CARES Act and Tax Update

Blog post #438

The IRS, Federal Reserve, Congress and the President have enacted various measures in response to Covid-19. The goal in this post is to provide you with a summary of key information that could be most relevant to you.

Income Tax Return and Payment due dates delayed

The normal Federal tax deadline of April 15, 2020 for filing tax returns and making payments has been moved to July 15, 2020. Most states have made the same change.

  • You do not need to file any extension.
  • You don’t need to make payments that would have been due on 4/15/20…until July 15, 2020, if you owe money or would have needed an estimated payment for 1 Qtr. 2020.
  • The due date for funding a 2019 IRA or Roth IRA is now July 15, 2020.
    • Key point: If you intend to do this, you should make your deposit now…while the market is low (maybe it will be higher in July, we don’t know).
  • However, the 2nd quarter estimate due date of June 15, 2020 still applies….. so yes, that is now due before the 1st quarter due date of 7/15/2020. Leave it to the IRS!
  • If you usually have withholdings from IRA Required Minimum Distributions, you may not need to take the RMD in 2020, so you may need to pay estimated taxes in 2020. Discuss this with your CPA or tax preparer.
  • For more information on these changes, see the following link for a more detailed Q&A.


The CARES Act was signed into law about a week ago and will impact almost everyone in the US. We are trying to provide a summary of the most relevant information of wide-ranging legislation, that impacts businesses, individuals, and others.

Within a day after the bill passed the Senate, one of the thought leaders of our national firm, Jeffrey Levine, produced a 25-page detailed summary (if a 25-page article can be both detailed and a summary!). We are providing a link here to the website, where you can find a PDF of Jeff Levine’s article. Jeff is the Director of Advanced Planning for Buckingham Strategic Partners, our national back office firm. Jeff is one of the country’s top financial planning’s experts. The link is at, where Jeff and his partner, Michael Kitces, write lengthy articles on financial planning. Michael is one of the top national speakers on financial, tax and estate planning, and both are great additions and resources to our firm, as they are now part of our national alliance partner firm.

As each topic is addressed below, if you want more detailed information, please see the instructions at the bottom of the post on how to access the PDF article* to view the appropriate page within the PDF.

Recovery Rebates for Individuals:

  • Married joint filers to receive $2,400, other filers receive $1,200, increased by up to $500 per child under age 17.
  • However, high income taxpayers will not receive any money at all.
    • Phaseouts are based on your AGI (adjusted gross income) for 2018, or 2019, if you have filed a 2019 income tax return, beginning at the following levels:
        • Married Joint: $150,000
        • Head of Household: $112,500
        • All other filers: $ 75,000
    • The exact amount of the phaseout depends on how many children you have under the age of 17.
    • See chart on top of page 8 of the PDF, for more details on the refundable tax credits.
  • The initial “recovery rebate amount” will be based on whatever income tax return you have filed, either 2018 or 2019, subject to when the IRS processes your return, and when they process/review whether you are eligible.
    • The rebate amount will later be adjusted based on your actual 2020 federal income tax return.
    • Unfortunately, if you earned $200K in 2018 and 2019, but expect to earn only $75,000 in 2020 due to this outbreak, you will not get a recovery check until mid-2021. However, if you make more in 2020 than in prior years, you won’t have to pay back the excess.
    • Key point: If you earned significantly less in 2019 than in 2018 or would fall below the above threshold levels for 2019, but not in 2018, it would make sense to file your 2019 Federal income tax return as soon as possible. 
    • Key point: If you had a baby or adopted a child in 2019, you should file your 2019 Federal income tax return as soon as possible, if you think you will qualify for a recovery payment.
    • See pages 6-10 of the PDF for more information on the refundable tax credits.
  • No one knows the exact date of when these payments will be issued. They may not be issued until May.
    • If the IRS has a bank account on file that was used for a 2018 or 2019 direct deposit refund or withdrawal, they will use that bank account.
    • If the IRS does not have a bank account on file, and you are eligible, it will be mailed to your last address of record.

Required Minimum Distributions are Waived in 2020:

  • Key point: If you are subject to taking a Required Minimum Distribution (RMD) from a retirement plan, such as an IRA or 401(k), which is generally those over age 70 ½, you don’t need to take an RMD for 2020.
    • We will discuss this with each of our clients as 2020 progresses. 
    • Key point: If you don’t need the RMD money for living expenses, this can substantially reduce your 2020 income taxes and allow you to keep the RMD amount in your IRA.
    • If you have already taken your RMD in the past 60 days, there are ways to return the funds, if you don’t need them. Contact us to discuss this!
    • Key point: If you will not be taking an RMD for 2020, but in past years you have used the RMD for your federal or state withholdings, you should contact us or your tax preparer, to discuss paying tax estimates, the first of which will be due on 6/15/2020.
    • This also applies to those who are beneficiaries of stretch distributions, for IRAs you received upon an inheritance.
    • For more information, see pages 11-15 of the PDF.

