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Tax Planning - What’s Different In 2017 For Taxes

For 2017, the IRS is revising more than 50 tax provisions for both individuals and business taxpayers.  Any changes or modifications made by the new administration may or may not be applicable to 2017 taxes.  So for the time being, the following IRS revisions are effective for the 2017 tax year.

Standard Deduction – will increase from $12,600 to $12,700 for married couples and from $6,300 to $6,350 for single filers.

Alternative Minimum Tax (AMT) – the exemption amount will increase from $83,800 to $84,500 for married couples and from $53,900 to $54,300 for individuals.

Senior (65+) Medical Expense Deduction – the ability to deduct medical expenses will rise to 10% of AGI, up from 7.5% of AGI.

Mileage Expense – is falling from 54 cents per mile to 53.5 cents per mile for business miles & 17 cents per mile down from 19 cents per mile for medical & moving purposes.

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What Imports Into the U.S.

 

As the president-elect prepares to enter the White House, foreign imports into the U.S. have become a leading agenda item.  According to the Commerce Department, the top imports into the U.S. include electronic devices such as mobile phones, computers and TVs, followed by machinery and automobiles.  The onset of additional tariffs and import duties might change the makeup of imports dramatically, as consumers tackle higher prices along with some manufacturing possibly shifting to the U.S.

 

The biggest question everyone has is how will higher tariffs affect U.S. consumers and the economy.  The most dominant imports currently tend to be high margin products such as mobile phones, laptops, and computers.  Any additional tariffs might either be partially absorbed by the exporters or passed along to consumers in the form of higher prices.

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U.S. Has Among Highest Corporate Tax Rates

 

One of Trump’s fiscal proposals is to reduce the inherently high U.S. corporate tax rate from 35% to 15%. The United States currently has one of the highest corporate tax rates of any country worldwide at 35%.  The average corporate rate globally is just over 23%.

Some countries maintain low tax rates or no corporate tax at all, such as Cayman Islands and Bermuda, in order to encourage companies to invest and hire within their countries.  Some believe that if U.S. corporate tax rates drop, it might discourage U.S. companies from seeking tax havens overseas, such as tax inversions.

Inversions occur when a U.S. company buys or merges with a foreign domiciled company in order to adopt a lower tax rate.  A report released by the OECD raises a concern that some European countries are being used as tax havens, but with little or no benefits achieved by the underlying workforce or economy. (Source:  OECD)

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Election Voter Turnout Lowest In 20 Years

Even though election results were still being tabulated at the end of November, the 2016 election has so far had the lowest voter turnout since the 1996 election. The 126 million votes counted means that about 55% of voting age citizens cast ballots for the 2016 election, compared to the 2008 election when nearly 64% of eligible voters cast ballots.

Voter turnout is determined by the number of eligible voters who cast a ballot during an election.  Some voters are individuals while others are members of larger families, thus creating social economic dynamics. Social economic factors significantly affect whether or not individuals and family members develop a discipline of voting in future elections.

It is suggested that the most important social economic factor affecting voter turnout is education. That is, the more educated an individual is, the higher the probability that he or she will vote during any given election. Hence, it’s no surprise that all political parties strongly support a strong educational base in this country. (Sources: U.S. Census Bureau, Bipartisan Policy Center, electionproject.org)

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Oil Industry Update - OPEC Caves In & Cuts Oil Production

 

OPEC agreed to cut production among its 13 members by 1.2 million barrels a day from the current 33.6 million barrels. The agreed upon reduction would reduce global output by about 1%, easing high levels of supplies. Domestically, the U.S. Energy Administration reported that U.S. stockpiles of oil shrank by 884,000 barrels in the final week of November. The price of WTI, the benchmark for domestic crude oil, ended last month at $49.17 per barrel.

Since supply and demand are the primary determinants in setting oil prices, OPEC’s production cuts along with less supply in the U.S. are expected to shore up the price of oil. In addition, the anticipated growth generated from any economic expansion in the U.S. and abroad may increase demand for the commodity, adding pricing pressure as well. The crude oil benchmark WTI was up over 50% at the end of November from January 2016.

