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7
Feb

Important Market Update

While January saw a continuation of the low-volatility, steady-return stock market environment experienced throughout all of 2017, the first few trading days of February have been a completely different story.

Shortly after reaching the longest streak in the history of the S&P 500 without a 5% correction, the Index has faltered and is down 7.79% from its recent all-time high level (as of the close on Monday, February 5). On Monday alone, the S&P 500 dropped 4.10%.

Though this abrupt drop seems severe, it is important to view everything on a relative basis. In fact, since the beginning of the current bull market which started in March 2009, the S&P 500 has experienced a 10% or higher correction in four separate years (2010, 2011, 2015, and 2016). Each of these occasions happened for a different reason, but in all four years, markets stumbled for a quick pullback before continuing to rally higher backed by strong fundamental data.

So what exactly caused this recent rapid drop in the markets and what can we expect going forward from here?

The selloff officially started on Friday, following a strong jobs report which caused investors to speculate the Fed may be more aggressive than expected with rate hikes this year. This pushed stocks lower as higher interest rates generally hamper economic growth in the long-term. However, the selloff continued on Monday for seemingly no reason other than investors taking gains from an abnormally strong year in 2017 and algorithmic/computer-based trading signaling shorter-term strategies to shift more defensive due to the sudden spike in volatility.

Looking ahead, many of our research indicators are still pointing to a slightly higher-than-average likelihood of continued economic growth and market increases as many fundamental economic indicators (labor market, corporate earnings, credit spreads, etc.) remain positive. Furthermore, though short-term market momentum has turned somewhat bearish, long-term momentum is still displaying bullish signs; the S&P 500 is still up 44.82% since mid-February 2016.

While the past few days of market returns have been frustrating for many investors, this exemplifies why it is imperative to stay committed to our long-term financial goals. At times like this, it is very tempting for investors to make a knee-jerk decision and panic sell. These short-term market movements can be debilitating when it comes to making sound, logical investment decisions. By sticking to a strategy and maintaining a broad range of asset classes in your portfolio, you can avoid chasing short-term movements and news, and in turn, your probability of success is improved greatly.

Always at your service,

SeaCure Advisors

3
Jan

Tax Cuts and Jobs Act: Impact on Individuals

On December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act, a sweeping $1.5 trillion tax-cut package that fundamentally changes the individual and business tax landscape. While many of the provisions in the new legislation are permanent, others (including most of the tax cuts that apply to individuals) will expire in eight years. Some of the major changes included in the legislation that affect individuals are summarized below; unless otherwise noted, the provisions are effective for tax years 2018 through 2025.

Individual income tax rates

The legislation replaces most of the seven current marginal income tax brackets (10%, 15%, 25%, 28%, 33%, 35%, and 39.6%) with corresponding lower rates: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. The legislation also establishes new marginal income tax brackets for estates and trusts and replaces existing “kiddie tax” provisions (under which a child’s unearned income is taxed at his or her parents’ tax rate) by effectively taxing a child’s unearned income using the estate and trust rates.

Single
If taxable income is: Then income tax equals:
Not over $9,525 10% of the taxable income
Over $9,525 but not over $38,700 $952.50 plus 12% of the excess over $9,525
Over $38,700 but not over $82,500 $4,453.50 plus 22% of the excess over $38,700
Over $82,500 but not over $157,500 $14,089.50 plus 24% of the excess over $82,500
Over $157,500 but not over $200,000 $32,089.50 plus 32% of the excess over $157,500
Over $200,000 but not over $500,000 $45,689.50 plus 35% of the excess over $200,000
Over $500,000 $150,689.50 plus 37% of the excess over $500,000

 

Head of Household
If taxable income is: Then income tax equals:
Not over $13,600 10% of the taxable income
Over $13,600 but not over $51,800 $1,360 plus 12% of the excess over $13,600
Over $51,800 but not over $82,500 $5,944 plus 22% of the excess over $51,800
Over $82,500 but not over $157,500 $12,698 plus 24% of the excess over $82,500
Over $157,500 but not over $200,000 $30,698 plus 32% of the excess over $157,500
Over $200,000 but not over $500,000 $44,298 plus 35% of the excess over $200,000
Over $500,000 $149,298 plus 37% of the excess over $500,000