Business provisions:

  • Key point: If you have a small business and have been impacted by Covid-19, you should carefully review these provisions as soon as possible. Time is important.
    • Business owners should likely contact their CPA for guidance, as these programs interact, and you cannot do all of them. 
  • There are several different programs.
    • Today, April 3, the Paycheck Protection Program and forgivable loan program is scheduled to begin accepting applications via SBA approved banks. As of now, this is to be handled on a first-come, first serve basis. The final loan application has not been released as of Thursday am. These loans are forgivable if a business keeps their workforce largely intact and use the loans for eligible expenses such as payroll, rent and utilities. There is no guidance as to how fast these loans will be processed and funded.
    • If you have a business of less than 500 employees, you should review the provisions on pages 20-24 of the PDF, and evaluate which of the following makes the most sense for your situation, with your advisors:
      • Paycheck Protection Program,
        • If your business get this loan, it is not eligible for the next two items.
      • Employee Retention Credit for Employers,
      • Deferral of payment of payroll taxes, and
      • Net Operating Loss rules changed
  • Due date for funding pension plan contributions for calendar year 2019 plan year is extended to January 1, 2021.

Unemployment Compensation Benefits Expanded:

  • Key point: Self-employed individuals and others who are generally not eligible for unemployment, will now be eligible for up to 39 weeks of benefits.
    • This is a major change and can benefit many individuals who have been impacted, who run their own businesses. Think of independent contractors, consultants, hairdressers, massage therapists, people who own small retail stores, etc. 
  • Unemployment benefits can be increased by states by up to an additional $600 per week, for up to four months, to be funded by the federal government. This will be in addition to whatever state benefit you would be eligible for.
  • If you are now unemployed or have no revenue due to the state mandated shutdowns, you should check online with your state unemployment website. They may not yet be updated to provide for the self-employed provisions (MI was not as of a few days ago), but you should try to apply as soon as possible.
  • Unemployment compensation has been extended to 13 weeks.
  • See pages 19-20 of the PDF.

Coronavirus-Related Distributions:

  • You can take up to $100,000 in distributions from an IRA, employer-sponsored plan (like a 401(k) or 403(b) or a combination of both, during 2020, if you have been significantly impacted by Covid-19 (definition is broad, but there are guidelines).
    • These are exempt from the 10% penalty, for those under age 59 ½.
    • The distributions are not subject to normal 20% federal withholding rules.
    • They can be repaid within 3 years, if you want to. If you pay tax on a distribution and then repay the distribution within 3 years, you can go back and claim a tax refund.
    • They are subject to taxable income, either all in 2020 (if you estimate that this would be the lowest income year) or spread evenly over tax years 2020, 2021 and 2022.
    • See pages 11-12 of the PDF for more details

Loans from Employer Sponsored Retirement Plans:

  • You can borrow $100,000, increased from the normal $50,000. Payments can be delayed for up to one year. See page 13 of the PDF for more details.

Charitable Contributions:

  • If you no longer can itemize, you can now deduct $300 of cash charitable contributions beginning in 2020.
  • If you can afford to make major charitable contributions, and are so inclined to do so, you can deduct up to 100% of your AGI for “qualified charitable contributions” in 2020.
    • If you contribute more than your AGI, the excess can be carried forward 5 years.
    • Contributions to donor advised funds and family charitable foundations are prohibited.
    • Key point….we all know there is great need at this time….if you are so charitably inclined, please contact us or your tax advisor to discuss this impact.

Student Loan Borrowers:

  • Provisions include payment deferral until September 30, 2020, for which no interest will accrue, but it appears you must contact your loan provider, as well as employers can pay up to $5,250 of student loan obligations and that will be excluded from compensation. Please review pages 16-18 of the PDF.

Medical and Healthcare Provisions:

  • The items for “qualified medical expenses” for HSAs, MSAs and FSAs have been expanded, to include over the counter medications and female care products.
  • Other items, such as Covid-19 related expenses and telehealth services are considered covered. See pages 18-19 of the PDF.

For a chart and overall summary, see top of page 4 of the PDF, which covers rebates, IRA distributions, other provisions, unemployment compensation, and small business benefits.

There are likely to be changes to some of these items and this article does not cover all provisions of the CARES Act. Please consult with us or your tax professional before making any decisions.

Please forward this to others who may find it helpful, especially small business owners and those who can benefit from the new self-employed unemployment compensation, as those people may not be aware of these new provisions.


*Click on article link above.  Once you reach the article, click the printer and then choose PDF.  After choosing PDF, a box will pop up and you will click download your PDF.  Then you will want to save the PDF to your desktop.  After saving to your desktop, you will see a PDF saved as… The CAREs….  Click on this to view the PDF.

Tax Relief Q&A

The IRS recently released answers to some commonly asked questions about the tax relief provisions designed to help taxpayers and investors dealing with economic fallout from the COVID-19 pandemic.

The primary benefit of this relief is an extension of time to file and pay your taxes. Specifically, what
would have been due on April 15, 2020, is now due on July 15, 2020.

