The Story Behind the ‘Taxman’

As the Beatles rose to fame in the 1960’s, their earnings subjected them to the United Kingdom’s top tax bracket which included a whopping 95% supertax.

 

George Harrison, was noted as the Beatle who paid the most attention to the bands financial situation and wrote the ‘Taxman’ in response to the high levels of progressive tax.

 

In a 1980 interview, John Lennon recalled how the song began, “I remember the day he [Harrison] called to ask for help on ‘Taxman’, one of his first songs. I threw in a few one-liners to help the song along, because that’s what he asked for.”

 

Paul McCartney later explained: “George wrote that and I played guitar on it. He wrote it in anger at finding out what the taxman did. He had never known before then what he’ll do with your money.”

 

“We were all [upset] with the tax situation,” remembers Ringo. “We went into one mad scheme where we paid a guy to go and live in the Bahamas and hold our money for us so it would be tax-free. And in the end we had to bring all they money back, pay the taxes on it and pay this guy. So we might as well have just left it where it was.”

 

In 1966, the “Taxman” would become the opening track of the bands popular album, “Revolver” and was the only opening track written by George Harrison on a Beatles album.

 

‘Taxman’ is played by radio stations throughout the country on April 15th each year as an anthem to tax day, and now you know how it all began!

 

Would you like to have a complimentary tax review? Just send us a copy of your 1040 tax forms and we will show you strategies designed to lower your tax payments and increase your income.

 

Disclaimer: This newsletter is a publication dedicated to the education of individual investors for informational service only. The information provided herein is not to be construed as an offer to buy, sell or hold a stock of any kind. All economic and performance data is historical and not indicative of future results.

 

Advisory Services Network, LLC does not provide tax advice. The tax information contained herein is general and is not exhaustive by nature. Federal and state laws are complex and constantly changing. You should always consult your own legal or tax professional for information concerning your individual situation.

 

Advisory services offered through Enhance Wealth, a member of Advisory Services Network, LLC, 6600 Peachtree Dunwoody Road, Embassy Row 600, Suite 575, Atlanta, GA 30328. 770-352-0449 Insurance products and services offered through Enhanced Capital, LLC. Advisory Services Network, LLC and Enhanced Capital, LLC are not affiliated.

TCJA Tax Reform: What to Know

 

On December 19th, 2017, the House was the first in line to approve the most significant modification to our tax code in over 30 years.

 

The following day on December 20th, the Senate followed suit by stamping their approval on the $1.5 trillion tax reform bill.

 

The bill then arrived on President Trumps desk for final approval which was given on December 22nd, signing the new bill into law.

 

The official title of the new reform bill is “An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018”. Since that doesn’t easily roll off of the tongue, most people prefer to simply call it “The Tax Cuts and Jobs Act” as it was first introduced.

 

Below is an introduction to the primary changes that went into affect January 2018.

 

RATES AND BRACKETS

 

The number of tax brackets will remain at 7 however, the tax rates and income brackets have been updated.

 

The image below illustrates the changes for Married couples who file jointly.

 

 

The following illustrates changes for Single filers or those who file separately.

 

 

 

STANDARD DEDUCTION

 

The standard deduction has doubled under the new plan and likely to have the most widespread impact on taxpayers and reduce the number of those who prefer to itemize deductions.

 

The deduction increases are as follows:

 

Married couples who file Jointly –  $12,700 under the old plan increases to $24,000.

 

Single of those who file separately – Increases from $6,350 to $12,000

 

Head of Household filers- Will jump from $9,350 to $18,000

 

 

EXEMPTIONS

 

Alimony – Previously the individual paying alimony could deduct payments made and the person receiving  would claim as taxable income. Under the new plan this goes away as the person paying no longer gets the deduction and the recipient no longer claims the payments as income. (Note: This only applies to divorce and separation agreements signed or modified after Jan. 1st, 2019)

 

Alternative Minimum Tax (AMT) – This tax is imposed on higher income families and but will affect a fewer number of households under the new plan as the qualifying income level for paying this tax has increased as follows:

 

Single Filers – Old qualification started at $120,700 and is now $500,000

 

Married filing Jointly – Previous income sparking this tax began at $160,900 and has jumped up to $1,000,000 under the new plan.

