The Classic Story of a Spender and a Saver

The untypical financial planning blog! Yes, my wife came up with the title as I get teased a bit for being a little frugal. However, we do try to find some humor in it. Hopefully some of these random thoughts will help you in your financial journey, So enjoy! - James Daniel, CFP®, CFA, CMT, EA Now for the DISCLAIMER: This blog is not intended as financial advice. We encourage you to consult with your personal advisor before acting on anything you read here.

bank consolidation

Written on February 7th, 2019 by Jamesno shouts

Today BB&T and Suntrust announced a merger.  I guess to survive and compete with the mega financial institutions they had to, but dang look at this graphic from 1996 to 2009 of how the last few standing have gobbled up everyone: (click on image and it will enlarge for viewing)

20% pass through deduction for Rental property income

Written on January 30th, 2019 by Jamesno shouts

The IRS has clarified the new tax law and its impact on rental properties.  Originally the wording stated that small businesses and REIT’s would get the 20% pass through but for owners of residential rental properties it was unclear.  They have now issued guidance and if you treat your properties like a business and spend over 250 hours annually on them (client service, collecting rent, repairs, etc) then you meet the safe harbor test to deduct 20% of net rental income from passing through to your tax return.

More info here:  https://www.irs.gov/pub/irs-drop/n-19-07.pdf

Medicare is adding home health options

Written on November 12th, 2018 by Jamesno shouts

This should not be considered a replacement for Long Term Care insurance, but Medicare is relaxing rules on home health/assistance as they realize it is cheaper than hospitalization:

https://www.apnews.com/55e619262d5d455f9a9ac35900e3f3a1

Reminder on how the new Tax Law affects your 2018 deductions

Written on October 24th, 2018 by Jamesno shouts

As we near the end of 2018, here is a reminder of the major change for tax filers next year:

- The biggest item of the tax law change is the caps on itemized deductions that will move more people to use the “standard” deduction:

  • SALT taxes:  state taxes, property taxes, sales taxes are going to be capped at a combined $10,000 deduction on your schedule A.  This means if you are a high income earner that pays a lot of state tax or you pay a lot of property taxes, you will see a cap on total deductions which means higher income shown on your tax return.
  • Mortgage Interest:  interest on primary mortgages up to $1M is still grandfathered in for loans prior to 2018, loans taken out this year the interest will be capped on loans up to $750k
  • Charitable Deductions:  You can still deduct all charitable contributions, however if your charitable + mortgage interest + SALT taxes are less than $24k you will just use the Standard Deductions.
  • Misc Itemized Deductions:  These pretty much are eliminated, including moving expenses and unreimbursed job expenses (moving expenses still deductible for members of military).

Standard Deduction:

  • Single $12,000 / married $24,000
  • if over 65 add $1300 to that deduction
New Tax Credit:
  • kids under 17 you get a child tax credit of $2000 each.  A credit is a dollar for dollar reduction in taxes owed.

Personal Exemptions:

  • These have gone away with new tax law, sort of replaced with that Child Tax Credit above

Summary:

Unless you have a lot of mortgage interest and charitable contributions, odds are you will now just do a standard deduction.

NOTE:

If you are over 70 1/2 and required to do RMD’s, and you make charitable contributions but will fall into the standard deduction category – consider making your charitable contributions direct from your retirement account (IRA).  These will go towards your RMD requirement and not be taxable as income when sent direct from your IRA.

Is my Home Equity loan interest still deductible?

Written on July 16th, 2018 by Jamesno shouts

Prior to 2018, mortgage interest on $1M primary mortgage and Home Equity loan interest on a loan up to $100k were deductible on your Schedule A itemized deduction form of your tax return.  With the new tax law that has changed and caused a bit of confusion:

For mortgages taken out in 2018, the total combined mortgage loan amounts (primary and home equity/second) where interest can be deducted has dropped to $750,000.  The question is what about Home Equity Loan interest?  The new tax law made it sound as if Home Equity loan interest would no longer be deductible, however per the IRS that is not the case.  If a Home Equity loan was taken out to specifically make improvements to the property then the interest on the loan can still be deducted on your Schedule A.  The caveat is that the loan has to be to improve the residence it is loaned against, no using it to pay off credit cards, vacations, etc…

For more info see the IRS’ statement on this:  https://www.irs.gov/newsroom/interest-on-home-equity-loans-often-still-deductible-under-new-law

non-deductible IRA distributions?