Here are updated answers to the questions we’ve been tracking:

Question: Do I qualify for this relief?
Answer: Any individual, trust or business (incorporated or otherwise) is eligible for relief. If the return or payment is due on April 15, 2020, the new due date is July 15, 2020. If the return or
payment is due on a date other than April 15, 2020, this relief doesn’t apply.

Question: Is the $1 million maximum the same for everyone?
Answer: No, income taxes owed by individuals, trusts, corporations and other non-corporate
businesses that are due on April 15, 2020, regardless of the amount, are now due on
July 15, 2020.

Question: I will not be able to file my 2019 income tax return by April 15, 2020. What do I need to do?
Answer: Simply put, nothing! Your new due date for payment and filing is July 15, 2020.

Question: What about my first quarter estimated federal tax payment, normally due on April 15, 2020? When do I pay that?
Answer: Because it is a payment due on April 15, 2020, it is now due on July 15, 2020.

Question: What if I am still unable to file my 2019 income tax return by July 15, 2020?
Answer: You can request an automatic extension of time to file your tax return, which would
extend the final due date to October 15, 2020. To avoid any interest and penalties, you
will need to pay any remaining tax that you estimate is due with the extension request
filed by July 15, 2020.

Question: Does this mean that I can wait until July 15, 2020, to make my 2019 traditional IRA, Roth IRA and/or HSA contribution?
Answer: Yes. The deadline for making contributions to IRAs and HSAs is also extended to July 15, 2020.

Question: I own a business and have payroll taxes due in April. Does my business get relief?
Answer: No, normal filing and deposit due dates for payroll taxes continue to apply.

Question: My business owes the employer contribution for our company retirement plan. When is this due?
Answer: If payments would have been due on April 15, 2020, they are now due on July 15, 2020.

Question: If I’m not mistaken, my second quarter 2020 estimated tax payment is due on June 15, 2020.  Are you saying that, if I take advantage of this relief, I’m going to have to pay my second quarter 2020 estimated tax payment before I pay my first quarter 2020 estimated tax payment?
Answer: That’s correct.

Question: What if I’ve already filed my taxes and have a payment scheduled to be automatically deducted from my account on or before April 15, 2020? Will this payment automatically be rescheduled to July 15, 2020?
Answer: No, the payment will not be automatically rescheduled to July 15, 2020. If you do nothing,
the payment will be made on the date you chose. If you scheduled your payment as part of
filing your tax return by authorizing an electronic funds withdrawal from your account, call
IRS e-file Payment Services 24/7 at 1-888-353-4537 to cancel and reschedule your payment.

Question: I’m expecting a refund. Is there any reason for me to wait to file my tax return?
Answer: If you expect a refund, it is generally better to file your tax return as soon as
possible. Nothing associated with this relief changes that equation.


It’s important to note that this relief only applies to 2019 federal income tax liabilities. If you owe
state taxes as well, be sure to check with your tax preparer to see if any additional relief is available
at the state level.

This information could change quickly and without much or any notice if additional guidance
becomes available, so we will continue to monitor it and keep you informed.


© 2020 Buckingham Strategic Partners. All rights reserved.

The Real News About Charitable Deductions

There seems to be some mis-understandings about the tax deductibility of charitable contributions due to the Federal tax changes that were enacted in late 2017, which are now effective for 2018 and going forward. Let’s try to clarify this matter.

There were no changes in the new tax law that specifically affected charitable contributions. 

What changed is whether you can itemize or not.

We know that the financial world is continually changing. We know that the tax laws changed, and we hope this information provides you with clear and useful information. We want to help you overcome complexity and enable you to make better financial decisions.

If you can itemize, which means that your various deductions total more than the increased standard deduction amount, then you would continue to get a direct tax benefit from your charitable contributions.

The Tax Cut and Jobs Act (TCJA) vastly increased the standard deduction amounts. The 2018 and 2019 standard deductions amounts are as follows, respectively:

  • Filing Single….$12,000 and $12,200
  • Married Filing Joint couples….$24,000 and $24,400
  • Head of Households….$18,000 and $18,350

What is deductible to determine if you can itemize has changed, but how or what charitable contributions can be deductible has not changed.

  • State and local taxes, such as property taxes and state income taxes are now limited to $10,000 per year (previously, there was no limit).
  • In general, mortgage interest is still deductible.
  • Most miscellaneous itemized deductions have been eliminated.

If the total of your deductions exceeds the standard deduction amount for the filing category that is applicable to you, then you would benefit from itemizing. And if you have charitable contributions as some of your deductions, then you would get a tax benefit from those contributions.

If the total of your deductions is below the standard deduction amount that is applicable to you, then you would not be getting an incremental tax benefit from your charitable contributions.

If you are married, your standard deduction amount is $24,000 for 2018. If a couple paid $10,000 of state and local taxes and had mortgage interest expense of $10,000, any charitable contributions above $4,000 would enable this couple to itemize. If they made $10,000 in charitable contributions, which includes cash and property contributions, like used clothes donated, they would benefit as their total deductions would be $30,000.

