Tax and Financial News November 2018

IRS Releases New Projected 2019 Tax Rates, Brackets and More

Bloomberg recently released projected tax rates, brackets and other numbers that apply to the 2019 tax year (the IRS will release the official numbers later this year). Note, these are NOT the numbers that apply to the 2018 taxes you file in 2019, but to the income and activity that occurs during the 2019 tax year that starts January 1, 2019.

A big part of the IRS’s consideration in formulating 2019 numbers is the inflation index. The Tax Cuts and Jobs Act (TCJA) replaced the normal Consumer Price Index with chained CPI. Chained CPI doesn’t simply measure the change in prices, it measures consumer responses to high prices, effectively creating a smaller inflation adjustment. In any case, inflation adjustments are a critical component (and often the main driver) in year-to-year tax bracket, exemptions and eligibility thresholds.

With an understanding of what underpins the 2019 adjustments (in addition to the impact of the new tax legislation), let’s look at the changes.

Tax Brackets

The increasing CPI means brackets are being pushed upward – albeit slightly – giving us these projected tax brackets for 2019.

Individual Taxpayers
Taxable Income	Tax Due
$ – to $9,700	10% of Taxable Income
$9,701 to $39,475	$970 plus 12% of the amount over $ 9,700
$39,476 to $ 84,200	$4,543 plus 22% of the amount over $39,475
$84,201 to $160,725	$14,383 plus 24% of the amount over $84,200
$160,726 to $204,100	$32,749 plus 32% of the amount over $160,725
$204,101 to $510,300	$46,629 plus 35% of the amount over $204,100
$510,301 and higher	$153,799 plus 37% of the amount over $510,300

 

Married Filing Jointly
Taxable Income	Tax Due
$ – to $19,400	10% of Taxable Income
$19,401 to $78,950	$1,940 plus 12% of the amount over $19,400
$ 78,951 to $168,400	$9,086 plus 22% of the amount over $78,950
$168,401 to $321,450	$28,765 plus 24% of the amount over $168,400
$321,451 to $408,200	$65,497 plus 32% of the amount over $321,450
$408,201 to $612,350	$93,257 plus 35% of the amount over $408,200
$612,351 and higher	$164,710 plus 37% of the amount over $612,350

 

Married Filing Separately
Taxable Income	Tax Due
$ – to $9,700	10% of Taxable Income
$9,701 to $39,475	$970 plus 12% of the amount over $ 9,700
$39,476 to $ 84,200	$4,543 plus 22% of the amount over $39,475
$84,201 to $160,725	$14,383 plus 24% of the amount over $84,200
$160,726 to $204,100	$32,749 plus 32% of the amount over $160,725
$204,101 to $306,175	$46,629 plus 35% of the amount over $204,100
$306,175 and higher	$82,355 plus 37% of the amount over $306,175

 

Head of Household
Taxable Income	Tax Due
$ – to $13,850	10% of Taxable Income
$13,851 to $52,850	$1,385 plus 12% of the amount over $13,850
$52,851 to $84,200	$6,065 plus 22% of the amount over $52,850
$84,201 to $160,700	$12,962 plus 24% of the amount over $84,200
$160,701 to $204,100	$31,322 plus 32% of the amount over $160,700
$204,101 to $510,300	$45,210 plus 35% of the amount over $204,100
$510,301 and higher	$152,380 plus 37% of the amount over $510,300

 

Trusts & Estates
Taxable Income	Tax Due
$ – to $2,600	10% of Taxable Income
$2,601 to $9,300	$260 plus 12% of the amount over $2,600
$9,301 to $12,750	$1,868 plus 22% of the amount over $9,300
$12,751 and higher	$3,076 plus 37% of the amount over $12,750

Personal Exemption Amounts

Personal exemptions are eliminated under the TCJA, so there is no adjustment any longer. The deduction for a qualifying relative is a similar type of item to the personal exemptions and is expected to be between $4,150 and $4,200 for 2019.

