Client Question 1
How many years of my life is my benefit based upon? The answer is that your personal social security benefit is based upon your highest 35 years of earned income. So, for people playing the S corporation low wage game, or wiping out income every year with bonus depreciation, or whatever, they will see a tremendously reduced monthly check at retirement.
Client Question 2
What is the average benefit I can expect? Social Security tells us the average benefit in America in 2017 for a single person is about $1,360 monthly. Do you know what it took to get this benefit? Thirty-five years of an average annual inflation-adjusted income of $25,000.
Client Question 3
What is the earliest age I can draw my benefit? Nearly everyone knows the generic answer to this, which is age 62 but there are other circumstances where you can draw earlier.
Client Question 4
Shouldn’t I draw at age 62 and invest my money like my financial advisor suggests? Let’s see, the Social Security benefit increases by 8% every year you wait to draw after full retirement age. That increase is tax-free and that increase is risk-free. In your 60’s you cannot afford to take any risk, and an investment advisor suggesting this approach will need to earn 12% just to offset the tax difference, plus another 3-4% to offset the additional risk, meaning the investment advisor needs to earn 15% annually just to match the Social Security risk-free, tax-free increase. Since 1871 the S&P 500 has earned a little less than 6% annually. In my mind, taking the chance of obtaining a 15% return for a high-risk investment at retirement age is one of the single worst financial decisions that can ever be made.
Client Question 5
The biggest question of all is “When should I draw my own benefit?” That’s actually simple Madam client-just tell me what day you will die! This sarcastic answer is an answer to illustrate that there is no “one answer fits everyone”. There are three factors involved in the decision: first, what kind of average life expectancy do we have in America and in your ancestry?; second, what kind of personal health issues do you have that will affect your life expectancy?; and third, what kind of financial situation are you in and who will be drawing on this account besides you?
With the prospect of new lower individual tax rates on the horizon for 2018, the average taxpayer or business owner should generally accelerate deductions to 2017 and delay income until 2018. Often overlooked in the planning arena are the low capital gains rates experienced by many Americans.
2017 Capital Gain Rates (01/2013 Tax Act)
If net capital gain is from:
Then maximum capital gains rate is:
Gain on Qualified Small Business Stock Equal to the Section 1202 Exclusion
Un-recaptured Section 1250 Gain
Rate when taxpayer is in 39.6% personal bracket
Other gain & qualified dividends when the regular tax rate is higher than 15%
Other gain & qualified dividends when the regular tax rate is 15% or lower (Single <$37,650, MFJ <$75,300 taxable after exemptions)
When an individual is in the 15% or lower individual tax bracket in 2017, their capital gains rate is 0%, and if the capital gain is what causes their ordinary income tax bracket to go higher than 15%, only the excess capital gains are taxed at 15%.
With all of that in mind, in layman’s terms if an individual’s taxable income is less than the amounts below based on their filing status, their capital gains rate for 2017 is 0%.
Capital Gains Planning-2017 Amounts
Head of Household (+1 child)
Income at the top of the 15% bracket
Standard Deduction based on filing status
Personal exemptions based on filing status no children
Maximum taxable income (without itemizing) for 0% capital gains rate
Client Worksheet for Capital Gains Planning
Client Name: Filing Status: 2017
Filing status bracket limit
Filing status standard deduction
Additional Itemized deductions
# personal exemptions times $4,000
Maximum 0% capital gains taxable income limit
Less estimated taxable income
Equals amount of capital gains to recognize this year
Did you go green? You may get some back if you bought any of these:
Credit amounts for qualified vehicles. Following is a list of the credit amounts for qualified vehicles that are autos and are manufactured by well-known companies, using the latest data published by IRS (model years are in parentheses):
Audi A3 e-tron (2016-2017), $4,502
Audi A3 e-tron ultra (2016), $4,502
BMW i3 Sedan with Ranger Extender (2014-2017), $7,500
BMW i3 Sedan (2014-2017), $7,500
BMW i8 (2014-2017), $3,793
BMW X5 xDrive40e (2016-2018), $4,668
BMW 330e (2016-2018), $4,001
BMW i3 (60Ah) Sedan (2017), $7,500
BMW 740e (2017), $4,668
BMW 530e (2018), $4,668
BMW 530e xDrive (2018), $4,668
BMW 740e xDrive (2018), $4,668
MINI Cooper S E Countryman ALL4 (2018), $4,001
FCA North American Holdings, Fiat 500e (2013-2017), $7,500
Chrysler Pacifica PHEV (2017), $7,500
Ford Focus Electric (2012-2017), $7,500
Ford C-MAX Energi (2013-2017), $4,007
Ford Fusion Energi (2013-2018), $4,007
General Motors Cadillac ELR (2014, 2016), $7,500
General Motors Cadillac CT6 PHEV (2017), $7,500
General Motors Chevrolet Volt (2011-2018), $7,500
General Motors Chevrolet Spark EV (2014-2016), $7,500
General Motors Chevrolet Bolt (2017), $7,500
Kia Soul Electric (2015-2017), $7,500
Kia Optima PHEV (2017), $4,919
Mercedes-Benz smart Coupe/Cabrio EV (2013-2016), $7,500