If the same deductions were made by a single person, the $30,000 of deductions would far exceed the standard deduction amount of $12,000, and clearly this person would itemize and benefit from their charitable contributions.

This is really a case specific issue. Each person or couple will need to review the impact of the new tax law to their own specific situation and determine the impact on their deductions.

What we want to clarify is that many people will continue to be able to itemize and will continue to get real tax benefits from their charitable giving.

If your deductions are going to be far above the standard deduction amount each year, then you should continue with your annual charitable giving, as the tax law change really will not impact the deductibility of your charitable contributions.

Bunching strategy…

If you do not think you will exceed the standard deduction amount each year, but could be close, then more planning may be beneficial. In this situation, we recommend that you consider bunching your contributions every other year, if that will help you exceed the standard deduction amount every other year.

For example, let’s say a couple will have $15,000 of deductions in 2019, not including their charitable contributions of around $8,000 per year. If they make the charitable contributions each year, they would have $23,000 of deductions, and thus utilize the standard deduction amount of $24,400 in 2019.

However, if they bunch the contributions into an every other year cycle, they would get a significant benefit. If they gave most of the prior annual contributions of $8,000 into one year of $16,000 of contributions and then skip making most of the contributions in the following year, they would get a significant tax savings.

In the above example, they would have $15,000 of deductions in 2019, not including charitable contributions….and would still get the $24,400 standard deduction amount. In the next year, they would have deductions of $31,000 (the $15,000 + $16,000 of bunched charitable contributions), which would far exceed the 2020 standard deduction amount. You probably cannot or would not want to skip some contributions in a year, but you could let the charity know your plans, if they are counting on your annual gift.

If you have questions about this topic, you should consult with your tax advisor and review the figures.

For more advanced or significant charitable tax planning and giving concepts, please contact us. We have advised many clients on charitable giving and the interaction with their investments, estate planning and retirement accounts. This is a high value service we provide.

Obviously, charitable giving is a very personal matter.

We hope that you give to charities which are important to you and will continue to support their worthy causes and efforts, regardless of whether you get a tax benefit under the new tax law.

We welcome you to share this blog post with others, so they will have accurate information about charitable giving.

Let’s Talk

2019 Social Security Benefit and Payroll Tax Increases

Social Security recipients will be receiving a 2.8% increase in 2019 benefits. Unlike in 2018, this benefit increase should not be offset by higher Medicare health premiums in 2019, so these should be higher net monthly benefits.

The increase in gross benefits would be the largest annual COLA change (cost of living allowance) since 2012, as inflation has been very low over the past years. Recent changes have been: 2018-2%, 2017-.3% and 2016-no increase.

The earnings limit for those who claim Social Security benefits before their full retirement age will increase from $17,040 to $17,640 in 2019. If this applies to you, you lose $1 benefit for every $2 earned in wages or earned income over $17,640.

In 2019, the maximum wage base subject to Social Security and Medicare taxes will increase $4,500, from $128,400 to $132,900, a 3.5% increase. This will cost employees and employers each $344.25 in 2019. Additionally, all earnings, even above the $132,900 Social Security maximum, are subject to a 1.45% Medicare tax. Plus, individuals with earned income above $200,000 and married filers with earned income above $250,000 pay an additional .9% in Medicare taxes.


This week’s Takeaway: Social Security is still vital for nearly all Americans. Annual payments can be $20-40,000, which is the equivalent of withdrawing 4% per year from an account value of $500,000-$1,000,000.


Source: “Social Security to get 2.7% COLA,” Investment News, Mary Beth Franklin, October 15, 2018.

Clarity on Charitable Contributions

There is some confusion about the impact of the new tax law, enacted in December, 2017, on charitable contributions.

As we view our role as financial advisors to assist you in a broad, comprehensive manner, we want to provide you with clarity on this topic.

The tax law did not specifically change anything about charitable contributions, with a major caveat.

What the tax law did change was whether you will get a tax benefit for your charitable contributions, which depends on whether you will itemize or benefit from the new standard deduction amounts, which have increased significantly.

If you are married, the standard deduction for 2018 will be $24,000. If you are single, the standard deduction will be $12,000.

You need to compare whether your itemized deductions are greater than your standard deduction amount. Itemized deductions primarily consist of charitable contributions, mortgage interest, and the combination of state income taxes and real estate taxes, which are limited to $10,000 in total for both (a major reduction which will impact many taxpayers). There are other categories of itemized deductions, but these are the most common.

For example, let’s say you are married and your charitable contributions are $5,000, mortgage interest is $12,000, state income taxes are $5,000, and real estate taxes are $8,000.

You would have itemized deductions of $27,000 ($5,000 + $12,000 + $10,000, limit of state taxes and property taxes).

As your itemized deductions of $27,000 are greater than your standard deduction of $24,000, you would get the full benefit of all your charitable contributions.

If we change this example and the total itemized deductions would only be $20,000, then this couple would benefit from using the higher the standard deduction amount of $24,000. In this case, they may have made charitable contributions, but they did not get as much benefit as they could have, as explained below.