Standard Deduction

Standard Deductions
Filing Status	Standard Deduction Amount
Single	$12,200
Married Filing Jointly & Surving Spouse	$24,400
Married Filing Separately	$12,200
Head of Household	$18,350

In combination with eliminating personal exemptions, the TCJA approximately doubled the standard deduction for most taxpayers in 2018. With inflation figures where they currently stand, projections are as follows for 2019:

Certain taxpayers receive additional standard deductions; for example, the aged (65 or older) or the blind will be $1,300 in 2019 for married filing jointly and $1,650 if neither married nor a surviving spouse.

Capital Gains

There is no change in capital gains rates for 2019; break points between brackets do change, with the maximum zero and 15 percent rate amounts as follows: 

Capital Gains
Filing Status	Maximum Zero Amounts	Maximum 15% Rate Amount
Single	$39,350	$434,550
Married Filing Jointly & Surving Spouse	$78,750	$488,850
Married Filing Separately	$9,350	$244,400
Head of Household	$52,750	$461,700
Trusts & Estates	$2,650	$12,950

Section 199A Deduction (aka the Pass-Through Deduction)

Under the TCJA, sole proprietors and owners of pass-through entities are allowed up to a 20 percent deduction on qualified business income. To qualify for the deduction, a certain threshold must be met, and phased-in limitations are applicable. They are projected to be as follows for 2019:

Section 199A Deduction (aka the Pass-Through Deduction)
Filing Status	Threshold Amount	Phased-In Amount
Married Filing Jointly	$321,450	$421,450
Married Filing Separately	$160,725	$210,725
All Other Taxpayers	$160,700	$210,700

Alternative Minimum Tax (AMT)

AMT exemptions are also subject to adjustment for inflation and are projected to be as follows:

Alternative Minimum Tax (AMT) Exemptions
Filing Status	Exemption Amount
Single	$71,700
Married Filing Jointly & Surving Spouse	$111,700
Married Filing Separately	$55,850
Trusts & Estates	$25,000

Don’t forget, these are only projected changes. The IRS will release the official numbers later this year.

 

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Financial Planning November 2018

Advantages of Single Premium Whole Life Policy

A Single Premium Whole Life (SPWL) insurance policy works just like it sounds – you purchase the contract with one premium upfront. For folks who haven’t carried life insurance since the kids moved out of the house and their term life policy ended, SPWL offers some flexible financial planning options.

First of all, rather than taking a sizeable chunk of savings to purchase a policy, it’s a good option if you come into a windfall, such as an inheritance. This way you can take a lump sum and convert it into your own legacy for your children.

However, you can tap money from the account if you need to. Part of the initial premium goes into a cash account, which is available for either withdrawals or a policy loan. This account earns interest, so the longer you leave it alone, the larger it will grow. If at some point you need emergency funds and wish you had that inheritance back, much if not all of it is available for your use.

Here’s a sample illustration of how SPWL works. Premium: $100,000

Policy Year	Cash Value Available	Guaranteed Death Benefit
1	$77,282	$212,314
5	$89,809	$212,314
10	$106,582	$212,314
15	$123,567	$212,314
20	$139,703	$212,314
25	$155,839	$212,314
30	$169,639	$212,314

As you can see in the accompanying table, you would have access to much of that initial premium right away, and the equivalent amount within 10 years.

Benefits

As you get older, you might find you have expensive medical bills or need caregiving assistance. Not only is your cash value available for these expenses, but if you have significant needs, you can borrow against the death benefit. While this reduces the amount your heirs will receive upon your death, they’d probably rather you use that money than rely on them to pay your bills.

Another huge benefit for people living on a fixed income during retirement is that by purchasing the policy with an initial lump sum, you aren’t burdened with ongoing premiums. Since the policy is purchased in full, there is no risk of future default.