Saudi Arabia, OPEC’s largest oil producer, launched an aggressive campaign against U.S. oil drillers two years ago by continuing to produce oil at record levels in order to maintain and build upon its market share. Saudi Arabia’s relentless approach to put U.S. shale drillers out of business is an indication of how serious a threat U.S. oil production has become to OPEC and its members. The U.S. shale industry, known for its fracking technology to extract oil from shale rock formations, has continued to surprise the world oil markets with its resistance to low prices. U.S. drillers have thus far been able to beat Saudi Arabia’s “pump and dump” strategy of lower oil prices in order to maintain market share. (Sources: EIA, Worldbank, OPEC)

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International Reaction To Election Results

 


 

International leaders responded differently to Trump’s victory, with sanguine responses from Mexico, Venezuela, and Iran. Russia’s Putin was more upbeat as he welcomed a restoration of ties with the U.S., which have faltered over the past few years.

 

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British Pound At Lowest Levels Since 1985

The pound traded at its lowest levels versus the dollar since 1985, off 22% from its June high before the Brexit vote. The pound’s strength has become incredibly contingent on the outcome of Brexit, placing tremendous pressure on the currency at a critical time.

There has been a steady descent in the pound since the vote. Markets are concerned that as Britain plans its exit, which is expected to happen in the next two years, it will dramatically hinder the financial and banking sectors. The reason is that exports of British products to the EU might be severely limited once the exit has taken effect.

Britain’s current prime minister has expressed priority in limiting the influx of immigrants into England from the EU. This stance could very well become a significant issue with the EU, since not allowing immigrants from the EU the rights to access Britain would surely threaten Britain’s ability to trade and travel freely throughout the EU.

The most vulnerable sector to such retaliations are the financial and banking sector, which heavily rely on free movement of employees throughout the various countries in the EU. The financial and banking sector accounts for 12% of Britain’s GDP, a considerable portion of the economy. Since Britain’s economic future has become contingent on the outcome of Brexit, the IMF downgraded its growth forecast for the country, predicting that the British economy will only grow a paltry 1.1% in 2017. (Source: IMF, Bloomberg, Reuters)

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2016 Election Results

 

The financial markets embraced a Trump victory, sending stock prices to higher levels following a nine day consecutive decline in anticipation of uncertain election results.

Market performance following presidential elections have varied over the decades, however, Trump’s effect on the S&P 500 Index of 1.11% was one of the best for both Democratic and Republican presidential victories ever. Obama’s win in 2008 saw the largest drop of -5.27%, while Reagan’s victory in 1980 saw the largest gain of 1.77%.

U.S. Treasury yields rose dramatically with the expectation that a Trump presidency along with a Republican controlled Congress will inevitably ramp up government spending in order to boost economic growth. During the campaign, Trump was very critical of the Federal Reserve not acting to raise rates soon enough, insinuating political influence.

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Over 45% of Households Have No Retirement Assets

 

As the Baby Boom generation has begun to retire, more attention is being paid to retirement savings and how much retirees will have to live on. In addition to Social Security, a primary source of retirement funds for decades has been pension plans, also known as Defined Benefit (DB) plans. Over the years private sector companies have shifted away from traditional DB plans to Defined Contribution (DC) plans, including 401k Plans.

As employers and employees have shifted their assets from traditional pension plans to 401k plans, the onus of funding and managing these retirement assets has migrated to the individual employee. It used to be that employees were automatically covered by pension plans and funded on their behalf. Today, most 401k plans are voluntary and funded not by employers but by employees themselves.

Many believe that the shift from traditional pensions to 401ks has made it difficult for employees to save. When the average length of employment with a company was much longer years ago, it was feasible to have employers fund their employee’s retirement accounts. The benefit is also used as an incentive for employees. Modern day dynamics have made employees much more mobile, making 401k plans more popular and practical as retirement savings vehicles. (Source: National Institute on Retirement Security)

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