can also write to them at PO Box 643, Carmel, NY 10512.

Pay close attention to your bills.

Know your billing cycles. If your bills are even a couple days late, contact your creditor. Late or missing bills could mean that an identity thief has changed the mailing address on an account to avoid detection.

Review your credit card bills and checking account statements as soon as they arrive, and look into any suspicious checks or charges right away.

Have any cards you don’t need or use? Consider canceling them. A thief could get access to that dormant account, and you would only find out about it once bills started arriving in your mailbox. For those of you worried about possibly hurting your credit score by closing dormant accounts, Liz Pulliam Weston from MSN Money suggests not closing your oldest account (as credit scores are based partly on length of credit history) and not closing several accounts at once. Credit scores are also partly based on your debt as a percentage of your available credit, so closing several accounts would greatly reduce your available credit without changing the size of your debt.

Make a backup list.

If you ever do have a wallet stolen or lose other personal information, you’ll need to act quickly to minimize any damages. Some people suggest making a photocopy of the front and back of your credit cards and debit cards. A simple list is also sufficient, as long as you record account numbers and the phone numbers to call if the card is lost or stolen. However, as you can imagine, it is absolutely necessary to keep this list in a safe but accessible place. If you need to report your cards lost or stolen, you don’t want to risk having it locked up in a safe deposit box, as the bank may not be open when you need to get your list! If you’re going on vacation, take only a list of the toll-free numbers you would need to call to report all your cards lost or stolen, and keep that list in a safe place other than your purse or wallet.

Use creative passwords.

Creative passwords better protect your information. Select intricate passwords on your credit cards, debit/bank cards, phone accounts and internet accounts. Stay away from obvious choices such as your mother’s maiden name, a pet’s name, your birth date, or anything else that might be easily available.

Use caution when using the internet.

The internet provides a wealth of information, financial offers, shopping and other services. However, at the same time, it opens consumers to an array of online scammers and identity thieves. A few ways online scammers commit identity theft is through phising. Phising is when a pop-up or email claims they are from a business that you may deal with, such as your bank, and they ask you to update, validate of confirm account information. These are bogus and can be costly. Make it a policy to never respond to emails or pop-ups that ask for personal or financial information. You should also protect yourself from spam. Many internet providers offer filtering software to help limit the amount of spam that gets through to email users. Some tactics to help prevent identity theft through the internet are:

• Use creative passwords.
• Protect your personal information. Share your information only with companies you know and trust.
• Know who you are dealing with.
• Take your time. Resist the urge to “act now” despite tempting offers.
• Read the small print.
• Never pay for a “free” gift.

Access free annual copies of your credit report.

You can access free annual copies of your credit reports from all three national consumer reporting companies at www.annualcreditreport.com or by calling 877-322-8228. You are legally entitled to one free copy per year, so make use of that. (Note that if you choose to go through the reporting companies individually they can charge you up to $8 for a copy of your report.)

FTC statistics from their June 2014 report show that people over 65 are the least likely to make use of this important method of protecting your identity. Don’t follow the crowd! These reports are free and easy to obtain. Most importantly, they can help you detect suspicious activity on your existing accounts or find any new accounts opened in your name, allowing you to stop identity thieves and minimize losses.

These ten steps do not require much time or effort on your part, but they will make things more difficult for anyone who wants to illegally access your personal information.

Should I Pay For An Identity Theft Protection Service?

The answer to this is in many cases is you may not have to. Many companies now exist that offer to lock, flag or freeze your credit reports; track your credit report and alert you of suspicious activity; help you rebuild your credit if you do become a victim; remove your name from mailing lists or pre-screened offers; limit your liability, etc. However, as you may have already guessed, you can do most of these things yourself for free!

You can put your own fraud alert on your credit report, and this is free if you have reason to believe you have been or will become a victim of identity theft. You can also check your own credit reports for free once a year. The companies that offer to help you rebuild your name typically do so by obtaining a limited power of attorney, which enables them to deal with creditors and others on your behalf. We have already told you how easy it is to remove your own name from mailing offers. And under the law, unauthorized credit card charges can be disputed and unauthorized debit or ATM charges are limited to a $50 liability if you report the fraudulent charges within 2 days of discovery. So if you are considering one of these services, be sure to read the fine print and understand exactly what it is you’re paying for.