 

Married Individuals Filing Joint Returns
If taxable income is: Then income tax equals:
Not over $19,050 10% of the taxable income
Over $19,050 but not over $77,400 $1,905 plus 12% of the excess over $19,050
Over $77,400 but not over $165,000 $8,907 plus 22% of the excess over $77,400
Over $165,000 but not over $315,000 $28,179 plus 24% of the excess over $165,000
Over $315,000 but not over $400,000 $64,179 plus 32% of the excess over $315,000
Over $400,000 but not over $600,000 $91,379 plus 35% of the excess over $400,000
Over $600,000 $161,379 plus 37% of the excess over $600,000

 

Married Individuals Filing Separate Returns
If taxable income is: Then income tax equals:
Not over $9,525 10% of the taxable income
Over $9,525 but not over $38,700 $952.50 plus 12% of the excess over $9,525
Over $38,700 but not over $82,500 $4,453.50 plus 22% of the excess over $38,700
Over $82,500 but not over $157,500 $14,089.50 plus 24% of the excess over $82,500
Over $157,500 but not over $200,000 $32,089.50 plus 32% of the excess over $157,500
Over $200,000 but not over $300,000 $45,689.50 plus 35% of the excess over $200,000
Over $300,000 $80,689.50 plus 37% of the excess over $300,000

Standard deduction and personal exemptions

The legislation roughly doubles existing standard deduction amounts but repeals the deduction for personal exemptions. Additional standard deduction amounts allowed for the elderly and the blind are not affected by the legislation and will remain available for those who qualify. Higher standard deduction amounts will generally mean that fewer taxpayers will itemize deductions going forward.

2018 Standard Deduction Amounts

Filing Status Before Tax Cuts and Jobs Act After Tax Cuts and Jobs Act
Single or Married Filing Separately $6,500 $12,000
Head of Household $9,550 $18,000
Married Filing Jointly $13,000 $24,000

Itemized deductions

The overall limit on itemized deductions that applied to higher-income taxpayers (commonly known as the “Pease limitation”) is repealed, and the following changes are made to individual deductions: 

  • State and local taxes — Individuals are only able to claim an itemized deduction of up to $10,000 ($5,000 if married filing a separate return) for state and local property taxes and state and local income taxes (or sales taxes in lieu of income).
  • Home mortgage interest deduction — Individuals can deduct mortgage interest on no more than $750,000 ($375,000 for married individuals filing separately) of qualifying mortgage debt. For mortgage debt incurred prior to December 16, 2017, the prior $1 million limits will continue to apply. No deduction is allowed for interest on home equity indebtedness.
  • Medical expenses — The adjusted gross income (AGI) threshold for deducting unreimbursed medical expenses is retroactively reduced from 10% to 7.5% for tax years 2017 and 2018, after which it returns to 10%. The 7.5% AGI threshold applies for purposes of calculating the alternative minimum tax (AMT) for the two years as well.
  • Charitable contributions — The top adjusted gross income (AGI) limitation percentage that applies to deduct certain cash gifts is increased from 50% to 60%.
  • Casualty and theft losses — The deduction for personal casualty and theft losses is eliminated, except for casualty losses suffered in a federal disaster area.
  • Miscellaneous itemized deductions — Miscellaneous itemized deductions that would be subject to the 2% AGI threshold, including tax-preparation expenses and unreimbursed employee business expenses, are no longer deductible.

Child tax credit

The child tax credit is doubled from $1,000 to $2,000 for each qualifying child under the age of 17. The maximum amount of the credit that may be refunded is $1,400 per qualifying child, and the earned income threshold for refundability falls from $3,000 to $2,500 (allowing those with lower earned incomes to receive more of the refundable credit). The income level at which the credit begins to phase out is significantly increased to $400,000 for married couples filing jointly and $200,000 for all other filers. The credit will not be allowed unless a Social Security number is provided for each qualifying child. 

A new $500 nonrefundable credit is available for qualifying dependents who are not qualifying children under age 17.