The key is to project whether you are going to be above or below the applicable standard deduction amount, whether you are single or married. You should project if you will be consistently above or below the standard deduction amount, and if it’s below, by how much.

If your deductions are going to be far above the standard deduction amount each year,then you should continue with your annual charitable contributions, as the tax law change really will not impact the deductibility of your charitable giving.

If you do not think you will exceed the standard deduction amount each year, then more planning is required. In this situation, we recommend that you bunch your contributions every other year, if that will help you exceed the standard deduction amount every other year. This would mean that for a couple, they may have $18,000 of deductions in 2018, and thus utilize the standard deduction amount of $24,000 in 2018. Then in 2019, if they pay more charitable contributions and have $28,000 of itemized deductions, they would get the greater tax benefit, as they would exceed the standard deduction amount.

If you have questions about this topic, you should consult with your tax advisor and review the figures.

For more advanced or significant charitable tax planning and giving concepts, please contact us. We have advised many clients on charitable giving and the interaction with their investments, estate planning and retirement accounts. This is a high value service we provide.

$1 Billion Tax and an Incredible Investment Story

John Paulson, a large hedge fund manager, owed Federal and state taxes of $1 billion this week. And he owed $500 million a year ago, April 2017.

Incredible. That is so large that the IRS cannot even process it all in one check, as the IRS cannot accept a check for more than $999,999,999. A problem we should all have!

But there is much more to this story, which you should know about.

Paulson’s huge tax liabilities are from $15 billion of profits he and his hedge funds made by betting against subprime mortgages prior to 2008-09.  He was able to defer the payment of those taxes until 2016 and 2017 because of a tax law which no longer exists.

How have Paulson and his firm, Paulson & Co., done since 2008?

This is where the story gets even more interesting than the huge tax payment.

After Paulson’s 2008 success, investors flocked into his funds. By 2011 his hedge fund firm was one of the industry’s largest, managing $38 billion seven years ago, according to the Wall Street Journal.  Today however, Paulson is managing less than $9 billion and most of that is his own money.

Why the huge reversal of fortune?

Paulson’s oldest fund, Partners Fun, has underperformed the S&P 500 every year since 2008.

For 9 straight years, from 2009-2017, his main hedge fund underperformed the S&P 500 and often by incredibly large margins.

Chart Information above is found in WSJ Article $1 Billion Tax and an Incredible Investment Story.

The Partners Fund underperformed the S&P 500 by more than 40% each year during 2016 and 2017.

His fund underperformed the S&P 500 by more than 10% in 4 of the 9 years, in 2009, 2011, 2013 and 2014.

Paulson Partners Fund S & P 500
2009 6.12 26.49
2010 11.69 14.91
2011 (9.88) 1.97
2012 9.88 15.82
2013 18.39 32.18
2014 0.8 13.51
2015 (3.14) 1.25
2016 (27.23) 11.82
2017 (20.27) 21.67

How did this occur and what are the lessons for you?

Paulson’s strategy has been the opposite of many of the philosophies of WWM.

  • We believe in diversification.
  • We stress that it is difficult to outguess the markets consistently over long periods of time.
  • We do not make huge bets on single stocks or on specific industries.
  • We don’t believe in shorting stocks (betting that a stock will go down).
  • We use a consistent and replicable investment strategy.
  • All these factors worked against Paulson, since he struck it rich in 2007 and 2008.

After 2008, John Paulson and the hedge funds he manages have made huge bets, most of which have not been as successful as a broadly diversified investing strategy.

He made huge investments in gold stocks, which got crushed after 2009. In 2011, the funds lost more than $100 million on a Chinese forestry company, of which they owned 14%.

In 2014, he advocated a theme of drug industry consolidation and invested heavily in Valeant Pharmaceuticals International, Inc. The stock went higher from $140, but by April, 2016 it was under $36 per share. That month, he told his investors he would change his risk management strategy and would no longer put more than 35% of the funds assets into any one industry. It was too late however, as that strategy had contributed to years of vast underperformance. Then he invested more in Valeant and it went down much further.

The more I read about this series of events and investments, the worse it got. It is almost unbelievable that Paulson and his firm could have appeared so smart (once?) and then make so many very bad investment decisions for so many years.

Paulson’s Partners Fund lost over 10% during the first two months of 2018. Paulson Enhanced Fund, which uses borrowed money to invest in merger deals, is down 20% this year, fell 30% last year and lost about 49% in 2016. Their use of leverage amplified their incorrect bets.

It appears that he made over $1 billion in bets in 2016 and 2017 that the S&P 500 would go down. The opposite occurred, as stocks broadly rallied, and his opposite bet again was a huge loser.

The moral of this story is Paulson got very rich due to his gut instincts prior to 2007 and 2008. He is still very wealthy. He has made large donations to NYC institutions and donated $400 million to Harvard University’s School of Engineering.

However, for those who invested in his funds after 2008, which is nearly all of their outside investors, Paulson’s firm had been a disaster on a comparative basis to financial industry benchmarks.

