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What to know about tax laws l Insightful Investing


January 3, 2018

Happy New Year!

2018 has begun. The new tax law will be in effect starting now!

And if you are like me then your eyes are probably glazed over. How does this affect me?

I am not sure yet.

So I will try to break some of this down without getting too deep into the weeds. Keep in mind I am an investment advisor, not a tax expert. The two are connected to some degree. I let my CPA handle all the heavy lifting and you should too. Tax and monetary policies affect the investment climate. This is not tax advice.

Before I begin, let me get this pet peeve out first.

There are really two sets of tax rules, one for business owners and one for employees. I am a small business owner and my wife is an employee. We have itemized our deductions for 30 years and will continue to do so. My pet peeve is that in our culture there seems to be war between these two classes of people.

I resent our politicians for this war.

They get elected based on this war and it is not right. I would appreciate the facts without the hyperbole. It is disingenuous and disgusting. We should appreciate all the people, from every party, who are willing to run and serve in office. What a thankless profession. Without them we would devolve into anarchy and some form of government we would all hate.

I love our system, even when my party loses. The greatest day during our election cycle is on inauguration day when power passes from one president to the next without tanks in the street! I am so thankful I am an American. And you should be too!

There are new benefits for individuals as well as businesses. There are even benefits for people who don’t pay taxes, specifically they can earn more money before having to pay any taxes. Here are some of the changes, in no particular order. And I am not covering all of the changes, just those that may be easily described.

Standard deductions

The standard deduction has dramatically increased.

The standard deduction for a single tax payer has increased from $6,350 to $12,000 and increased for a married couple from $12,700 to $24,000.

Last year, my itemized deductions were above $24,000.

This new law may effect those who make charitable contributions. Even if I was not able to deduct my charitable giving, I would do it anyway.

Expansion of the 529 education savings account

The 529 was created in 2001 for college costs.

These accounts can now be used for primary and secondary education up to $10,000 per year per student.

The contributions to a 529 are not deductible but the growth on the investments is tax-free and will not be taxed when used for education expenses.

The contributions are considered gifts. Each parent may contribute $15,000 per child, per year without affecting the overall estate tax gifting rules.

This is a very nice benefit for those people who would like to send their children to private primary or secondary school.

Another nice benefit of 529 accounts is they can be handed from child to child; there are accumulation limits depending on the state you live in. Check with your advisor.

Estate and gift taxes

The limits for estate taxes exclusion have doubled. This means estates of a single taxpayer could pass $11,000,000 to the next generation without a federal estate tax. Couples could pass on $22,000,000.

When I started in the business in 1988 this number was $650,000 for single tax payer and $1,300,000 for a couple.

This does not really impact that many people but it is a significant change.

Dividends and capital gains

These tax rates stay the same. This is one of those “class warfare” categories.

Let me get back on my soapbox for a moment.

For most people the maximum rate they will pay on any long-term capital gain or dividend is 15 percent. So if you bought Amazon stock in the beginning and had a million dollar capital gain, most people would pay 15 percent tax on the gain verses say somebody who earned $299,000 and ended up in the 20 percent income bracket.

So the class war goes something like this; why do rich people get this break?

I will say this in rebuttal; they most likely paid income taxes on the money they saved to buy Amazon to start with. Then they took the risk to invest their money.

They had a chance of losing it, all of it. Our country was built on risk takers.

It is in our cultural DNA.

Our tax laws have provided incentive for people to take risks. If you don’t take the chance, you don’t get the benefit.

Let’s not begrudge those who do. To a large degree, they are the heart and soul of our country.

401(k)s and IRA accounts

These accounts were largely untouched. There is a minor change if you convert an IRA to a Roth.

But this affects such a small percentage of people it almost not worth mentioning.

Talk to your advisor.

Time will tell if these tax changes will be good for our country. I always hope that the laws our leaders pass are good for our country. And you should too.

Jeffrey Moormeier of JG Moormeier Financial is a Mukilteo-based financial advisor affiliated with KMS Financial Services, an SEC registered investment adviser. His column does not represent the opinions of KMS Financial Services, nor is it an official prediction or recommendation of any kind. The opinions expressed in this column are generalizations. For advise catered to your specific financial circumstances, contact Jeff directly at or 425-931-8898.


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