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Washington Update

How tax reform, budget negotiations and other legislative decisions could affect the markets and your financial life

 

 

 

May 21, 2018

One Good Reason to Review Your Estate Plans Now

THE 2017 TAX LAW DOUBLED the federal estate tax exemption to $22.36 million for couples and $11.18 million for individuals, shielding all but the wealthiest Americans from federal estate taxes. But that larger exemption (which also applies to gift and generation-skipping transfer taxes) expires in 2025, after which the exemptions will drop by about half unless Congress extends them.

Given the temporary nature of this exemption, now might be a very good time to review existing planning documents, such as wills and trusts, to make sure there are no unintended consequences. That’s the recommendation of a new “Wealth Strategy Report: Estate Planning After the 2017 Tax Act,” from the Chief Investment Office.

The new report examines a wide range of scenarios, taking into account how issues such as capital gains and state taxes could affect your estate planning decisions.

Use the report as a guide to discussions you may want to have with your tax, legal and financial advisors. Consider what combination of gifts, credit shelter trusts, and other approaches could help you pass along your wealth to loved ones as tax efficiently as possible—and whether a gift now or a bequest later might make more sense.

The new report examines a wide range of scenarios, taking into account how issues such as capital gains and state taxes could affect your estate planning decisions. These hypothetical scenarios could help drive a conversation with your team about what’s best for your unique situation.

To learn more about how the new tax law could affect your personal estate planning, download “Estate Planning After the 2017 Tax Act” here.

Neither Merrill Lynch nor any of its affiliates or financial advisors provide legal, tax or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions.

 

 

April 20, 2018

Will Your Business Qualify for the New 20% Deduction?

MANY SMALL BUSINESS OWNERS RECEIVED WELCOME NEWS in the new tax bill: the opportunity to deduct 20% of qualified business income in calculating their federal taxes. As simple as that sounds, the small business provisions contain numerous exceptions, are among the most complex parts of the bill, and need to be studied carefully.

As a business owner, you can get a better idea of where you stand by reading the new report from our Chief Investment Office, “Business Income from Pass-Through Entities: The New 20% Deduction,” which offers a detailed, step-by-step analysis along with some possible actions to consider with your tax professional.

The law limits that 20 percent business deduction on what it terms “service businesses”—legal and medical practices, accountants, consultants and others.

Generally, the 20 percent deduction applies to income from sole proprietorships, partnerships, S corporations, LLCs and other “pass-through” businesses whose owners pay taxes on any income earned through their business rather than the business itself paying tax. (Even with the 20% business deduction, you still get the personal deductions—including standard or itemized deductions—that other taxpayers receive.)

Among the complications: the law limits that 20 percent business deduction on what it terms “service businesses”—legal and medical practices, accountants, consultants and others. For those businesses, after certain income thresholds, the deduction decreases or disappears entirely. If your income stream is flexible, accelerating deductions or deferring income in a given year could help you qualify for the full or partial deduction, the report suggests.

You’ll also find analyses of other complex rules regarding partnerships, Real Estate Investment Trusts and other issues. Use this report as the basis for detailed discussions with your tax specialist—a must before making any tax decisions. Then, speak with your financial advisor about how the law might affect your business and personal financial goals.

For insights on taxes and your small business, download “Business Income from Pass-Through Entities: The New 20% Deduction” here.

 

 

March 23, 2018

1 As principal and founder of The Washington Update, Mr. Friedman is not affiliated with Merrill Lynch. Opinions provided are his, do not necessarily reflect those of Merrill Lynch and may be subject to change. Neither Merrill Lynch nor its advisors provide legal, tax or accounting advice. Please consult your tax advisor about the insights provided here.

New Mortgage? Medical Costs? Kids' School Choices? How the Tax Law Could Affect Your Financial Decisions

MAYBE YOU’RE CONSIDERING A HOME PURCHASE and are wondering how the new tax provision capping mortgage interest deductions could affect your choices. Or you’d like to know how changes in the way small businesses are taxed apply to your consulting income, or whether you’ll be able to afford to give as much to charities this year. These are just the sorts of questions that noted tax expert Andrew Friedman1, principal and founder of The Washington Update, has been exploring since details on the massive Tax Cuts and Jobs Act of 2017 began to emerge late last year.

Now is a good time to get up to speed on the many ways the new law could influence financial decisions you make throughout the year.

With most of the provisions already in effect as of January 1, now is a good time to get up to speed on the many ways the new law could influence key financial decisions you make throughout the year. You can start by reading the article, “Tax Reform & Your Life: What’s Changed?” In it, Friedman shares his insights on how the law can affect seven common priorities, from covering health care costs to saving for education and planning for retirement.

Then, for a comprehensive look at the new law, download “Tax Reform Accomplished: How Does the Legislation Affect Investors and Businesses?” a whitepaper written by Friedman and Jeffrey B. Bush. Together, the two pieces could help you prepare for essential conversations with your tax specialist and financial advisor as you consider your financial plans for the coming year.

Check out “Tax Reform & Your Life: What’s Changed?” Then download Andrew Friedman and Jeffrey Bush’s whitepaper, “Tax Reform Accomplished: How Does the Legislation Affect Investors and Businesses?

