Tag: taxes

Tariffs & Trade Wars

Tariffs & Trade Wars

By Emmet Sullivan , Guest Blogger

 

Many consumers, investors, and ordinary citizens often worry when the word “tariff” is thrown around. Instantly signaling an increase in price in imported goods, the word is almost synonymous with a negative economic impact.  Thinking in terms of the big picture, we need not jump to such hasty, and often misguided conclusions.

What is a Tariff?

First, it is important to understand what tariffs are, and what they hope to accomplish. A tariff is an additional tax imposed on imported goods.  By imposing these taxes on imports, national governments hope to discourage large-scale outsourcing. As a result they hope to spur domestic production by driving import prices up. When the prices of imports go up, the hope is that consumers will look to domestic suppliers for goods they would normally obtain from international sellers.

The current tariff talks in the U.S. are based around metals. Specifically, President Trump wants to impose a 25% tariff on imported aluminum and steel.  The levy is intended to increase demand of domestically manufactured metals by increasing the price of their international substitutes.  This in turn might create a number of job opportunities in U.S. metal production related to the surge in demand.

Trade War?

Many worry that this tariff may result in an international trade war between the U.S. and countries like China and South Korea. There is speculation that trading partners might retaliate with similar tariffs. Therefore, this would make it harder for U.S. producers to export their goods.  However, Canada (the U.S.’s largest supplier of both aluminum and steel) and Mexico (the U.S.’s third largest trading partner) are both exempt from the tariff as part of the ongoing re-negotiation of the NAFTA agreement.

In summation, the tariff should not be an immediate cause for worry. As stated, some of the U.S.’s largest trading partners are exempt from its effects, and some speculate that it has been implemented as a negotiation tool for international agreements like NAFTA. The tariff’s long term effects remain to be seen, but we caution against fear of an economically-harmful trade war at present.

Senate Tax Reform Highlights

Senate Tax Reform Highlights

by Kristi Desepoli, Heritage

Tax reform, a campaign promise as old as the walls of congress. This weekend, a 51-49 vote occurred on Saturday by the U.S. Senate to pass a tax reform worth about $1.4 trillion. Although the bill is not yet finalized, this brings many Americans much closer to a tax cut.

Here is how the latest tax reform legislation would affect you:

Deductions

The bill allows deductions of up to $10,000 in local property taxes, but does away with federal deductions for state and local income and sales taxes. As far as personal deductions, the bill nearly doubles the standard deduction level to $12,000 for individuals and $24,000 for couples; up from $6350 and $12,700 respectively.

Tax Brackets

The Senate bill keeps seven tax brackets, but reduces them to 10, 12, 22, 24, 32, 35 and 38.5 percent. Currently, the seven brackets are: 10, 15, 25, 28, 33, 35, and 39.6 percent.

Corporate Tax Rates

The Senate bill will cut the current rate of 35 percent to 20 percent, but it calls for a one-year delay in dropping the rate.

Tax Reform and 2017 Returns

The changes will not have any impact on your taxes for 2017.

President Trump and congressional Republicans have vowed to make tax reform law before the end of the year. If that is the case, most of the provisions would take effect on January 1st.

 

2 Helpful Tax Strategies for Year End

2 Helpful Tax Strategies For Year End

By Kristi Desepoli, Heritage

If you’re like most taxpayers, you have no clue about the most effective tax strategies for these financial vehicles – especially if you lack access to expensive accountants and attorneys. Here’s some guidance. Here are two common situations and innovative solutions that might help.

 

You are self-employed and want to save tax.

You feel you pay too much in taxes and want at least $17,500 of deductions. You are not an employee with a company that offers a 401(k) retirement plan but you still need more deductions than the $5,500 annual contribution ($6,500 if 50 or older) limit for a traditional individual retirement account.

 

Solution: a solo 401(k), aka an independent, one participant or family 401(k). Using this vehicle in this case hinges on your being a sole proprietor or operator of the business with your spouse, and have no nonfamily employees.

 

Let’s say your spouse works in the business with you and is younger than 50.

He or she can contribute up to $17,500 annually to the solo 401(k) plan, and this is called employee salary deferral of up to a full year’s compensation. If your spouse earns $17,500 this year ($18,000 in 2015) he or she can put all of $17,500 into the solo 401k(k) plan.

