Joel’s Published Column



Strategies for the Cheerful Giver

To say that there have been a lot of changes in Washington could be the understatement of the decade, but one change that should be beneficial to tax payers in the short term is the new Tax Reform act that was passed by congress in December of 2017. Not only is this going to lower the corporate tax from 35% to 21% indefinitely, but it will also be lowering individual and joint marginal income tax rates as well. Although the tax cuts for individual’s sunsets in 2026 *, it should provide a well needed shot in the arm to our middle class in America.
One other feature that will be affecting individuals is that the standard deduction that is able to be claimed by individuals and those filing jointly will almost jump up by double under the new law. What this means is that it will be much harder to itemize your deductions. For many people, this won’t matter much because it mainly benefits those who give substantial amounts to charity, and also those who have large mortgage expenses.

A strategy that I am sharing with clients who are charitably inclined is a strategy called “Bunching”.

This essentially is where you give 2 years-worth of charitable giving in one year, to ensure that you are able to itemize your deductions that year. Let me give you an example.

Example: A family may give a certain amount to their church every month during the year. This amount, combined with their mortgage interest, property taxes and other deductible items get them very close to being able to itemize, but doesn’t quite get to the $24,000 standard deduction limit. What I would encourage people to do, if it is within their means, is to pull forward their giving for the following year all into late December of this year. Of course you would have to have ample cash reserves to do this, but essentially you would make the following years gifts all in December, and then not do your normal monthly giving throughout the next year. The Charity would be happy to have those funds in advance, and you would be able to take advantage of itemizing your taxes that you. In the following year you are still entitled to the $24,000 standard deduction even though your donations for that year are much lower. So essentially, if planned for correctly, cheerful givers could do this every other year systematically to ensure that they are not losing the ability to deduct their giving.

“Bunching” is a strategy that does not apply to everyone

For those people who are consistent in their giving to charities, this could be a very viable strategy. Talk to your financial advisor or your tax preparer about if this strategy makes sense for you. It could be very beneficial to you and allow for you to keep more money out of the Government’s hands and more in yours and your favorite charities. I hope by now the cold weather has broken and we are well on our way to a beautiful spring season.


* – 03/07/2018; New: IRS Announces 2018 Tax Rates, Standard Deductions, Exemption Amounts And More

You Still Have Time

Tuesday April 17,2018: the last day that we have to file our income taxes on our 2017 individual earnings. That is, of course, without filing an extension. We also have from now until that day to make our contributions into an Individual Retirement Account. Many are asking whether this new tax law is going to affect what type of retirement account they should be using. In short, it is very much dependent upon the individual’s situation and goals; but, it is also a function of their household income level and whether they are being covered by an employer-sponsored qualified plan.

For 2017, the limits on contributions are the same for both Roth and Traditional IRAs.

We are able to put a total of $5,500 into either, and if over the age of 50, there is an extra $1,000 “catch up” provision that allows for total contributions of $6,500.
Choosing between contributing to a Traditional IRA and a Roth IRA can be a daunting task, but here are some guidelines as to the tax deductibility of the Traditional IRA which may help in the process.

If you are a single filer and covered by an employer-sponsored plan, you can deduct the full amount of your contributions into your Traditional IRA If your income is less than $62,000. This deductibility will phase out if you earn between $62,000 and $72,000; the deduction is completely phased out for you if your income exceeds $72,000.

If you file taxes jointly or with married status, the income levels for deductibility are slightly higher if covered by an employer plan. You would have total deductibility of your IRA contribution if your household income is below $99,000 and it is gradually phased out for incomes between $99,000 and $119,000.

If your employer does not offer a 401k plan, then there are no income limits as to the deductibility of your Traditional IRA contributions. In terms of your income, the sky is the limit.

As for the Roth IRA, your contributions are never tax deductible.

