Mid Month Market Update: October 2017

Published 10.24.2017

Canary in a Coal Mine

Brendan Van Cleve
Director, Lido Advisors, LLC; Director, Wealth Management, Ken Stern & Associates

The White House recently released an outline to reform personal and corporate income taxes [1].  The overarching goal of the plan is to reduce the number of tax brackets, increase the standard deduction, and mitigate the need for taxpayers to itemize deductions.  Deduction for retirement account contributions, mortgage interest, and charitable would remain.   Other deductions such as those for state income and property tax would be eliminated.  Residents of states with no or relatively low-income tax rates such as Texas may benefit.  Californians who currently itemize may see their tax bills increase as California has the highest marginal income tax rate of any state [2].
 
How may the proposed ideas impact investors?  Under the proposal, capital gains and qualified dividends would be taxed at 20%1.  The Alternative Minimum Tax (“AMT”), which can allow for municipal bond interest to be taxed, would be eliminated.   The net investment tax of 3.8% for filers who meet certain income thresholds would likely remain.  I suspect that Congress may explore additional strategies to try raising revenue from the investing community which may include increased taxation of dividends, taxing municipal bond interest, and limiting tax deductible contributions into certain types of retirement plans.
 
Also noted in the proposal was the elimination of the estate tax and reduced corporate tax rates [1].  Eliminating the estate tax may create a short or long-term window for families to execute advanced wealth transfer strategies without taxation. The reduction of the corporate tax rate is more controversial, with multiple parties expressing a wide array of opinions.
 
The impact of a tax code rewrite may be profound. Personal income tax represents the single largest source of revenue for federal government.  It is estimated that the personal income tax will provide approximately 49% of all federal revenue in 2017 [3].  Even a temporary disruption in tax revenue generation may result in higher fiscal deficits.
 
The end of the year is fast approaching.  If reform is passed there may be strategies to execute in order to optimize your tax plan before December31,2017.  For example, it may make sense to accelerate your deductions such as property taxes into 2017.  Of course, each situation is unique and you should consult with your tax advisor.
 
Play it smart.

[1] WhiteHouse.gov

[2] TaxFoundation.org

[3] Federal-Budget.insidegov.com

DISCLOSURES

Past performance is not an indication of future performance.  The information provided in this newsletter is for informational purposes only and should not be considered investment advice or a recommendation to buy or sell any types of securities.  Lido Advisors, LLC does not provide tax nor legal advice.  Please consult with appropriate tax and/or legal professionals in addition to a financial advisor prior to making any decisions. 

The information contained herein reflects Lido’s views as of the date of this newsletter. Such views are subject to change at any time without notice due to changes in market or economic conditions and may not necessary come to pass. Lido has obtained the information provided herein from various third party sources believed to be reliable but such information is not guaranteed. Any forward looking statements or forecasts are based on assumptions and actual results are expected to vary from any such statements or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision. Lido is not responsible for the consequences of any decisions or actions taken as a result of information provided in this newsletter and does not warrant or guarantee the accuracy or completeness of this information.

Lido Advisors, LLC is an SEC Registered Investment Adviser. Please note that adviser registration does not denote any particular competence nor ability, and no inference to the contrary should be made.  For complete information on the services we provide and our fees, please review our Form ADV at adviserinfo.sec.gov or request a copy from Lido Advisors, LLC by mailing a request to 1875 Century Park East, Suite 950, Los Angeles, California 90067, or by calling (310) 278-8232.