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New Tax Plan – Medical Expenses

New Tax Plan – Medical Expenses

Q: I have a looming medical expense of $5500. Are medical expense deductions being eliminated under the new tax plan for 2018? Should I incur the expense this year?

A: Thanks for reaching out to us. For 2017 and 2018, the new tax law will allow you to deduct qualified medical expenses that exceed 7.5% of your Adjusted Gross Income. This was scheduled to rise to 10% of AGI under the current law so it will work to the advantage of taxpayers.


Tax Plan Question – QCD

Q: I have two questions regarding the new tax plan. Is there an additional standard deduction amount for over 65 age? Is the qualified charitable donation (QCD) from IRA’s still available?

A: The new tax plan leaves intact the additional $1,300 deduction for each filer 65 and over. It is also our understanding that the new tax plan will not make any changes to QCDs from IRAs.


New Tax Plan – 2017 Taxes

Q: Regarding the tax plan, are the changes going to affect us when we file our 2017 taxes?

A: When passed, the bulk of the changes in the new tax law will go into effect in 2018, so they will not be retroactive back to your 2017 taxes.


Tax Questions – Capital Gains

Q: Does the new tax plan do away with the 3.8% Obamacare real estate capital gains tax?

A: Thanks for reaching out to us. Under the new tax plan there will be no change to the 3.8% Obamacare surtax on investment income.


Retirement Planning Question – Backdoor Roth

Q: With the new tax plan, can individuals still perform the backdoor Roth IRA in 2018?

A: Thanks for reaching out to us. It is our understanding that under the new tax plan you will still be able to take advantage of the backdoor Roth conversion strategy in 2018.


Tax Question – Personal Exemption

Q: What happens to the $4050 personal exemption in the new tax law? I just read on one site that it goes away. If so, then the benefit from the increase in the standard deduction is partially muted, isn’t it?

A: Thanks for reaching out to us. Starting in 2018, the personal exemption will go away and will be replaced by a larger standard deduction. While this amount will still be larger than the old Standard Deduction + Personal Exemption, you are correct that it will be somewhat muted if you are comparing the old vs. new standard deduction.


Tax Question – Personal Items

Q: A friend of mine recently sold personal items (such as jewelry). Will she be she taxed on these items as income? Is there a dollar amount under which she can avoid being taxed? 

A: According to the IRS, if you sell a personal item for more than the original cost of the item, then it should be considered a capital gain on which you pay capital gains taxes. However, only the gain is taxable, so if the items were sold for less than their original cost, then it would not be a taxable event.


Spousal Social Security Benefit

Q: Can my spouse start her full Social Security when she turns 66 and when I start my Social Security when I turn 67 can she shift hers to a Restricted Application for Spousal Benefit only? We are considering this as a strategy. After that, when she turns 70, can she go back to her own claim and, if so, will it have continued to grow at 8% per year or will it be only what she started claiming before she switched to the Spousal Benefit?

A: I recommend we discuss your question over the phone so I can have a better handle on your spouse’s Full Retirement Age Benefit at 66 and your Full Retirement Age Benefit at 66.

To answer your question, your wife cannot file for her lifetime benefit at 66 and then switch to her spousal benefit only when you turn 67, and then switch back to her lifetime benefit at age 70.

You have the following two options to consider:

Option 1:
You file for your lifetime benefit at 66
Your wife files for her spousal benefit at 66
Your wife switches to her lifetime benefit at age 70 (which has grown by 8% each year from 66 to 70)

Option 2:
Your wife files for her lifetime benefit at 66
You file for your spousal benefit at age 67
You file for your lifetime benefit at age 70 (which has grown by 8% each year from 67 to 70)

These two options are mutually exclusive. This means that you can only do one or the other, but you can’t do both. If you would like to schedule a phone call with me, I can run an optimization for you to help you make a decision on the best way to file.


Buy Stock Question

Q: I have been watching a particular stock for years. I continued to watch it but I still haven’t bought it. What are your thoughts? Do you think it’s too late for me to buy it?

A:  I know it’s tempting when you look at a stock like this. I typically feel the same way when looking at a stock that I feel like I missed. It’s frustrating. But in my mind, unless I’m an early adopter, I feel like it’s too late and I’m jumping on a crowded trade. Take comfort in the fact that you own other great franchises, and that investing is a long slow, boring game. Unless you’re one of the founders of that stock, Facebook, or were buddies with Bill Gates in 1976… The only people that really get rich in investing are those that patiently adhere to the marathon.


Equity and Bonds Question

Q: I have a question about asset location. I currently have 85% in equity and 15% in bond allocation. I understand that bonds are not tax-efficient and that it’s best to keep them in tax-advantaged accounts. I have a much larger percentage of my portfolio that is taxable, so that means that my tax-deferred accounts are almost entirely in bonds. That means that my tax-deferred accounts will most likely grow at a much lower rate than my taxable which is all equities. This doesn’t sit well with me. Is this the proper approach?

A: We build income-focused portfolios for our clients with a buy and hold, long term time horizon in mind. With this in mind, we allocate fixed income to Qualified Accounts (IRA and 401k) because this shields the client from paying ordinary income taxes on the income being generated on a monthly or quarterly basis. They only pay the ordinary taxes when taking withdrawals from the account, as needed, not when the income is actually received. We allocate our stocks and ETF’s in Taxable brokerage accounts because we are buying stocks and ETFs to be held for a very long time, which may reduce the overall tax liability because the capital gains tax will only be realized when a stock or ETF is sold. We recommend you sit down with a financial advisor to talk about this in more detail for specific recommendations catered to you.


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