Written on June 22nd, 2018 by Jamesno shouts

This question came up recently with a client that had both Non-deductible contributions in an IRA mixed with Pre-tax (deductible) contributions.  When you take a withdrawal how much is taxable?  It is called the Pro-Rata rule with the IRS and you have divide your after tax contributions by the entire retirement balance to figure out non taxable basis.

Kudos to Wells Fargo for putting out this great info sheet that explains the whole thing:  https://www08.wellsfargomedia.com/assets/pdf/personal/investing/retirement/taxes-and-retirement/pro-rata-rule.pdf

IRS videos

Written on May 29th, 2018 by Jamesno shouts

Did you know that the IRS has short video tutorials on a variety of topics?  These videos discuss individual tax items as well as questions small business owners might have regarding payroll withholdings and retirement plans:

https://www.irsvideos.gov/Individual

Time to adjust your tax withholdings?

Written on April 17th, 2018 by Jamesno shouts

As we wrap up the 2017 tax year and look forward to the tax cuts of 2018, many are wondering if they should adjust their withholdings?  In my small sampling statistic, about 85% of the clients I do taxes for will see a benefit from the 2018 Tax Cuts.  Those that are still earning a regular paycheck have the option of adjusting their current withholdings to keep more money throughout the year or simply wait and get a refund when they file next year.

Whether you did your own taxes or worked with a tax pro, you should have gotten an estimate on what your 2018 taxes would look like based on the new rules.  From there you can figure out if you need to adjust your withholding’s through your employer by submitting a new W4.

So how do you make the decision on what to put in your W4?  The IRS has a withholding calculator to help you get closer to your actual tax liability under the new rules here: https://www.irs.gov/individuals/irs-withholding-calculator 

Once you determine any changes you need to make, fill out a new W4 and hand in to your payroll department:  https://www.irs.gov/pub/irs-pdf/fw4.pdf

Does the news affect the markets?

Written on March 9th, 2018 by Jamesno shouts

A communication that I sent out to clients this morning, along with a picture that to me shows the predestined potential market moves ahead:

“Another week, another headline out of DC as the Chief Economic Advisor, Gary Cohn resigned.  Last week it was tariffs, this week a departure, next week it will be something else.

 The market initially gapped down overnight Wednesday on the news of Cohn’s departure but promptly worked its way higher the next day to close relatively flat.  Today (Friday) morning we are gapping higher premarket on good jobs numbers.  (don’t be surprised if we close a little lower today, as we are still in a consolidating sequence in the market)
Why does news sometime matter and sometime not?  The market is made up of humans around the world that trade based on news flows, but the only thing that matters is where the market stands at the daily close.  Sometimes news events will matter but many times it is simply noise for short term traders to try and capitalize on.
There are many in the academic field that will try and tell you markets are “efficient” meaning that they price in all known and unknown information and that no one has an edge.  However, any time you have something controlled by human beings, there is no possibility of it being fully efficient.  There are to many opinions, biases and emotions at play for the market to fully price in everything.  That is the reason we get gap downs and gap ups on various news flow.  At the end of the day it isn’t the news that matters, it is the markets reaction to the news that matters.
I’ve been at this long enough to learn to be skeptical of the news, yes I see the headlines but instead of letting it steer my biases, I simply want to see what the markets reaction to it is.
Eventually the news cycle will turn, and it may have a negative affect on the market that lasts for more than 24 hours.  However, it will be more than a White House news story.  It has to be something substantial that affects liquidity, employment or economic activity.  Interest rates, inflation and trade are the ones that come to mind.  When I start to see headlines about those items is when I know to pay closer attention to news flow.”
Market update:
If the market is consolidating as shown below and hits point E and holds early next week, the odds favor a strong move higher into the end of the quarter or early April(north of 2900).  There is still a chance that the consolidation breaks the other way (down) so that bottom trend line is very important support.  We don’t want to see the S&P drop below 2680 – 2700 or a swoosh lower to 2400 is in the cards.  Triangles are generally penultimate patterns suggesting that if we move higher it will be an ending run for awhile:

How will this correction play out?

Written on March 2nd, 2018 by Jamesno shouts