The key for us and the clients of our firm, and for the friends or relatives of yours who do not yet use our firm: We are investing the right way…for the long term.

Others may have strategies that may work for a year or a period of time. The strategies may work temporarily.

But you are not investing for one year. You need to know and understand the strategy that your financial advisor is using for this year, and the year after that and 5 years from now. You are investing for the long-term.

If predictions and guesswork or forecasting are their strategy, or what is really underlying their actions (even if they don’t use those terms), then you are using the wrong investment strategy for your serious money.

If you are not sure what strategy your advisor or money manager is using, ask him or her. You need to find out. If you are still not sure, ask us. We can figure it out.

I’m sure that many of Paulson’s investors after 2009 would have benefited from understanding this, if they would have known how and why he was temporarily successful and been willing to understand the answers.

And now you know “the rest of the story.”


WSJ article, Worried About Your Tax Bill?  Hedge-Fund Star John Paulson Owes $1 Billion. By Gregory Zuckerman 04/11/2018

Paulson Partner Fund data from WSJ article citied above.

S&P 500 performance information is from Vanguard 500 Index  Investor fund, VFINX, per as of 4/19/18, net of fund fees.

Tax planning during uncertainty

Tax planning is filled with uncertainty as two different bills were passed by the Senate and the House but have yet to be reconciled. It is not likely that a final version will be known until close to Christmas.

There is no way to know what the final bill will contain and whether it will get enacted by year end.

This post is to provide recommendations and guidance, but any actions or decisions should be discussed with your tax advisor and be based on your specific circumstances. This is intended to provide general information only, not political commentary.

Tax rates: In general, individual tax rates should be lower in 2018 than in 2017, so deductions should be accelerated into this year and income delayed to 2018, if possible.

The House and Senate tax rate schedules are different, so the impact on each person or couple will be dependent on your taxable income. The difference in the two rate schedules has not been widely discussed, but this is a key difference which will not be reconciled until the legislation is finalized.

Many of the changes in tax rates are temporary in the Senate bill, due to budgetary rules, and would revert back to current levels in 2026.

See a comparison of the current tax rates to the House and Senate tax plans at the bottom of this post.

Itemizing and Standard Deduction: You should review the amount of your itemized deductions (see Schedule A of your last tax return) and compare that to the proposed standard deduction figures. Each bill has a different amount as of now, but they are similar. The standard deduction for single taxpayers would be approximately $12,000 and married couples would have a standard deduction of $24,000, as of now.

By raising these standard deduction amounts, many taxpayers would no longer itemize in the future. If you fall into this category, especially after considering some of the changes/eliminations below, you should pay items which you currently can deduct in 2017, prior to December 31, 2017.

The higher standard deduction amounts are offset by the elimination of the personal exemption (was $4,050 per member of your family). If you are a family of four, currently you would deduct your itemized deductions if they were greater than $13,000 (current standard deduction amount for a couple) and deduct $16,200 of personal exemptions.

In the proposed bills, this family would get no personal exemptions and deduct the greater of the new standard deduction of $24,000 or the new definition of itemized deductions, which are discussed below.

AMT (Alternative Minimum Tax): The House bill repealed the personal AMT. The Senate bill keeps the AMT, but raises the threshold where the AMT affects taxpayers.

In general, the AMT affects those with significant deductions (not including charitable contributions) or capital gains income, relative to their overall income. From a tax standpoint, the AMT generally affects taxpayers with taxable income above $200,000 but usually does not impact very high income levels, as their deductions are a much lower percentage of their AMT income. This is a key item to monitor due to its impact and for the purpose of tax simplification.

State and local taxes: Both bills propose eliminating the deductibility of state and local income tax deductions. If you pay estimated taxes, you should accelerate your 4th quarter estimate for 2017 and pay it by December 31st. This is still being debated and may change, but most taxpayers would benefit from paying 4th quarter state or local estimates in 2017.

Property taxes: Under both bills, property taxes are capped at $10,000 per year, so if you pay more than this, you should pay any outstanding bills by year end, even if they would not be due until sometime in 2018.

The likelihood of eliminating the deductibility of state and local taxes and capping property taxes will mitigate (or offset) much of the income tax rate reductions for many taxpayers, depending on your specific situation, unless you have very high income.

Medical Deductions: Currently, this deduction is used only when someone incurs very high medical expenses, significant nursing care or at home medical expenses. The House bill eliminates the medical expense deduction and the Senate bill continues it for expenses greater than 7.5% of your AGI, if you are able to itemize.

Charitable contributions: Charitable contributions are not changed in either bill and would remain deductible, as long as you are able to itemize. This is one of the major deductions which remains unaffected, as of now. If you do not think you will be able to itemize in the future, you should consider accelerating your contributions into 2017, to get the tax benefit.

Other itemized deductions: As of now, other itemized deductions, which currently are deductible above 2% of your AGI and if you itemize, would not be deductible in the future. This would eliminate deductions for unreimbursed employee business expense, home office expense, investment and tax related expenses.