 

Andrew H. Friedman, principal and founder of The Washington Update, is an outside tax authority, and is not affiliated with Merrill Lynch or any of its affiliates.

Neither Merrill Lynch nor any of its affiliates or financial advisors provide legal, tax or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions.

Always consult your independent attorney, tax advisor, investment manager, and insurance agent for final recommendations and before changing or implementing any financial, tax, or estate planning strategy.

This material does not take into account your particular investment objectives, financial situations or needs and is not intended as a recommendation, offer or solicitation for the purchase or sale of any security or financial instrument. Before acting on any information in this material, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. Any opinions expressed herein are given in good faith, are subject to change without notice, and are only correct as of the stated date of issue.

Bank of America Merrill Lynch is the marketing name for Retirement Services business of Bank of America Corporation.

Banking, mortgage and home equity products offered by Bank of America, N.A., and affiliated banks, Members FDIC and wholly owned subsidiaries of Bank of America Corporation. Equal Housing Lender. Credit and collateral are subject to approval. Terms and conditions apply.

Before you invest in a Section 529 plan, request the plan’s official statement from your Merrill Lynch Financial Advisor and read it carefully. The official statement contains more complete information, including investment objectives, charges, expenses and risks of investing in the plan, which you should carefully consider before investing. You should also consider whether your home state or your designated beneficiary’s home state offers any state tax or other state benefits such as financial aid, scholarship funds and protection against creditors that are available only for investments in such state’s 529 plan. Section 529 plans are not guaranteed by any state or federal agency.

This material should be regarded as general information on Healthcare considerations and is not intended to provide specific healthcare advice. If you have questions regarding your particular situation, please contact your legal or tax advisor.

 

 

JANUARY 5, 2018

Note to Self: Review Your Investments Now That Tax Reform Is Law

THE NEW TAX LAW THAT KICKED IN ON JANUARY 1 could affect more than your personal taxes; it just might cause you to rethink your investments. At the very least, make tax reform’s impact on your investments a topic of conversation with your tax professional and with your advisor in the coming weeks, suggests the Chief Investment Office (CIO). According to the CIO, the new 21% corporate tax rate (down from 35%) could add momentum to an economy already seeing higher consumer confidence and spending, private investment, and low energy prices, creating potential winners (and losers) along the way.

The new corporate tax rate could add momentum to the economy, creating potential winners (and losers) along the way.

To help you better understand these forces, the CIO team offers a detailed analysis of how the new tax law could affect various sectors, along with 30 points investors should consider for 2018 and beyond. Among the CIO team’s observations in their latest Investment Insights report, “Tax Reform and Year-Ahead Thoughts”:

  • With a reduced tax rate for foreign earnings, U.S. companies are expected to repatriate much of the $1.7 trillion in cash they currently hold overseas. That, combined with a provision enabling companies to expense 100% of their capital spending for the next five years, could lead to a wave of corporate expansion projects. Such projects could benefit industrial and infrastructure-related companies.

  • U.S. consumers, many of whom will pay lower income taxes starting this year, may be more inclined to spend—directly benefiting retail grocers and other consumer-related companies. Technology and financial companies could benefit as well.

  • Yet not all sectors of the economy will benefit, and strong economic growth could lead to a rise in volatility, which underscores the need to diversify your portfolio, the CIO team believes.

 

For a deeper dive on the economic and investment implications of the new tax law, download the latest Investment Insights here.

 

 

DECEMBER 22, 2017

The Tax Bill Is Signed. Here’s a Guide to What’s In—and Out

TODAY, THE PRESIDENT SIGNED INTO LAW the most sweeping revision of the U.S. tax code in decades. The new legislation should take effect immediately and will influence almost every area of your financial life, from the amount withheld from your paycheck to decisions about where you live and how you plan for your children’s education or your own retirement. Because of that, it’s important to understand the provisions contained within it.

Use this tax guide to help inform conversations with your tax professional and advisor.

The latest Tax Bulletin from the Chief Investment Office provides a guide to key changes in the tax law that may impact your life. Use it to help inform conversations with your tax professional and advisor about the best ways to respond to the new legislation and prepare yourself and your family for the year ahead.

For a detailed analysis of the new tax legislation—and some insights on what it might mean for you—download the latest Tax Bulletin here.

 

 

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1 Andrew H. Friedman, principal and founder of The Washington Update, is an outside tax authority, and is not affiliated with Merrill Lynch or any of its affiliates.

Neither Merrill Lynch nor any of its affiliates or financial advisors provide legal, tax or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions.

Always consult your independent attorney, tax advisor, investment manager, and insurance agent for final recommendations and before changing or implementing any financial, tax, or estate planning strategy.

This material does not take into account your particular investment objectives, financial situations, or needs and is not intended as a recommendation, offer, or solicitation for the purchase or sale of any security, financial instrument, or strategy. Before acting on any information in this material, you should consider whether it is suitable for your particular circumstances, and if necessary, seek professional advice. Any opinions expressed herein are given in good faith, are subject to change without notice, and are only correct as of the stated date of issue.

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