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Tel: (314) 961-1850

The investment markets were very kind to us in 2017!   But before we visit your personal investment performance, we need to look at the personal income tax changes for the new year.  As you are aware, we have new tax reform known as the 2017 Tax Cuts and Jobs Act. We wanted to send you a reference as well as relevant highlights.

For most of our clients, the immediate takeaways are:

Tax rates come down

Yes, you may likely be paying a little less tax!

Same number of brackets, 7, but rates overall come down (scheduled to expire in 2025 for individual unless congress extends) with top rate coming down from 39.6% to 37% and the bottom rate remaining at 10% but covers twice the amount of income compared to previous brackets.

New Standard Deduction and repeal of Personal Exemptions

  • Raises from $6,350 to $12,000 for individuals
  • Raises from $12,700 to $24,000 for married couples
  • Personal exemptions are eliminated
  • Charitable contributions will still be permitted in 2018, but with the increased standard deduction, fewer taxpayers will be itemizing, so the tax benefit for charitable donations will decrease.  Although charities may not like it, making charitable contributions every other year in larger amounts to qualify for the added deduction may make sense.

State and Local tax deductions

The new limit on state and local tax deductions appears to be in favor of individual filers than married couples.     The cap is $10,000 for both individuals and for married filers.  Individuals will find it much easier to use because it’s an itemized deduction. That means they take it if their total deductions are over $12,000; the new higher standard deduction for a single person with the maximum $10,000 of income and property taxes and $3,000 of charitable contributions would be able to itemize deductions.

A married couple at the cap of $10,000 of income and property taxes would need another $14,000 in mortgage interest, charity and other deductions to get to the $24,000 standard deduction.

According to the conference agreement, individuals could not have prepaid their 2018 income taxes in 2017 to take advantage of the last year of the unlimited deduction.

Other items     

Maintains the deduction for medical expenses (and reduces the 10% of AGI threshold amount to 7.5% for all tax payers for 2017 through 2018).

Eliminates all deductions for “miscellaneous itemized deductions subject to the 2% of AGI threshold” This includes any fees for investment advice, tax preparation, personal attorney fees, unreimbursed employee business expenses, etc.

Expands 529 Account funds- new law for 529 Distributions:  For distributions after Dec. 31, 2017, “qualified higher education expenses” include tuition at an elementary or secondary public, private, or religious school, up to a $10,000 limit per tax year.

 Repeal of the Rule Allowing Recharacterization of IRA Contributions:

New law: recharacterization cannot be used to unwind a Roth conversion.

For more information please see Thomson Reuters Summary:

https://tax.thomsonreuters.com/media-resources/news-media-resources/checkpoint-news/daily-newsstand/2017-tax-reform-checkpoint-special-study-on-individual-tax-changes-in-the-tax-cuts-and-jobs-act/

As always, please refer to your tax preparer.

Steve Erken, CFP®

Principal

February 26, 2018

 

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Maxele Advisors may only transact business with Missouri and Illinois residents or residents of other states where otherwise legally permitted subject to exemption or exclusion from registration requirements

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Maxele Advisors, LLC is conveniently located in Webster Groves, Missouri with ample FREE parking.

MAXELE ADVISORS, LLC
20 Allen Ave.
Suite 330
Webster Groves, MO 63119

Tel:  (314) 961-1850

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