The growth inside of the Roth IRA could be completely tax-free for future qualified distributions. Distributions could be subject to taxation if they are held less than 5 years or withdraw before age 59 ½. There are though, income limits that may prohibit you from contributing. As a single filer, your income needs to be below $118,000 to contribute the full amount into your Roth IRA, and it phases out between that level and $133,000. For households filing married or jointly, the income limitations start at $186,000 and the full contribution amount phases out again between $186,000 and $196,000.
One other thing to consider is that in 2018, there is the possibility that your income tax bracket could be lower due to the new tax laws. You may be able to make a tax-deductible contribution for 2017 into a Traditional IRA when your tax bracket is higher, and then make Roth IRA contributions going forward for the next eight years if you are in a lower tax bracket. You may also want to work with your tax advisor to determine whether it could be of value to you to start converting your Traditional IRA into a Roth IRA over the next eight years while this tax law is in place.*

If the Trump Economic Plan doesn’t work out like he hopes it will, and we just end up adding a lot to our national debt, we very well could have much higher tax rates in the future to pay for all these current tax cuts, the military spending, and proposed infrastructure bill. In that case, your Roth IRA qualified distributions could come in very handy.

My Take

So many people I run into lately seem to be in a complete state of confusion regarding our current economy and the overall stock market. They can’t understand why the markets feel “okay” about such a politically incorrect, volatile and sometimes downright vile person in the Oval Office. My response to this sentiment lies in something that I’ve never done before; I’m going to quote myself from my November 2017 My City article: “The possibility of pro-economic growth policies could inspire animal spirits in the markets for hope of a brighter economic future.”

Americans have forgotten what strong economic expansion feels like.

Although many disagree with the President’s antics, capitalists couldn’t care less what he says – they care about what he is doing. Since taking office, President Trump has broadcasted his entire agenda: Business! Business! Business! He believes that the best path to economic freedom for the marginalized in America is to have extreme economic growth in which those who want to be employed can start down the path to financial freedom through the means of a good job.

Congress recently passed what I would consider to be the largest piece of Pro-Economic Growth legislature in our history – the tax reform act to cut the corporate tax rate from 35% to 21%. The entire theory behind this tax bill is that companies will be enticed to use the excess profits to invest in new property, plant, equipment and labor. A labor shortage will then attract more people back into the workforce as inflation sets in and wages start to increase. These economic forces will, hopefully, then create a self-fulfilling prophesy of more workers, more earnings and more demand for products. Will this work? I sure as heck hope so; because if it doesn’t, we’ll be paying off one huge tax bill for decades to come.

I’m going out on a limb here and predicting the President’s next steps.

I believe that he will very aggressively target an infrastructure-spending bill. This is the same spending bill that President Obama wanted, but was unable to get into place due to Republicans blocking his efforts. One might ask, “Infrastructure spending? That’s not a Republican thing to do,” and one would be right to ask. The key here is that President Trump isn’t a real Republican … he’s a businessman who saw a road to the White House through an angry Middle America. So, my prediction is that Donald Trump will use Universal Health Care and DACA as bargaining chips to get a $1 trillion infrastructure bill and build his “wall.” Three out four of these initiatives are democratic in nature, with of course the “wall” being for his ego. He would do this because he doesn’t care about debt like your average Republican claims to, and he knows that the spending bill would give the economy a huge shot in the arm. Heck, he may even throw in that he won’t run as a Republican in the 2020 Presidential election to get the entire Congress to vote for the measure. If he was able to cut corporate taxes, get a spending bill, universalize healthcare AND build his wall, all in four years – he may just drop the mic, walk offstage, go back to his old life and be a one-term president. Of course, not before saying, “You’re welcome, America.” Or, who knows … maybe he would keep his word and not run as a Republican, but square off against Oprah as an Independent. Well, now I’m just being crazy!

Hope your year’s off to a great start and I hope you enjoyed the fairytale ending of this crazy story.

A Recap of the Year that was 2017

Happy New Year!

As 2018 is now in full swing, I hear from a few different sources that we are in for a long and precipitous second half of winter. To summarize the year of 2017, I’d like to touch on a few different points. I may even offend some of our readers; but hey, being offensive was something brought back into the mainstream in 2017, right?

I work with many different types of clients, but in general, I can break them down into four groups: the Liberal Left, Democrat, Republican, and Conservative Right. Where any given client falls in this group typically determined what type of year they had.

