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.
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.
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.
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.
Congress Passed the Tax Bill This Week: Key Points to Consider Before Year End
IT’S A CHALLENGE JUST TO UNDERSTAND the complex new tax bill passed by Congress yesterday, let alone figure out what you need to do about it. Yet, because most of the bill’s provisions will kick in as soon as the President signs it into law, time is ticking. It’s important to speak with your tax specialist about steps you may want to consider in the few remaining days of 2017 to help you lower your tax liability for the year ahead. The bill’s wide-ranging provisions may also affect how you approach many key financial decisions moving forward, from claiming deductions to supporting your favorite charities.
To simplify things and help you get that conversation started, the Chief Investment Office (CIO) has identified 11 key tax-planning points to consider. For example, with the bill’s new limits on deductions for state and local taxes, it could make sense to accelerate some payments before this year ends. And some charitable gifts could be worth more, from a tax perspective, if you deduct them in 2017 than in 2018.
You can start by diving into the CIO report, “Top Individual Tax Planning Considerations Before Year-End.” Before taking any actions, be sure to contact your tax professional. And start having conversations with both your advisor and tax professional about how the bill may affect other areas of your financial life in the months and years to come.
For ideas on potential 2017 tax steps, download “Top Individual Tax Planning Considerations Before Year-End” here.
Taxes, the Economy and Your Investments: 5 Things to Consider
LEGISLATORS CAME TO AGREEMENT ON A COMPROMISE TAX BILL last week, reconciling major differences between the House and Senate bills. Both houses of Congress are expected to bring this unified bill to a vote early this week. If the proposed tax reform bill does pass, there will be more to think about than just your returns. For instance, a drop in corporate income taxes could have a big impact on the economy and your investments. The Chief Investment Office (CIO) offers the following 5 things to consider as you think about your investments in the New Year:
1. Corporate earnings. Analysts who follow U.S. companies are factoring tax reform into forecasts that anticipate higher growth for 2018.
2. An already healthy stock market. Corporate growth is good news for stocks. But keep in mind that the market surged in late 2017 in anticipation of passage of the tax law. In other words, some of those gains have already been realized.
3. The economic impact. Lower corporate taxes could propel an already strong and improving U.S. and global economy. The CIO team recommends that investors, depending on their situation, consider keeping stocks as an important part of their investment portfolios.
4. Risks of growth. Strong growth stemming from tax reform could cause the economy to overheat, leading to a potential increase in inflation and interest rates. And political uncertainty heading into midterm elections could make the markets more volatile in 2018. Both possibilities underscore the importance of diversifying your portfolio and investing according to your long-term goals.
5. The need for sound advice. Be sure to speak with your tax professional about how the law may affect you. And review key year-end financial decisions, such as the sale of stocks and charitable giving, with your advisor in light of the potential changes.
To help prepare for that conversation, read the CIO’s latest Monthly Letter, 2018 Year Ahead: The Next Great Odyssey, offering a detailed look at what to expect from the economy and proposed tax changes.
For more information on the year ahead and what to think about in terms of your own finances, download 2018 Year Ahead: The Next Great Odyssey.
What You Should Know About a Possible Government Shutdown
TALK OF AN END-OF-YEAR GOVERNMENT SHUTDOWN sounds scary, especially if you’re one of millions of Americans counting on Social Security, Medicare and other services, or you’re concerned about the effects on the markets. While the underlying differences keeping Congress from passing a budget for next year are serious, there are several good reasons not to lose sleep over the possibility the government will close its doors.
First, it may not happen. Legislators have until December 22 to avert a shutdown. Even if they don’t reach a long-term solution, they’ll likely reach at least a temporary agreement, pushing a new deadline into 2018.
Crucial services remain. Even if a shutdown occurs, Social Security, Medicare, and other essential services will continue to be maintained.
Markets recover quickly. We’ve been through this before. The federal government shut down for 16 days in 2013, 21 days in 1995 (the longest on record) and 10 other times going back to 1981. Analysis by the Chief Investment Office (CIO) tells us that these events cause temporary increases in interest rates but otherwise have little impact on markets or economic growth.