Alternative minimum tax (AMT)

The AMT is essentially a separate, parallel federal income tax system with its own rates and rules — for example, the AMT effectively disallows a number of itemized deductions, as well as the standard deduction. The legislation significantly narrows the application of the AMT by increasing AMT exemption amounts and dramatically increasing the income threshold at which the exemptions begin to phase out.

2018 AMT Exemption Amounts

Filing Status Before Tax Cuts and Jobs Act After Tax Cuts and Jobs Act
Single or Head of Household $55,400 $70,300
Married Filing Jointly $86,200 $109,400
Married Filing Separately $43,100 $54,700

2018 AMT Exemption Phaseout Thresholds

Filing Status Before Tax Cuts and Jobs Act After Tax Cuts and Jobs Act
Single or Head of Household $123,100 $500,000
Married Filing Jointly $164,100 $1,000,000
Married Filing Separately $82,050 $500,000

Other noteworthy changes

  • The Affordable Care Act individual responsibility payment (the penalty for failing to have adequate health insurance coverage) is permanently repealed starting in 2019.
  • Application of the federal estate and gift tax is narrowed by doubling the estate and gift tax exemption amount to about $11.2 million in 2018, with inflation adjustments in the following years.
  • In a permanent change that starts in 2018, Roth conversions cannot be reversed by recharacterizing the conversion as a traditional IRA contribution by the return due date.
  • For divorce or separation agreements executed after December 31, 2018 (or modified after that date to specifically apply this provision), alimony and separate maintenance payments are not deductible by the paying spouse and are not included in the income of the recipient. This is also a permanent change.

For another overview of the new tax laws, please read our blog post here.

16
Jun

Are You Ready For 7 Saturday’s?  Data shows, You Spend More In Retirement!

Are You Ready For 7 Saturday’s?
Data shows, You Spend More In Retirement!
One of the most significant problems with most people’s retirement plans is that they do not account for changes in spending levels over the years. Most retirees will likely plan for inflationary adjustments, but is it really reasonable to think that your inflation-adjusted costs for property taxes, healthcare, income taxes and more will all remain the same? If you have ever opened an old budget file on your computer that you created years ago, you may be well aware that budgets can change very dramatically from year to year. With this in mind, the best planning efforts for your later years in life will include increasing rather than decreasing levels of expenses.

The Issue of Healthcare Expenses
If you are like most adults who are preparing to retire, your planning efforts may include most of your medical expenses being paid for through Medicare. However, the media is filled with stories about pending changes to Medicare coverage. In addition, the reality is that most seniors tend to need more rather than fewer health services as they get older. The bottom line is that your medical expenses can increase rather dramatically throughout your retired years, and your financial plan needs to take this into account. Without properly planning for what may equate to several hundred dollars or more per month in additional expenses, there is a very real chance that your budget may fall short of meeting your needs.

Preparing for Tax Changes
Taxes are also a great unknown when you are preparing to retire. This includes your property taxes as well as income taxes. These tax rates can vary from year to year, and it may seem more likely that they will increase rather than decrease in the future. Even if your incoming cash flow remains steady, you may still pay a higher percentage in taxes. This can detract from the overall amount of money you have available to spend when you are retired. In some cases, this may equate to several hundred dollars or less per month.

Increased Living Expenses
Some people believe that living expenses will naturally decline as you get older. For example, you may plan to spend your first few years out of the workforce on the golf course. While golfing can be expensive, your health will eventually decline, and you may find yourself golfing less frequently. The thought of spending your days at home in front of the TV or curled up with a good book sounds very affordable. However, you may need in-home care at some point, cleaning or landscaping services to care for your home and more. You may even need to sell the home and move into an assisted living facility. These long-term care facilities can cost a modest fortune. You can see that these increased living expenses are not simply inflationary adjustments. They add new expenses to the budget.

How to Create a More Realistic Budget
If you are serious about being financially prepared in retirement, you need to create a budget that is as realistic as possible. One smart idea is to consider living more frugally during your first few years, and this can help you to stretch your funds for a longer period of time. Remember that funds that you do not take out of your account immediately will have more time to grow over the years. You may also want to create a separate budget for every five-year period of your life rather than one budget that is supposed to cover a 20 or 30-year span.

We are here to answer your pre-retirement or retirement questions.