Conservative Right clients likely feel as if they had an amazing year, that everything is getting back to normal and their long-held values are being re-instituted. The “Middle of The Road” Republican likes a lot of things going on, doesn’t really feel comfortable; but, hey – at least your stock accounts have been doing well. If you identify as a “Middle of The Road” Democrat, you typically can’t stand what’s going on, you long for the smoothness and tact of your past leader, you may even attend a protest march or two; but, hey … at least your stock accounts have been doing well (consolation prize, I guess). Lastly, you may be a member of my Liberal Left clientele if you feel like you’re having difficulty breathing, can’t sleep at night, and your TV never seems to change from the latest breaking CNN report. You may even be contemplating giving away your recent stock market gains to charity (yet to have anyone do this).

No matter where we fall on the spectrum, there are a few facts that have affected us all. One of those is that many of the economic numbers and unemployment rates have been coming in stronger than they were at this time last year. The stock market, as measured by the S&P 500* made all-time new highs in 2017. Genesee County’s housing market is finally back on track.

Kari Hartley, Owner of RE/MAX Town & Country in Flushing, MI, had this to say: “The Genesee County housing market has experienced aggressive gains throughout 2017. The inventory of homes for sale continues to be low, which has helped in the recovery of prices. Sellers are able to have a better experience with receiving favorable terms, many times receiving multiple offers on a property that is in good condition and priced well. Sellers are preparing their properties to engage buyers at their pricing points and buyers are also doing their part to make sure financing is in place before they begin the looking process. Mortgage companies are also playing their role to make sure the buyers are well qualified for the purchase. The market is reshaping itself, all for the better.”

Although there have been many economic gains this past year, we need to keep focused this year on what really matters. We need to remember that we can gain the whole world; but without love, it is going to be meaningless. Love for our family, love for our neighbor, and even love for our enemy is what will make all people have a successful 2018.

I wish you a very happy, prosperous, and LOVING New Year.

Charities and Year-end Giving

I hope all of My City’s readers had a wonderful Thanksgiving, as we all have much to give thanks for. As we move into the Christmas season, we often feel an urge to give a little extra during this time of the year, as it is a season revolving around the giving and receiving of gifts. One other thing that a lot of older investors associate with the year end, is what is called the Required Minimum Distribution.

The Required Minimum Distribution (RMD) is a required amount that people who have attained the age of 70.5 need to withdraw from their retirement accounts. For some investors, this RMD has become very substantial, to the tune of tens of thousands of dollars.

Many investors don’t really even want to take these distributions, and the main reasons for that is that are:

  1. they don’t need the money at that point in time, and
  2. they have to pay taxes on these funds that they don’t want in the first place.

Being that it’s the season of giving, I would like to share what I believe to be a very valuable tool that older investors have when it comes to charitable giving and their RMD. It is the strategy of utilizing the Qualified Charitable Distribution (QCD). Many people who are over 70.5 years old will give to their favorite 501c3 organizations (charities) either on a weekly, monthly, or annual basis. For these people, the QCD could really help them to decrease their annual taxable income.

The IRS defines a QCD this way: “Generally, a qualified charitable distribution is an otherwise taxable distribution from an IRA (other than an ongoing SEP or SIMPLE IRA) owned by an individual who is age 70.5 or over, that is paid directly from the IRA to a qualified Charity.* If you would like more information on this, you can see the website and search Pub, 590-B.

What is great about this QCD is that it meets the RMD and also makes it so that the distribution is not included in the individual’s income. Not only does it avoid the taxation at the individual level, but the charity receiving the funds also does not have to pay taxes on this distribution. Essentially, no one is required to pay taxes on this distribution, and the only entity not benefiting from this QCD is the government – which, at this point, I think most people involved in this type of transaction would be happy about.

In summary, if you are an investor over the age of 70.5, have retirement income, and are currently making charitable donations, you should really consider utilizing the QCD as the most tax-efficient way to get those assets to the charities that you want to support.

I wish you all a very Merry Christmas, Happy Holidays and a Happy New year!