 

529 College Saving Plans – Under the old tax plan, 529 plans could only be used for qualified higher eduction expenses. The new plan expands the tax  benefits of 529 savings by allowing them to be used for private K-12 schooling and eligible eduation expenses in public, private, or religous schools.

 

Corporate Taxes – The old tax plan used a 4 step rate structure with 35% being the top tax rate. The new plan permanently cuts this top tax rate down to 21%

 

Estate Taxes – The new plan doubles the amount an estate can be valued at without incurring estate taxes from $5.49 million to $11.2 million.

 

Home Sales – Homeowners can currently exclude $250,000 (single) or $500,000 (married) of capital gains free from tax when selling their primary home. That law has not changed. However, the qualifications for receiving this benefit has. Under the old laws a person had to live in the residence at least 2 of 5 years prior to sale to qualify for exemption. Under the new law this has been extended to 5 of 8 years that a person must live there to claim the exclusion.

 

Medical Expenses – The old rule allowed taxpayers to deduct out-of-pocket medical expenses that exceeded 10% of AGI or 7.5% if they are over age 65. The new law expanded the 7.5% threshold to taxpayers regardless of age.

 

Tax Deductions – Under the old plan taxpayers can deduct expenses paid for tax preparation, business related expenses, and investment fees. The new plan has suspended these deductions until 2025.

 

Personal Exemptions – The new plan has suspended the ability to claim personal exemptions (yourself, spouse, or dependent) through 2025

 

 

RETIREMENT PLANS

 

1 – The period of time allotted to pay back a loan to a qualified plan has been extended for those separated from service.

 

2 – The ability to recharacterize a Roth conversion has been removed and will no longer available. This strategy was often used by individuals for ongoing tax planning.

 

Now the question becomes:

 

How will these changes affect your situation?

 

We can show you a comparison using 2017 and 2018 tax rules applied to your situation. It’s a free service.

 

Feel free to contact us to learn more.

 

Disclaimer: This newsletter is a publication dedicated to the education of individual investors. This newsletter is an information service only. Advisory Services Network, LLC does not provide tax advice.  The tax information contained herein is general and is not exhaustive by nature.  Federal and state laws are complex and constantly changing.  You should always consult your own legal or tax professional for information concerning your individual situation.

 

Advisory services offered through Enhance Wealth, a member of Advisory Services Network, LLC, 6600 Peachtree Dunwoody Road, Embassy Row 600, Suite 575, Atlanta, GA 30328. 770-352-0449 Insurance products and services offered through Enhanced Capital, LLC. Advisory Services Network, LLC and Enhanced Capital, LLC are not affiliated.

 

The opinions expressed herein are solely those of the author and do not reflect the opinions of Advisory Services Network, LLC or any of its other advisory representatives.

Pay Less, Keep More: Tax Tips & Tricks

Taxpayers are entering the homestretch as the IRS deadline fast approaches.

 

Over the last 20 years, we have found most individuals understand the need to have their taxes prepared, yet unaware how planning taxes can help reduce the amount owed to Uncle Sam and keep more in their pocket.

 

There are methods and strategies available providing the potential to lower tax payments based on your situation. We utilize tax planning as part of our clients process to help increase annual income, lower tax on distributions, and leave a larger legacy for loved ones.

 

The following provides tips and examples of strategies designed to help maximize your planning and reduce unnecessary payments to Uncle Sam:

 

1. STRUCTURE INCOME CORRECTLY – When you retire, the sources of your annual income will have a large impact on your tax commitment as distributions can be taxed in different ways. As an example, IRA distributions are fully taxed as income, but payments from Social Security can offer tax benefits. Pension and annuity distributions can vary in tax treatment at times and utilizing non-taxable funds for a portion of income could provide the potential to reduce tax liability in other areas.

 

2. UNDERSTAND THE IMPACT WHEN LEAVING TO LOVED ONES– Part of our planning process involves a review of a family’s beneficiary forms on accounts like IRA’s, annuities. and life insurance. Many of our clients have an interest in leaving a portion of their estate to a non-profit organization like church a church or charity.

