Friday, January 31, 2020

Super Bowl Prediction (Go 49ers)

Pathways Advisory Group, Inc.
Evon Mendrin, CFP®

The Big Game is just around the corner, and you know what that means - stock market predictions!

Our very own Jeff Karst wrote back in 2012 how successful the Super Bowl has been at predicting how the stock market performs through the rest of the year. The "Super Bowl Indicator" predicts that if the NFC team wins, the S&P 500 will be up for the year. If the AFC team wins, the S&P 500 will decline. Eight years later that track record continues with an outstanding 76% success rate! With that kind of success, who needs economists?

However, what that really shows is we can find a connection and correlation between any two things if we really wanted to. Take the Sports Illustrated Swimsuit Issue Indicator or the Men's Underwear Indicator as further examples - we often try to find connections where it's simply pure coincidence.

As Jeff writes, it's silly to base our investments on the results of a football game. The preferred way, he says, is a well-diversified, long-term strategy that relies on the fundamental principal that companies will continue to find ways to be profitable.

But just in case - let's go 49ers!

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Wednesday, January 29, 2020

It's a New (Tax) Year - 2020!

Pathways Advisory Group, Inc.
Evon Mendrin, CFP®

It’s that time of year again! As we begin a new decade, we now turn to the joy of tax season – preparing 2019 returns and looking at what 2020 brings. For the second time in three years, we see a major piece of legislation affecting our financial planning in 2020 and beyond.

With that in mind, here’s a roundup of what to expect for the 2020 tax year. There’s a lot here, so feel free to skim through to what applies to you!

Individual Taxpayers

Tax Brackets : 2020 income tax brackets receive a bump for inflation. See below for the 2020 brackets for Married Filing Joint Taxpayers and Single Taxpayers: 


Source: Click here for a complete version of the 2020 Tax Tables.

Qualified Dividends and Capital Gain Tax Rates: The brackets for preferential Qualified Dividends and Long-Term Capital Gains received a bump in 2020. Here are the brackets:

Standard Deductions and Personal Exemptions: Standard deduction amounts will increase a bit for inflation. 


Source: Click here for a complete version of the 2020 Tax Tables.

The additional standard deduction for those over age 65 and the blind remains $1,300. This increases to $1,650 for unmarried taxpayers.

There is no personal exemption amount. This was eliminated by 2017’s Tax Cuts and Jobs Act (TCJA).

Retirement Accounts

Roth IRA Contributions: The maximum Roth IRA contribution remains at $6,000 ($7,000 for those who attain age 50 or older during 2020). This also pertains to Traditional IRAs.

The Modified Adjusted Gross Income (MAGI) limit that disallows all direct contributions to Roth IRAs increased with inflation to $203,000 for Joint filers and $137,000 for Single taxpayers. Contributions begin to phase out at MAGI of $193,000 for Joint filers and $122,000 for Single filers.

Retirement Account Contributions: The maximum 401(k), 403(b) and 457 (Deferred Compensation) employee contribution increased to $19,500 in 2020 ($26,000 for those who attain age 50 or older during the year).

The total maximum contribution amount – including employer contributions, such as profit sharing and matching – bumped up to $57,000.

SIMPLE IRAs: The contribution limit for SIMPLE retirement accounts increased to $13,500.

Other Tax Changes

Medical and Dental Expenses: If you still itemize your deductions, you can deduct medical and dental expenses that exceed a “floor.” 

Thanks to a last-minute bill by Congress last year, the floor for both 2019 and 2020 remains at 7.5% of Adjusted Gross Income (AGI). It was originally planned to rise to 10%. Meaning: you can only deduct the amount of expenses above 7.5% of your 2020 AGI.

Back from the Dead: The same bill retroactively reinstated 1) Mortgage insurance premium deductions and 2) deductions for qualified tuition and related expenses to 2018. Meaning: you can amend the 2018 return to include these deductions if it makes sense. This is effective only through 2020.

Child Tax Credit: No change in 2020. This credit remains at $2,000 per qualifying child and is refundable up to $1,400. Phaseouts begin with modified AGI over $400,000 for joint filers and $200,000 for single.

Social Security and Medicare

Social Security Benefits: Social Security and Supplemental Security Income (SSI) Benefits will receive a 1.6% cost-of-living-adjustment (COLA) this year.

Medicare Premiums: The standard monthly premium for Medicare Part B increased to $144.60 for those married filing jointly at $174,000 income or less ($87,000 single). The premium moves up depending on income. 

If you are a new enrollee in 2020 or do not have the premium deducted from your Social Security check, you will pay the full standard premium.

However, if you are already receiving Social Security benefits and had at least one premium payment deducted in the year, you’ve been “held harmless” from the full amount of past premium increases. Meaning: your Medicare premium can’t rise more than the COLA of your Social Security benefit.

Estate Planning

Estate Tax Exemption: The Federal Estate Tax Exemption increased slightly to $11.58 million in 2020, making the total exemption for a married couple $23.16 million. The tax rate for amounts exceeding the exemption remains 40%.

Gift Tax Exclusion: The annual gift tax exclusion (amount that can be gifted without requiring a gift tax filing) remains $15,000 per recipient. Married couples can “split” their gifts, making it $30,000 per recipient. 

Business Tax Rates:

No change here. The highest corporate tax rate has been lowered permanently (until the law is changed, that is) to a flat 21% by the TCJA. The corporate AMT has been repealed. If you’re the owner of a C-corporation, this tax break is for you.

The 20% deduction from the “Qualified Business Income” (QBI) of pass-through businesses remains. These are sole-props, partnerships, LLCs, or S-corporations. The income of these businesses “passes-through” to the tax returns of the shareholders. If you’re an owner, you’ll find this income landing on your Schedule E (or Schedule C for a sole-proprietor).

The QBI deduction is not an “above-the-line” deduction to calculate your Adjusted Gross Income (AGI), but it also won’t be an itemized deduction. Meaning, you can claim it even if you take the standard deduction. It remains quite complicated, unfortunately. 

There are exceptions to the types of businesses that can claim, potential phaseouts based on your Taxable Income, and specifics on what constitutes QBI. This is one of the more complicated portions of the recent TCJA tax law.

The above explanation is summarized. It is not all inclusive. Please confirm all specifics with your tax professional. Also, keep in mind this is for 2020 tax year. This summary does not apply to your 2019 taxes that are filed by April 2020.

Follow our blog for additional tax tidbits throughout the year and happy filing!