Disclaimer: These are the views of Summit Financial Consulting and should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy.
New Tax Laws, Bitcoin, and a Portfolio Update
The House of Representatives and Senate have passed a tax bill. The bill now heads to a reconciliation committee to come up with a final bill to be voted on in each chamber and sent to the President’s desk for signing. With over 400 pages to digest, the potential effects on US citizens from every walk of life is lengthy. There are two potential large takeaways in our opinion:
Stock Sales Hurt
First, the Senate version of the bill eliminates the ability of a stock investor to choose between LIFO and FIFO. All future stock sales will default to FIFO, meaning First In First Out. For anyone who has owned a stock for a long time, particularly buy and hold investors, this could cause large, negative taxable consequences if stock is sold in 2018 and beyond. If they are receiving Social Security, it could cause their monthly income to be taxed more heavily. If they are elderly, they could potentially miss out on the tax-free step up in cost basis that comes with passing away, which could also hurt heirs. If you own individual stocks, you may want to consider selling some before year end to take advantage of the current LIFO option. No one knows if this provision will make it to the President’s desk, but if you handle your tax planning with an abundance of caution, this is something to consider.
Charitable Deductions and the unintended negative consequence
Second, if you make large contributions to charity, they may not be deductible in 2018. Because the standard deduction may increase from $12,000 up to $24,000 for married couples in 2018, many people who contribute to charity would find out that their contributions are no longer deductible, because they’ll be taking the new standard deduction instead. It might be worthwhile to make a larger contribution to charity in 2017 because you may not receive a deduction in 2018.
If you have any questions about taxes, please give our office a call. As a reminder, we have Summit Tax Services onsite, our tax preparation business. We’d be happy to review your tax returns from the past two years for free to see if there are any deductions or credits you missed out on, and we’d also be happy to give you a quote for tax preparation in 2018. We aim to save our clients 10-30% off what they’re paying now.
As far as the tax plan is concerned, if the parties cannot agree on a final version of the tax bill, it would be a reason for the stock market to lose some of its gains for the year and most certainly cause a ripple effect as far out as the mid-term election in November, 2018. I believe the stock market has priced in the passing of a tax bill and the one thing that can de-rail this is to not pass one. We will be monitoring this closely.
Bitcoin
Bitcoin is a cryptocurrency, and to some traders, an investment. Here’s an explanation of Bitcoin and how Blockchain works: (https://medium.com/@micheledaliessi/how-does-the-blockchain-work-98c8cd01d2ae)
We haven’t added Bitcoin to our main TD Ameritrade portfolios yet, but we can invest in the Bitcoin Investment Trust if we wanted to, and we may add it in the future. Taking a step back, because of the large gains in the past year, Bitcoin reminds us of Tech Stocks in 1999, or Gold in July of 2011, when everyone thought they could only go one direction: Up. The most popular app to buy Bitcoin is the number one app in the Apple App Store as we speak, so people are most likely buying up Bitcoins on their credit cards, just in time for 2018. Bitcoin could continue on the current trajectory. It could also lose 95% of the value in a month. In summary, Bitcoin is very risky, and buying it is similar to gambling. If you decide to invest in it personally, be prepared to potentially lose some or all of it all it through either theft, hacking, or price swings. There is further upside potential, for sure, but we typically don’t recommend it because of the large potential for losses. If you’re a gambler, it may be better than the roulette wheel, but no one can be certain.
Lastly, the portfolios we manage at TD Ameritrade had another great month. Most of our portfolios enjoyed their 12th straight month of gains. One concern is that our best research indicator recently switched from green to yellow, meaning there could be some trouble ahead in the short term. The stock market does not yet have a red indicator, but some restraint is warranted. We haven’t dialed down the risk within our portfolios quite yet, as December is typically a good month for stocks, but we’re planning on approaching 2018 with some restraint. Time will tell, but for now, know that we will continue to monitor our in-house managed TD Ameritrade portfolios daily, and make adjustments with accordance within your stated risk tolerance.
Please keep in mind that any deposit to a 401K, SEP, Simple IRA, and Roth conversions must be done by December 31, 2017 to count for 2017. Standard IRA and Roth contributions ($5,500 under age 50 and $6,500 age 50 and up) can be made up to and including April 15, 2018. Please do not wait until the last minute as we cannot guarantee same-day deposits. Also, all required minimum distributions (RMDs, age 70 ½ IRA distribution), must be made prior to December 31, 2017 or the required amount is subject to a high government penalty.
If you are a client and disagree with any of the moves inside your portfolio, if you would like to update us on your risk tolerance preferences, or if you have had a dramatic change to your income or financial situation, please contact us to discuss it.
Please feel free to forward this commentary to a friend, family member, or co-worker. If they would like to be added to our free commentary, please send us an e-mail at info@summitfc.net at your earliest convenience.
Thank you for your confidence and referrals!
Interesting Points
Nearly a third of all web orders are returned, compared with just 9% of purchases made at brick-and-mortar stores. Processing and reshipping all those returned items can eat up between 20% and 65% of an e-retailer’s cost of goods sold. – Bloomberg.com, November 3, 2017
Home foreclosures have dropped to the lowest on record. – Marketwatch, November 14, 2017
In the world today, fewer than 10 countries are in a recession, the lowest number ever. – MarketWatch, November 13, 2017
Today, the average savings rate in America is 3.1%. From 1950 to 2000, it averaged about 9.8%. It peaked in May of 1975, hitting 17% before beginning to slide. At its lowest, in July 2005, it was 1.9%. – Los Angeles Times, November 19, 2017
So many Walmart shoppers drew their own handguns when a shooter opened fire at a Colorado store last week, police said they had difficulty identifying the actual suspect on surveillance footage. – The Denver Post, November 2, 2017
The total US oil production is forecast to average 9.2 million barrels a day in 2017 and 9.9 million barrels a day in 2018. That would be the highest annual US output ever, taking out the previous record of 9.6 million set in 1970. – U.S. Energy Information Administration, November 7, 2017
YouMail, a robocall blocker, estimated there were 29 billion robocalls placed in America in 2016. – TheOutline.com, November 20, 2017
Over 200 million phone numbers are on the “Do Not Call List,” 44% of direct mail is never opened and 86% of people skip TV commercials. – HubSpot.com, October 31, 2017
Strong social relationships boost a person’s chances of staying alive by 50%. That’s about the same improvement to mortality as the one that comes from quitting smoking. – Bloomberg News, October 9, 2017
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