InnOvation Capital & Management, LLC
IntelDigest
LAW – POLICY – FINANCE – MARKETS
INFORMATION FOR THE ENTERPRISE AND INVESTOR
NOVEMBER 29 , 2017
Contact Richard Power with comments or questions. IntelDigest is intended for the use of our clients and colleagues. Material may not be reproduced, forwarded or shared without express permission.
In our last three issues of IntelDigest for 2017 … before taking a break from publication during the Holiday Season … we will concentrate on Year-End matters and planning, with relation to both investments and taxes.
As promised, we will continue to discuss the Equities Markets and The Economy. Since August, we have returned several times to this topic; in prior November issues, we have provided an UPDATE on investment prospects and the “Melt Up” thesis for the U.S. and global economies.
In our two December issues, we will go into more detail on this thesis, illuminating matters and sectors for which caution is recommended going forward, or companies which are not expected to advance further in the next year or two.
At this time, a full 30 days before the year comes to a close, it is important to address certain matters which require decisions or action before time runs out on 2017. Therefore, we devote this issue to steps which you can take in Year-End investment planning and Year-End tax planning.
Required Minimum Distribution (RMD)
Once you reach age 70½, tax law requires you to start taking distributions from your qualified retirement plans, including Traditional, Rollover, SEP, or SIMPLE IRAs. This is the Required Minimum Distribution (RMD), and your first one (for the tax year in which you have turned 70 ½) must be completed by the following April tax deadline.
Your second, and all subsequent RMDs, must be taken by December 31 of the applicable tax year. Distributions are fully includible in your gross income for income tax purposes. If you fail to take the required minimum amount in any year, you could face a hefty 50% excise tax on the missed amount, plus more complications in your tax return preparation.
Retirement Contributions
For those of you who have not yet retired, plan to make tax-deductible contributions to IRAs, 401(k) plans, and other qualified plans before the regular tax-filing deadline. You have until Tuesday, April 17, 2018, to make these contributions. However, it is in your best interests to invest these amounts sooner and capture potential gains while the markets continue to sizzle. Be sure that your investment company understands the correct tax year to which your contributions pertain, and reflects the appropriate year in your statements.
Your total contributions to all of your traditional and Roth IRAs cannot be more than $5,500 per taxpayer ($6,500 if you’re age 50 or older); double those figures if you file a joint income tax return.
For 401(k), 403(b) and certain government plans, the employee contribution limit is $18,000. If you’re over 50 years old and still contributing to employee and government plans, you can add an extra “Catch Up Contribution” in the amount of $6,000 for 2017.
If you have a SIMPLE IRA for self-employed individuals, you may deduct up to $12,500 ($15,500 if you are age 50 or older). The deduction for contributions to a Simplified Employee Pension (SEP) account maxes at $54,000, or approximately 20% of your adjusted net earnings. You have until your 2017 tax filing deadline, including extensions, to both open and fund a SEP.
Delaying Social Security Benefits
If you are of an age to qualify for Social Security retirement benefits, keep in mind that you have a high probability of increasing the amounts which you will receive over your lifetime … by simply delaying commencement of benefits.
There are several strategies for maximizing your benefits, and they can be quite complex. However, the simplest strategy is to delay starting Social Security benefits until you turn 70 years old. Your benefit could be as much as 32% higher at age 70. If you live to normal life expectancy, you will receive much more in benefits. If you live a good deal longer … into your 90s or 100s … you would receive a great deal more.
Get Ahead of Tax Changes
No one is sure what form the Final Tax Reform Bill will take. But, to be safe, you should get out ahead of Congress and the Internal Revenue Service. Plan to take the usual Itemized Deductions this year, before the deductions are reduced or taken away by new tax laws.
Pay your 4th Quarter Estimated Taxes in December, to preserve your deduction for State and Local Taxes. Similarly, pay property taxes in December, and make Charitable Contributions before December 31.
Rebalance Your Portfolio
Act soon (certainly before Christmas) to turn investment losses into tax savings for 2017. If you have losing assets in the portfolio, they can offset capital gains or produce capital losses, which will reduce your income taxes. Sell in the next three weeks so that the transactions will clear before the end of 2017.
This form of Tax-Loss Harvesting should be part of your normal year-end routine, but could be more important this year simply because of the uncertainty of the imminent tax legislation. Many investors will make a serious review of their portfolios only once per year, if that often.
All investors should use the year-end to reassess their portfolios and investment objectives.
Funding Education
The American Opportunity Tax Credit is still available through the end of 2017 for you, your spouse, or a dependent enrolled in a degree program. You can take the credit for up to $2,500 of tuition, fees, and course materials. The Lifelong Learning Credit is a 20% credit on the first $10,000 of qualified education expenses. Each credit is subject to restrictions.
Student loan interest up to $2,500 is deductible if your modified adjusted gross income does not exceed $80,000 ($160,000 if married and filing a joint return).
If you have children or grandchildren, consider starting college savings programs for them. Start now while the investment market is hot; open a tax-advantaged plan while they’re still toddlers.
You can create a 529 account (see the White Papers section at www.powerlaw.us for details), Coverdell education savings account, or a simple custodial account. Remember that each state has specific rules pertaining to such plans.
Donations to Charity
Make donations to charitable organizations well in advance of December 31 in order to ensure a tax deduction for 2017.
Volunteer Work on behalf of charitable organizations can also generate tax deductions. If you have spent a significant number of hours volunteering at a shelter or church or food pantry, or have participated in relief efforts, you can deduct actual expenses incurred plus 14 cents/mile for use of your vehicle.