 

Assume you are 50 or older and now also contribute a maximum $23,000 (the maximum $17,500 contribution for 2014 tax year plus the $5,500 catch-up amount) employee salary deferral to a solo 401(k) plan. With an eye to even further deductions, you can also kick in the employer contribution – remember, you are both the employee and the employer – of 20% of your net earnings if you are a sole proprietor and 25% if your business is a corporation.

If you are 50 or older by this Dec. 31, you can save up to $57,500 in the solo 401(k), a combination of the employee salary deferral and the employer contribution. For 2015, the total maximum contribution increases to $18,000 salary deferral plus $6,000 catchup plus $35,000 employer contribution, or $59,000 total.

 

Additional points:

 

You can still contribute to an IRA in addition to your solo 401(k) contribution.

 

Setting up a solo 401(k) can be inexpensive and easy. A reasonably priced independent 401(k) administrator can cost as little as $500 for set up and $500 in annual fees. Brokerage firms can offer lower costs but you then are tied to their investment choices.

 

If you have non-family employees and want to offer a workplace retirement plan, your normal 401(k) plan may come with potentially higher set-up and maintenance fees. You will also be subject to nondiscrimination rules. This means that you must allow your permanent employees into the plan and that your employer profit contribution must treat all employees – including you the owner – equally.

 

You want to leave a tax-free legacy.

In one excellent example, a retired nurse, married, 75, wants to leave a legacy to her 9-year-old twin grandsons. The most tax-effective strategy: Combine the Multi-Generational (MGIRA) strategy with a Roth IRA conversion.

 

The MGIRA, aka an extended or stretch IRA, allows you to designate a successor beneficiary to pass on funds you saved for retirement. Converting other kinds of IRAs to a Roth IRA offers many advantages, including eventual tax-free withdrawals of qualified distributions.

 

We structured a Roth conversion of the nurse’s $385,000 traditional IRA and paid the conversion tax with non-IRA funds. The two grandsons will each get slightly more than $2 million tax-free over their lifetimes in annual checks without ever raiding the principal. Now that is one effective tax strategy.

 

Let’s hope they raise a glass to the grandma who will still be looking after them.

 

Trump Tax Reform Plan

Trump Tax Reform Plan Released

 

Just days before the 100-day mark of the Trump administration, we were presented the outline of what is being called “the biggest tax cut” in US history. Trump’s tax reform calls for big cuts in federal taxes for businesses and a simplified basis for individuals.

But what exactly does this big news mean for investors?
  • Even a minor decrease in tax rates on businesses can have a big benefit on their bottom line. Rather than use the extra money for expansion or other projects, it is likely that companies would use those dollars to increase stock buy-back or raise their dividend. The end result: more wealth for shareholders.
  • With more favorable tax rates on corporations, foreign companies will be more inclined to increase business within the Unites States. More companies will begin production domestically rather than seeking international options, which in turn will drive U.S. economy upwards.
  • Personal tax rates are projected to become a whole lot more simplified changing the existing seven brackets down to three; 10%, 25% and 35%. Income ranges for these amounts have yet to be announced, however; the proposed rates would ease the tax burden on most Americans, freeing up dollars to be invested.
  • In addition to lower personal tax rates, Trump wants to double the standard deduction for individuals. This would look like a deduction of $24,000 for a married couple. Essentially this means that the first $24,000 earned is not taxed. This creates yet another tax savings for individuals, and more dollars in the pockets of tax-payers.
  • The proposed plan lowers the capital gains tax from 23.8% to 20%; eliminating the portion that is used to fund the Affordable Care Act. This reduction makes investing in the stock market much more attractive.

While companies begin to save money on taxes and drive their market share, it is going to force investors on the sidelines to take part in the market gains. Extra money in the consumers pocket due to having a smaller tax burden will also contribute to a market up rise; while having a smaller burden on the backend when it comes to capital gains.

About the Author

Kristi Desepoli is an associate financial advisor at Heritage Financial Advisory Group. Heritage specializes in investment management and financial planning for business owners and executives.

8 Tax Credits to Get More from Uncle Sam

8 Federal Tax Credits to Get More from Uncle Sam

By Jackie Waters, Guest Contributor from Hyper-Tidy.com

 

Every year, federal tax credits can change. Some get added, others are taken away, and changes may occur within the ones that have been around for ages. Tax credits are one way to maximize how much of your money you get to keep. In some cases, they feel a bit like a tax-free “bonus” to offset costs. However, most taxpayers only know about a few federal tax credits—and the majority of taxpayers don’t have a clear understanding of what those credits entail.