 

In these situations, when these families first walked in our office, it was common to see beneficiaries structured as follows:

 

a. IRA’s, annuities, and 401k’s are left to children at death

 

b. Life Insurance is designated to pay out to the church or charity

 

Through the planning process, we are able to explain that non-profit organizations are set up to received taxable accounts like IRA without having to pay tax and life insurance passes to children income tax free.

 

Based on this, a better plan might be to switch the existing beneficiaries which would:

 

a. Pass IRA and annuity accounts to the non-profit without tax liability

 

b. Provide the children with tax-free funds from the life insurance (assuming the total estate is under the $5.2 million dollar exemption amount)

 

3. MAXIMIZE CONTRIBUTIONS -Taxpayers looking for additional tax deductions should first ensure they have maxed out their deductible contributions into available retirement programs (IRA’s and 401k’s). A few tips to help with this:

 

a. Individuals have until April 15th to make a contribution for previous year

 

b. Non-working spouses can contribute up to $5,500 ($6,500 if over 50) as long as they file jointly with their working spouse.

 

4. REQUIRED MINIMUM DISTRIBUTIONS – Once you reach age 70 1/2, the IRA requires you to take a minimum distribution from your IRA’s and 401k’s. Failure to do so will result in a 50% penalty of the amount due.

 

Following are 2 strategies to consider when taking RMD’s

 

a. Pay tax on other income – Use this distribution to pay the tax on other taxable income taken during the year. How to do this. Wait until December, determine how much tax is due from other income and then hold back a large chunk from this distribution to pay the tax.

 

b. Help others, avoid taxes – If you have charitable intent, the IRS allows you to transfer your RMD directly to a non-profit organization without incurring taxes, while still satisfying your distribution requirement.

 

c. Delay RMD’s  – If you are still working past the age of 70 1/2 you might be able to delay the required distributions from your 401(k) (not IRA’s) until you retire. To qualify for this delay you cannot own more than 5% of the company and your 401k program must allow for this provision.

 

5. CONSIDER A ROTH IRA – Roth IRA’s can be an important tool when it comes to tax planning. As a reminder, Roth IRA’s take in money already taxed in exchange for allowing distributions later to be income tax free.

 

Converting funds from a taxable IRA account into a Roth can offer many advantages such as lower future RMD’s, tax free funds to lover ones, lower income tax, etc. The downside of this approach is the amount of tax due at the time of conversion.

 

One strategy to consider is converting a portion every year for a number of years to reduce the potential tax bite or covert more in years with low tax liability.

 

6. REMOVE COMPANY STOCK FROM YOUR 401k – Funds taken from your 401k are taxed fully as income. Often, when someone retires they have a large portion of their company 401k invested in their company’s stock.

 

The IRA provides a strategy to remove this stock from the 401k and re-allocate into an outside brokerage account which can provide tax benefits in the following ways:

 

a. Income tax is only due on the actual cost basis (purchase price) of the company stock, not the current value.

 

b. Assuming you hold the stock for 12 months after pulling from the 401k, you will then only pay long-term capital gains tax on the profit of the stock which is currently capped at 15%.

 

7. KNOW OPTIONS ON EARLY WITHDRAWALS – Taking dsitributions from an IRA before the qualifying age of 59 1/2 will incur a 10% penalty on the full amount. However, the rules on 401k’s are different and allow penalty free withdrawals starting at age 55.

 

These are just a few of the many options to consider to help keep more of your hard earned money from the tax man.

 

Feel free to contact us with any questions or if you would like to set up a time to have your taxes reviewed for free.

 

Disclaimer: This newsletter is a publication dedicated to the education of individual investors. This newsletter is an information service only. Advisory Services Network, LLC does not provide tax advice.  The tax information contained herein is general and is not exhaustive by nature.  Federal and state laws are complex and constantly changing.  You should always consult your own legal or tax professional for information concerning your individual situation.

 

Advisory services offered through Enhance Wealth, a member of Advisory Services Network, LLC, 6600 Peachtree Dunwoody Road, Embassy Row 600, Suite 575, Atlanta, GA 30328. 770-352-0449 Insurance products and services offered through Enhanced Capital, LLC. Advisory Services Network, LLC and Enhanced Capital, LLC are not affiliated.

 

The opinions expressed herein are solely those of the author and do not reflect the opinions of Advisory Services Network, LLC or any of its other advisory representatives.