That said, the political brinksmanship behind the threat of a shutdown reveals sharp partisan divisions on funding priorities, even as Congress moves towards a likely vote on sweeping tax reforms before the end of the year. As the CIO team explains in their latest Weekly Letter, reaching a long-term budget solution will likely require bipartisan cooperation on issues that are key to many Americans, such as health insurance for children, disaster relief, and immigration policy.
For more insights on how a government shutdown might affect the markets and your life, download The Weekly Letter: Shutdown Risk Is Limited.
A Guide to the House and Senate Tax Bills—and What to Understand
AS A TAXPAYER WATCHING THE NEWS LATELY, you may feel caught in a game of hurry up and wait while the House and Senate work out their compromise bill. Like most Americans, you’re probably wondering what deductions will be in or out. And which tax rate you might fall under when all is said and done.
The compromise committee set up to work out the details of a unified bill aims to finish its work by December 15 and bring it to the full House for a vote during the week of December 18. The Senate is expected to vote by December 22. If a bill is passed this year—and that is looking increasingly likely--many of its provisions will take effect on January 1.
The extent of the changes anticipated—and the lack of time to respond should a bill pass before year end—make year-end tax planning especially difficult. It’s always best to plan based on actual law rather than proposals, so there isn’t much you can do for 2017. But it’s wise to understand the implications that various proposals might have on your tax situation and the rest of your financial life in 2018.
One thing you can do is take some time to familiarize yourself with the two bills currently before the compromise committee. The latest Tax Bulletin from U.S. Trust offers side-by-side comparisons of the House bill, the Senate version, and current tax law, as well as a detailed look at how the proposed changes could affect your life and finances.
Some of the key differences in the two bills involve major areas of your life—including your health (and whether medical deductions will be allowed), your home (and how mortgage interest and property taxes will be treated) and your children’s education (and what you can use 529 college savings account funds for).
After you read the Tax Bulletin, you may want to sit down with your tax pro and financial advisor to discuss the implications of proposed changes.
For more insights on how tax reform could affect your life and finances, download Tax Bulletin 2017-7.
Inching Closer to a Major Tax Overhaul: What’s at Stake?
Over the weekend, Senate Republicans narrowly passed a bill to overhaul the U.S. tax system with a 51-49 vote. The bill differs in significant ways from the tax bill passed by the House of Representatives on November 16.
Notable areas in which they differ include the number of tax brackets and the rates various income groups will pay, the treatment of pass-through entities (businesses whose income is taxed at an individual rather than a corporate rate), estate taxes, mortgage interest deductions, property tax write-off allowances and which parts of tax reform will remain permanent.
What happens next? Both bills will be taken before a conference committee, where both chambers of Congress will work to reconcile the differences and craft a joint bill that they can send to the President for signing. Republicans expect to resolve the differences between the two bills by the end of the year.
With this weekend’s Senate vote, the Chief Investment Office (CIO) believes the probability of tax reform has increased substantially. Once it is enacted, there’s little doubt that the legislation will have an effect on people’s financial lives, with implications for such key questions as how to manage student debt and whether or not to buy or rent a home, among other things.
The market implications, according to the CIO team, may turn out to be positive. In their latest publication, Investment Insights: The Latest on Tax Reform, they explain why they think the core framework of each bill would likely add momentum to the strong profit growth experienced in 2017.
For more insights on the potential impact of tax reform on the markets and the economy and how you and your tax professional can respond, download “The Latest on Tax Reform”
What to Consider — Whatever the New Tax Law Brings
Uncertainty surrounds what could be sweeping changes to the nation’s tax code, and it doesn’t make sense to plan a switch in tax or investing strategies until a final bill is passed and signed into law. But there are several proactive steps you can take today to help make your portfolio more tax-efficient. These tax-aware strategies may be especially useful this year, given the robust historical returns many investors have seen. In a recent report, “A Taxing Year-End,” our Chief Investment Office (CIO) suggests four such strategies, each of which could potentially boost your after-tax returns.
While many investors may be familiar with “tax-loss harvesting,” or the sale of poorly performing stocks to offset capital gains, there are other less well-known steps you might consider. For instance, says our CIO team, knowing whether to hold specific assets in a taxable account or a tax-advantaged one like an IRA or a 401(k) can make a significant difference. That’s a strategy known as “asset location.”
For more insights, download the full report here.
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