Tax credits and tax deductions are wildly different, but often confused. Deductions reduce your taxable income. The goal is to reduce your income as much as possible so you ideally fall within a lower tax bracket (and thus pay less in taxes). However, credits reduce taxes directly and aren’t tied to tax rates. Still, the actual value of each credit might be informed by your basic tax liability. There are also nonrefundable credits which can reduce your taxes to zero, but anything leftover is lost (in other words, you won’t be getting a check for the difference).

Most tax credits are aimed at families and parents, and include:

  1. Child Tax Credit. For the 2016 tax year, you can claim up to $1,000 per child. This credit is designed to offset the costs related to caring for children.
  2. Child and Dependent Care Tax Credit. This credit is available on a case by case basis. If you paid someone to take care of your child or dependent who is under 13 years old, you likely qualify. However, this credit works more like a deduction (which is how they can get so confusing!).
  3. Adoption Tax Credit. Adopting a child can be expensive. Taxpayers can claim up to $13,460 for the 2016 tax year for each child. Adopted children must be under 18 years old, or over 18 if they have special needs.
  4. Credit for the Elderly and Disabled. If you’re over 65 years old, or if you’ve already retired and have a permanent disability with taxed disability income, you may be eligible for this credit. However, there are income limitations.
Home, Sweet Home (and other Credits)

The second most popular credit category is for homeowners. Buying a home is probably the most expensive purchase you’ll ever make, and Uncle Sam can help ease the burden. There are also special credits for employees, medical expenses and more:

  1. Home Energy Tax Credits. If you installed a green, renewable-energy item in your home, you can get a credit of up to 30 percent of total expenses. However, not all items qualify. Popular items include solar panels and geothermal heat pumps. Talk with your CPA about qualifying purchases.
  2. Earned Income Tax Credit. One of the most well-known credits, this one is for those who had low or moderate incomes in 2016. Also known as the EITC, it helps reduce taxes, and may even qualify you for a refund.
  3. Foreign Tax Credit. If you worked outside the United States, the FTC is designed to protect against double taxation. You don’t pay federal or state taxes for the money earned while you worked abroad, but you do still pay Medicare and Social Security taxes.
  4. Premium Tax Credit. If you have low or moderate income and bought health insurance via the Health Insurance Marketplace, you may qualify to have a credit paid to your insurance company to minimize monthly premium payments. Another option is to claim the full credit on your taxes.

These are just a few of the tax credits you may qualify for during the 2016 tax year. As you plan for next year’s taxes, pore over the qualifications to make sure you’re not overpaying or missing out on any credits (check out some software here that may help you). The sheer volume of tax credits available is another reminder of how critical a CPA can be when planning your financial future.

About Jackie Waters

Jackie Waters is a mother of four boys, and lives on a farm in Oregon. She is passionate about providing a healthy and happy home for her family, and aims to provide advice for others on how to do the same with her site Hyper-Tidy.com.

Trump Agenda in Doubt?

Trump Agenda in Doubt After Healthcare Fail?

By Mike Desepoli, Heritage Financial Advisory Group

It was supposed to the first step in the Trump administrations plan to make America great again. While nothing on the Hill comes easy, with a congressional majority a victory was expected. After 7 years of publically campaigning for a shot to fix healthcare, the republicans failed spectacularly to do just that. Unable to gather the necessary votes for a full repeal and replace of Obamacare, they opted to scrap the vote and move on. It leaves you to wonder how they had 7 years to come up with a comprehensive replacement plan and failed.

Future plans in doubt?

More importantly, what does it mean for the future of the Trump agenda and their grandiose plans? In terms of the financial markets, the focus immediately turns to tax reform. A large part of the recent run up in stocks has been attributed to the expectation of tax cuts. It has been viewed as a near certainty that with a congressional majority that the republicans could easily and swiftly pass a tax reform bill. However, when you take into consideration their lack of unity on the issue of healthcare suddenly tax reform is no sure thing.

It is worth noting that President Trump has indicated that they will move on from healthcare and deal with taxes. I think the initial thought in the wake of the healthcare defeat was that they would keep trying their luck there before moving on to item two of the agenda. That prospect has investors worried that tax reform may not be coming any time in the near future.

In the markets..

There is likely to be a lot of volatility in the weeks and months ahead as the market grapples with the new reality that even the Republican party appears divided. There is no doubt the administration expects resistance from the Democrats.  But I don’t think anyone expected this type of division in their first shot to pass a major bill. Whether or not they will be prepared to regroup and move on undeterred remains to be seen. Make no mistake, investors around the world will be waiting anxiously.