Child credits: These would be increased but are one of the main topics to be negotiated. They are currently subject to income limitations and that is expected to continue. Thus, if your income is above a certain amount, you do not get the benefit of these credits for children under 16 or 17. Due to budgetary issues, the Senate version would remove the increases in 2026.

Sale of your home: If you sell your home which is your primary residence, the first $250,000 or $500,000 of gain is tax-free (for single and married taxpayers, respectively), if you have lived in and owned the home for 2 of the past 5 years. The proposed change would be to 5 of the last 8 years. Also, you could only have one sale every 5 years which would qualify for the exclusion.

Estate tax: Currently, the estate tax exemption is $5.5 million per person. For a couple, assets above $11 million are subject to the estate tax, which is 40%.

Both plans raise the exemption amount to $11 million and $22 million, for single and married taxpayers, respectively. Estimates are that only 1,800 families per year would be subject at the proposed level, down from the current 5,000 per year now. The House bill repeals this change in 2024, so the exemption level would go back to the current exemption amounts.

From a planning perspective, we would still recommend the importance of estate planning that is focused on how you want your assets passed to heirs or charities, even if you are not subject to the estate tax.

Annual gifting: Both bills would double to $28,000 per person and $56,000 per couple, the annual gift exclusion from the Federal tax on gifts to children and other people.

Pass through income, corporate tax and other changes: At this point, the pass-through income provision is subject to significant change, so we will not be providing guidance on that topic. Corporate tax changes are beyond the scope of this blog. There are many other items which are proposed to be changed, but are not covered in this post. We have tried to cover most of the major changes or items which affect many people.


This week’s takeaway:  As the tax legislation will likely not be finalized until close to the end of the year, we recommend that you take steps now to pay items that will likely not be deductible in 2018, either because you may not be itemizing in the future or the potential changes would eliminate or reduce those items.



Tax rate comparison:


What if?

What if International and Emerging Market stocks continue to outperform the US stock markets? That would be considered normal, and why we recommend being globally diversified. These asset classes underperformed for a number of years, so this was expected, we just didn’t know when it would occur.

What if the market dropped 10-20%? That would be considered normal and you should be emotionally prepared for this to occur….repeatedly in the future. These declines are always temporary, as part of the market’s long term growth. There has not been a 10% decline in US markets since the first six weeks of 2016, which is unusual.

What if the stock market keeps rising? That would be fine, and we would occasionally rebalance (sell) some of your stock funds, to maintain your desired stock allocation, per the written Investment Policy Statement we agreed upon.

What if something unexpected happens? That would be normal, as we realize that we cannot predict the future.

What if tax reform gets enacted this year? Many think this would be good, particularly if there is corporate tax reform. In the very long run, growth in future expected corporate earnings drives stock market returns. However, we cannot predict what the impact of this short term event will be to your portfolio. As we cannot accurately predict the future and neither can anyone else, we do not base our investment recommendations on market timing.

What if no tax reform legislation gets enacted this year? As we cannot accurately predict the future and neither can anyone else, we do not base our investment recommendations on market timing or predictions.

What if you have a financial question? You should call us and we can discuss it.

What if you find these blog posts beneficial? Then feel free to share them with others….like some of your friends or relatives.


This week’s Takeaway: The world and financial markets are always uncertain. There will always be “what ifs?” We just don’t know what they are and when they will occur. Our investment philosophy and how we plan on your behalf deals with uncertainty so that you can have a positive investment experience, which is focused on meeting your financial goals.

Tax reform update and 2018 Social Security Projections

Tax reform update: On Wednesday, Republican legislators released a broad framework of individual and corporate tax changes. The proposal is far from enactment and many details will need to be negotiated.  It is not yet in the form of a bill which is ready to be voted upon, as the proposal is a 9 page PDF.  We will provide more detailed commentary and analysis as it progresses further.

The proposal includes eliminating most itemized deductions except for mortgage interest and charitable contributions and eliminates the Alternative Minimum Tax and Estate tax.  The framework proposes significant corporate tax reductions.


2018 Social Security Projections: Social Security recipients are projected to receive at least a 1.8% increase in 2018 benefits, but this could be partially or fully offset by higher Medicare premiums for most recipients. So, there may be no net increase in monthly Social Security payments for most recipients in 2018.

The Social Security Administration will officially announce the changes for 2018 in October, based on inflation figures through September 30th.

The increase in gross benefits would be largest annual COLA change (cost of living allowance) since 2012, as inflation has been very low over the past 5 years.

However, for many high income individuals and couples, they may have no change or even face net reductions in their monthly deposits, due to higher Medicare premium tiers which take effect in 2018.

For 70% of Medicare enrollees who are Social Security recipients, any Medicare insurance premium increase cannot exceed the increase in gross Social Security benefits. Thus, their net benefits may remain the same in 2018.

High income seniors, defined as singles with income over $85,000 and couples with income above $170,000, are not protected by this “hold harmless” provision regarding Medicare insurance premiums exceeding Social Security benefit changes.

