Investment Newsletter for the end of September, 2017

The market was up both this month and this quarter. Everyones’ portfolios have done well.

Today I wish to write about the new tax proposal President Trump is suggesting. I am not discussing whether it is a good idea or not, i.e. the political side of a major tax bill. I wish to explore what we know so far and what we don’t know.

The president gave only an outline of what he wanted. He left out many of the key numbers and percentages. His comment was that Congress needed to add these specifics. The appropriate Congressional Committee is scheduled to release details this Wednesday. Some of you may not read this newsletter before then. Of course, as you all know, my world is all about the details. Outlines don’t mean much.

Furthermore, what the committee comes up with will have very little resemblance to what comes out of the political meat grinder in a few months. Washington is swarming with lobbyists who need to protect their special program. In the name of “fairness,” congress will put in many exceptions and changes. All of these special programs, changes, etc. add complexity. That is how a few page proposal turns into a 2000 page tax legislation. It was exactly what happened in 1986 with President Reagan’s tax simplification bill. The initial argument was that most people would be able to file on postcards and accountants would not be necessary. I am still here and my tax practice is doing quite well, thank-you.

This year, I expect a major tax revision to be passed. I am certain it will be retroactive to include 2017 (meaning the returns that are about to be completed this next season). In my career, they have always made the changes to include the current year. Normally, I get my first version of tax software by the end of November. Since the software has to be programmed and then approved by the IRS, it takes 4-6 weeks after legislation to be released. I doubt I will see software before year end. One year it was the end of January.

As it stands now, there are a lot of changes. Affecting investments would be an elimination of estate tax (federal elimination only. Oregon and Washington have not eliminated it. California, Nevada, and Arizona do not have it) and a change in tax rates. We do not know where the boundary lines between the tax brackets will be. Non- investment changes include elimination of the Alternative Minimum Tax, elimination of the deductions for state tax and property tax, eliminating exemptions, and doubling the Standard Deductions. Oregon and California are high tax states. Eliminating the state tax deduction will likely hurt more than doubling the standard deduction helps. Washington and Nevada have no state income tax and Arizona has very low state income tax. These latter states will likely make out ok. The final provisions are a steep reduction in business taxes. They do not apply to any of you in regard to your investments. They may be very important to my accounting clients.

I am not changing any tax planning, financial planning, or portfolios because of this proposal. I may in the future want to talk to you about changes but not yet on the small information we have.


Investment Fee Schedule

Rate Assets Under Management
1.44% Below $125,000
1.00% Between $125,000 and $750,000
.85% Between $750,000 and $1,250,000
.80% Between $1,250,000 and $1,750,000
.75% Between $1,750,000 and $2,500,000
.70% Between $2,500,000 and $3,250,000
.65% Between $3,250,000 and $4,250,000
.60% Above $4,250,000

A single rate is applied to the whole account. Compared to my old fee structure, under the new fee structure the cost for a $1 million account would be $500 lower per year and the cost for a $1.5 million account would be $1,500 lower per year. I will still waive personal tax return fees for accounts over $1 million. All services stay the same. I am just lowering my upper end fees. For accounts that are above $5,250,000, we’ll need to discuss a custom rate.

As I’m writing these to help my readers, I would be very appreciative of any input in regards to what I should write next. If you want me to write about a particular topic, please contact me. Please contact me if you would like to submit a post to my blog.

If anything that I mentioned above interests you, please consider downloading my free e-book. The book contains my thoughts on investment management and some information that I think everyone should know. You can also download it below.

E-Book Download

Questions for the comments

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