Also, remember that criminals love to take advantage of our paranoia! Beware of offers of credit protection which might be scams, charging you money for protection you are legally entitled to for free.

How Will I Know If Someone Is Using My Personal Information?

How and when you find out you are a victim of identity theft depends on several factors. According to the most recent statistics on the FTC website, 40% of victims discover the misuse of their information within one week. However, in cases where the thieves used existing credit cards or withdrew from existing accounts, the victims were twice as likely to find out the very day it started than in cases where the thieves used the information to open new accounts or commit other types of fraud. This is because, as the FTC explains, “the most common way victims discovered the misuse of their personal information was by monitoring the activity in their accounts.” 24% of victims whose information was used to open new accounts did not discover the problem for six months or more (as opposed to only 3% of those having issues with existing cards or accounts).

If your purse, wallet or other personal information has been lost or stolen, that does not necessarily mean you are a victim of identity theft. However, it does mean that your personal information has been compromised. Even a regular “old-fashioned” thief may choose to use this information once he or she has it, or sell it to others who will.

According to the FTC, the good news is that the quicker the identity theft was discovered, the less money the thieves got and the lower the victims’ out-of-pocket expenses. The sobering news is that over half of identity theft victims have no idea how the thieves got their information. What this means is that you need to be on the lookout for signs of identity theft even when you have no reason to suspect your information has been stolen!

So, what should you look for? Some of the more common red flags are bills that are late or do not arrive, unexpected credit cards or account statements, being denied credit or offered very poor credit terms, or calls or letters about unknown purchases.

5 Common Ways ID Theft Happens

Skilled identity thieves use a variety of methods to steal your personal information, including:

1. Dumpster Diving. Someone rummages through your trash looking for bills or other paper with your personal information on it.

2. Skimming. Someone steals credit/debit card numbers by using a special storage device when your card is processed.

3. Phishing. Someone pretends to be a financial institution or company and sends you spam or pop-up messages to get you to reveal your personal information.

4. Changing of Address. Someone diverts your billing statements to another location by completing a “change of address” form.

5. “Old-Fashioned” Stealing. Someone steals your wallet or purse; mail; bank and/or credit card statements; pre-approved credit offers; and/or new checks or tax information. Someone can also steal personnel records from your employers or bribe employees who have access to this information.

I Am A Victim of Identity Theft. What now?

If you do determine that you have become a victim of identity theft, it can feel overwhelming. You may not have much idea of what damage they have done, or what steps you need to take to stop them and start regaining your good financial standing. Of course, you can always turn to our office as a resource. I hope you will also choose to file this letter so that you can pull it out if you ever need it (although I hope you never do!). The FTC website (www.ftc.gov/idtheft) has comprehensive information as well.

The key is to take action as fast as possible. Below, we have provided you with a step-by-step action list that will help you (or someone you know) resolve issues relating to identity theft in an efficient and hopefully less costly manner.

Get organized.

Make a list of who you need to contact. Start a file where you can keep all your paperwork together in one easily accessible place, and keep this file even after you believe all your disputes have been settled. Whenever you make phone calls, write down the date and time and the name of the person you talked to, along with any notes from the call, and keep these notes in your file.

Place an initial fraud alert on your credit reports.

This alert, which will stay active for 90 days, will ensure that creditors must verify your identity before making any changes to your accounts or opening new accounts. It is only necessary to call one of the three consumer reporting companies. Their toll-free numbers are:

Equifax 1-800-525-6285
Experian 1-888-397-3742 (1-888-EXPERIAN)
TransUnion 1-800-680-7289.

When you place a fraud alert, you can get a free copy of your credit report regardless of how long it’s been since you last requested a free report. Check it carefully for any companies you don’t recognize, accounts you didn’t open or unknown charges on your accounts. Remember to check your own name, SSN, and employer also, as thieves will sometimes change basic information to suit their own purposes.