There is not any planning which can be done to avoid the impact of the Medicare premium increase, as it is based on past income tax returns.   The Medicare premiums for 2018 are based on your 2016 tax return information.

If you have not yet begun to collect Social Security and are nearing the age which you can begin to collect Social Security (62-70), you may want to contact us to discuss this important decision.


This week’s Takeaway: While net Social Security deposits may stay the same or decrease in 2018, these are still vital benefits for nearly all Americans. Annual payments can be $20-40,000, which is the equivalent of withdrawing 4% per year from an account value of $500,000-$1,000,000.



Source: Investment News, Mary Beth Franklin, September 25, 2017

Trump’s Tax Plan: Our Initial Thoughts

President Trump and his economic advisors released broad outlines of their tax plan on Wednesday. Our purpose in this blog is to provide an overview of the potential changes and some planning concepts that may be applicable.

  • This is a very preliminary plan which does not have many specific details. More importantly, to get tax legislation passed and enacted into law is a difficult process. The actual law, if enacted, may be quite different than these concepts. You should not make actual decisions or actions based on this plan, until a law is enacted or legislation is much closer to reality.
    • Planning point: there has not been a discussion of an effective date of these proposals. We assume it would apply to 2018, but we will keep you informed. In general, if tax reductions are enacted that apply to 2018, specific strategies would make sense by this year-end.
  • Tax rates should be dropping: They have proposed three individual tax rates (10%, 25% and 35%) from the current seven tax brackets, but have not defined at what taxable income levels they will apply to. The top rate would drop to 35% from the current rate of 39.6% for married couples with income above $470,000.
    • Planning point: if applicable beginning in 2018, you would want to defer income, if possible, to 2018 and move deductions forward into 2017.
      • If rates do drop for 2018, and your income is expected to be unusually high in 2017, you may want to consider strategies like large charitable contributions in 2017 to a charitable foundation or specific charities.
  • The key are the details, what goes away: While tax rates are expected to decline, deductions such as state and local income taxes, property taxes and miscellaneous itemized deductions are eliminated in the proposal. Some of the reduction in tax rates may be offset by eliminating deductions.
    • Planning point: if the above items are eliminated for future tax years, it would make sense to prepay state income taxes, property taxes and itemized deductions in 2017.
    • As proposed, deductions for mortgage interest and charitable contributions will remain the same.
  • Increase in standard deductions: The plan would double the standard deduction, so fewer taxpayers would need to itemize. This simplification makes sense.
    • Planning point: If this was enacted and impacted you, we would encourage you to pre-pay items which would not be deductible in the future, to get the tax benefit in 2017.
  • Repeal of Investment income tax: There is a 3.8% surcharge tax for couples with taxable income over $250,000 on investment income, such as dividends, interest and capital gains. This is proposed to be eliminated. If enacted, this would be another significant tax reduction to those taxpayers.
    • Planning point: As this gets discussed further, the timing of capital gain transactions should be monitored. If enacted for next year, it would make sense to take losses against gains this year and delay some capital gain sales until 2018. However, we would caution anyone to delay stock sales into the future just to save a 3.8% tax, as stock prices are much more volatile and the price movement is more relevant than the change in this tax rate.
    • There has not been any proposal discussed to change the actual capital gain tax rate, which is 20%, not counting the net investment income tax above.
  • Repeal of AMT: This would benefit those who have high deductions or large capital gains, which tend to reduce their federal tax below the AMT tax base. Both the House and Trump plan call for the AMT repeal.
  • Repeal of Federal Estate Tax: Both the House and Trump plan call for the repeal of the Federal estate tax. However, based on how the legislation is enacted, this could likely be temporary for only 10 years, if the legislation is not “revenue neutral” and passes Congress through the reconciliation process. We have not seen any discussion as to whether the step up in basis of assets upon someone’s death will be changed.
    • Planning point: If the estate tax repeal is not permanent, depending on your age and health, you should not make major changes to your estate planning. Remember, the estate tax could be repealed and then enacted again in the future.
    • Planning point: If repealed, for those with large estates (couples with estates above $11 million), there may be planning opportunities if you are impacted by the Generation Skipping Tax or would consider gifts to grandchildren.
  • Reduction in corporate tax rate: The Trump plan calls for lowering the corporate tax rate from 35% to 15%. The House plan calls for a 20% corporate tax rate.
    • A major topic will be the impact on pass-through entities, such as partnerships, master limited partnerships and LLCs, whose income is passed through to individuals and taxed at each person’s respective tax rate. If enacted, this pass-through income may be taxed at much lower corporate rates than the higher individual income tax rates.
    • Planning point: If enacted, this will be an area of significant tax planning for all types of businesses and earners.

As we are financial advisors who are also CPAs with strong tax backgrounds, we are uniquely qualified to provide you with comprehensive financial advice during periods of significant tax law changes.

We will keep you updated through this blog, as these proposals become closer to legislation which may be enacted. If you have specific questions, please contact us.