Tax Status

The death benefit from a single premium whole life policy is not subject to income taxes for the beneficiaries, but it could be subject to estate taxes on large estates. The cash value account grows tax-deferred; however, SPWL is classified as a Modified Endowment Contract (MEC) because it is paid via a lump sum premium and therefore exceeds IRS limits for how much you pay into a life insurance policy all at once. This means that any money withdrawn or borrowed from the policy is considered “last- in first out,” so capital gains are taxed. Also, withdrawals and policy loans made before age 59½ may be subject to an early withdrawal penalty.

Many of today’s SPWL policies feature long-term care benefits and/or riders. These enable tax-free access to the death benefit due to a qualifying event, such as a terminal illness in which the policyholder becomes unable to perform two or more activities of daily living and needs long-term care.

Be aware that accelerated death benefits and long-term care riders are subject to underwriting approval, so it’s important to purchase a policy while you are still young and healthy. As always, contact a professional to make the best decision for your circumstances. 

 

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Tip of the Month November 2018

Top 5 Latest Tech Advances That Help Heal Our World

As much as we lament how fast things change in the tech world, there is an upside when it comes to treating diseases and chronic conditions. Here are some of the coolest new devices showing how impressive it can be when technology and medicine intersect.

Getting a Foothold on Diabetes. The body’s extremities are most vulnerable to the effects of diabetes – especially the feet. If improperly treated, peripheral nerves and blood vessels can become damaged, causing ulcers, which can become infected and sometimes result in amputations, if not death. Siren© has developed high-tech socks with embedded sensors woven into the company’s Neurofabric™. These sensors continuously monitor the temperature at the bottom of the feet, which can be an indicator that the body is fighting an infection. Measurements are sent to the person’s smart phone, which alerts Siren’s customer service department that then calls or texts the user.

Seeing for the Blind. Created by AT&T, Aira glasses are a lifesaver. When a seeing-impaired person puts on these glasses, they’re connected to agents via microphone who see what the user sees in real time, so they talk them through what’s around them. These agents become visual interpreters, aka “seeing-eye people” and help users accomplish a wide range of daily tasks –everything from crossing busy streets to recognizing faces to traveling the world.

Treating Cancer with Robots. No, it’s not science fiction. The CyberKnife System® is very real. As the only fully robotic radiation delivery system, this miraculous surgical aid uses real-time imaging to deliver a maximum dose of radiation directly to the tumor from many different angles with sub-millimeter precision. It does this by tracking and adjusting for tumor or patient movement during the treatment, which minimizes radiation to healthy organs and tissues.

Scratching the Spread of Infection. Moms the world over have warned against scratching after a bug bite. This advice has some truth and relevance: Recent studies have found a direct connection between scratching, inflammation and the rapid replication of infections. Given the rise of mosquito-borne viruses like zika, dengue and malaria that are making their way into the United States, you’ll want to check out Bite Helper™. This ingenious device neutralizes the itch and irritation of insect bites with Thermo-Pulse Technology™, which delivers heat and vibration to the bite area. This increases blood flow and circulation, relieving the itch and desire to scratch, potentially containing the spread of the disease.

Rehabbing After a Stroke. Upon first glance, the Rapael Neofect© smart glove looks like a robot skeleton from the Lego movie. However, this incredible invention uses a variety of sensors to guide a stroke victim’s rehabilitation for hand and wrist injuries. Using wireless technology, the glove connects to the Rapael app you install on a computer, which guides a patient through repetitive movements to engage specific muscles and tendons. But here’s the thing: it makes the work less tedious and, in some cases, fun. The app projects games involving exercises that are actually everyday tasks like chopping vegetables, pouring a glass of wine or even throwing darts. The secret? Data from the sensors feed through a software algorithm that customizes the game play for the patient’s needs, similar to the way Netflix’s algorithm customizes a viewer’s TV show and movie recommendations.

 

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