After you’ve completed the rest of the steps, you can go back and get an extended alert on your credit report. An extended alert stays active for seven years. To get this, you will need to provide a copy of an identity theft report. You will also receive two free credit reports during the first year after placing the extended alert, and the consumer reporting companies will automatically remove your name from all marketing lists for pre-screened credit offers for five years (unless you ask for your name to be put back on before then).

Close any account that may have been tampered with.

Close any account that may have been tampered with or opened without your knowledge. Ask to speak with someone in the security or fraud department at each company or institution. Ask for fraud dispute forms to dispute any charges made by an identity thief. If they don’t have special forms, send a letter to the address given for “billing inquiries.” If new accounts have been opened in your name, ask if the company accepts the ID Theft Affidavit. (Instructions for completing an ID Theft Affidavit can be found at www.ftc.gov/idtheft.) If not, use their fraud dispute forms or send a letter. Be aggressive and persistent. If someone is not giving you the help or the answers you need, ask to speak to a supervisor.

Follow up any phone calls in writing, especially to banks and credit card companies, and use certified mail, return receipt requested, to keep a record of what the company received from you and when. Keep copies of all correspondence in your file.

Once you have resolved any disputed charges or accounts with a company, ask them to put it in writing for you to confirm that the disputes have been settled. This letter may prove very helpful if any errors crop up later on down the road relating to the fraudulent debt or accounts.

Take precautions with new accounts.

When opening new accounts, use a password that is not obvious. Avoid using your mother’s maiden name, your birth date, a pet’s name or other information that is easily available.

File appropriate reports and complaints.

Whenever you have a problem with identity theft, please file a police report (in person, if possible) and provide as much information as you can. Get a copy of it for your file.

File a complaint with the Federal Trade Commission (www.ftc.gov/idtheft or call 1-877-438-4338) to give law enforcement more information to help fight identity theft nationwide.

To file an identity theft report with the consumer credit reporting agencies in order to get an extended fraud alert put on your credit report, you will need to submit a copy of your police report or report to the FTC, along with any other requested proof of your identity.

Where Can I Get More Information?

If you need additional information about specific problems related to identity theft, such as dealing with stolen ATM cards, credit cards, fraudulent checks, etc., the Federal Trade Commission website has an enormous amount of detailed information. To learn more about Identity Theft and how to deter, detect and defend against it, visit their site at www.ftc.gov/idtheft or write to:

Consumer Response Center
Federal Trade Commission
600 Pennsylvania Ave., NW, H-130
Washington, D.C. 20580

Again, we hope that you never need to use the action list for identity theft victims, but we do encourage you to take the simple precautionary actions listed earlier in this letter to help make it more difficult for identity thieves to access your personal information.

If you have any questions about the safety of your financial information, I am happy to discuss that with you, along with any other aspect of identity theft. I hope this report has helped you. I look forward to talking with you at our next meeting. Our goal is to continuously keep you as our client aware of all important financial issues and topics that can help you.

We appreciate the confidence you have shown in our firm. As always, we thank you for the opportunity to work with you.

Sources: “Consumer Sentinel Network Data Book for January – December 2008 – Federal Trade Commission February 2009”on the website (http://www.ftc.gov/opa/2008/02/fraud.pdf); and “FTC Consumer Alert: Seeing Through Stimulus Scams”; OnGuard Online, Your Safety net (www.onguardonline.gov); “Consumer Sentinel Network Data Book for January – December 2013” as posted on the Federal Trade Commission website (www.ftc.gov/idtheft); Copyright 2015.

Source for graphs: www.ftc.gov/idtheft

If you would like a copy of this report for a friend or family member, please call our office at (410) 908-9293 and we will be happy to mail one to them.

Financial 1 Wealth Management Group
10211 Wincopin Circle
Suite 620
Columbia, MD 21044-3431

The post How to Protect Yourself appeared first on Financial 1 Tax.