Government funding and tax extenders legislation affects investors

After weeks of negotiations, Congress reached agreement on a bipartisan bill to fund the government through September 2016.  Following are provisions of particular interest to investors.

The legislation makes permanent (including retroactively for 2015) some provisions that previously had expired every few years:

  • IRA / charitable contribution provision for account holders over age 70-1/2
  • Tax credit for research and development expenditures
  • Enhanced write-off of small business capital expenses under section 179

The legislation extends (including retroactively for 2015) other provisions:

  • Extension and phase out of bonus depreciation through 2019

The legislation includes a number of new provisions:

  • Repeals the forty-year-old prohibition on exports of domestically produced crude oil
  • Expands 529 plan qualifying distributions to include student computers and technology

The legislation delays sources of funding and government reimbursements under the Affordable Care Act:

  • “Cadillac tax”(40%)  imposed on high cost employer health plans delayed until 2020; thereafter tax becomes deductible
  • Medical device tax delayed until 2018
  • Annual fee on health insurance provider premiums written (“belly button tax”) delayed until 2018
  • Government reimbursements for insurance company losses limited to amounts collected from profitable insurers (reimbursement fund must be revenue neutral)

Of interest to financial advisors, the legislation:

  • Does not prevent the Department of Labor from finalizing and implementing the proposed IRA account fiduciary rules
  • Does not make significant changes to Dodd-Frank

 


Andrew H. Friedman is the principal of The Washington Update LLC and a former senior partner in a Washington, D.C. law firm.  He and his colleague Jeff Bush speak regularly on legislative and regulatory developments and trends affecting investment, insurance, and retirement products.  They may be reached at www.TheWashingtonUpdate.com.

The authors of this paper are not providing legal or tax advice as to the matters discussed herein.  The discussion herein is general in nature and is provided for informational purposes only.  There is no guarantee as to its accuracy or completeness.  It is not intended as legal or tax advice and individuals may not rely upon it (including for purposes of avoiding tax penalties imposed by the IRS or state and local tax authorities).  Individuals should consult their own legal and tax counsel as to matters discussed herein and before entering into any estate planning, trust, investment, retirement, or insurance arrangement.

Copyright Andrew H. Friedman 2015.  Reprinted by permission.  All rights reserved.

Another government shutdown?

Congress returns from recess next week facing a month-end deadline to fund government operations for the next fiscal year. I’m concerned we could be looking at a reprise of 2013. That year, the federal government shut down on October 1 for sixteen days over a Republican proposal to defund the Affordable Care Act. Now, Republicans are talking about defunding Planned Parenthood, a proposal the President is almost certain to veto. More broadly, there is significant disagreement on funding for social programs generally (the President wants increased funding; the Republicans are calling for social program cuts). If these disagreements cannot be breached, the government faces an October 1 shutdown.

 

The difference this time is when the debt limit must be raised to allow the federal government to borrow additional funds. In 2013, the government ran out of money and had to borrow by mid-October, setting up an incontrovertible deadline that Congress had to address, reopening the government in the process. This year, we’re told that the government will not need to borrow more money before November or even December. So, if the government shuts down, what will force Congress to compromise and reopen it in the near term?

 

Historically, markets often are volatile as fiscal deadlines approach and Congress appears unable to agree on a solution – until it does. Investors might consider taking action to protect against volatility until these deadlines have been addressed. More aggressive investors might view a pullback as a buying opportunity; markets tend to recover nicely after Congress finally agrees to raise the nation’s borrowing limit (as Congress invariably will do here, likely at the last possible moment).

 


Andrew H. Friedman is the principal of The Washington Update LLC and a former senior partner in a Washington, D.C. law firm. He speaks regularly on legislative and regulatory developments and trends affecting investment, insurance, and retirement products. He may be reached at www.TheWashingtonUpdate.com.

Neither the author of this paper, nor any law firm with which the author may be associated, is providing legal or tax advice as to the matters discussed herein. The discussion herein is general in nature and is provided for informational purposes only. There is no guarantee as to its accuracy or completeness. It is not intended as legal or tax advice and individuals may not rely upon it (including for purposes of avoiding tax penalties imposed by the IRS or state and local tax authorities). Individuals should consult their own legal and tax counsel as to matters discussed herein and before entering into any estate planning, trust, investment, retirement, or insurance arrangement.

Copyright Andrew H. Friedman 2015. Reprinted by permission. All rights reserved.

Obamacare upheld again: Consequences for Business Owners and Investors

Presidential Seal

 

 

 

 

Last week the Supreme Court ruled that all qualifying Americans are entitled to receive subsidies to purchase health insurance under the Affordable Care Act, regardless of where in the country they live.  The decision leaves the status quo in place but nonetheless raises considerations for investors and business owners:

  • As interpreted by the Administration, the ACA requires small business owners with more than fifty employees to provide health coverage to their employees beginning in 2016.
  • There remains a concern about inadequate ACA enrollment, particularly by middle- and higher-income Americans.  If enrollment continues to lag, it could lead to significant premium increases, as the insurance pool will not have sufficient “good” risks to balance out the less favorable ones.
  • Speaker Boehner’s legal action against President Obama remains outstanding.  Boehner’s suit objects to the Administration’s unilateral decisions to delay the employer mandate and to reimburse insurance carriers for losses incurred from insuring high-risk people.  A Boehner victory (which most legal experts consider a long shot) could end the carrier subsidies, which likely would prompt carriers to increase premiums or cut coverage to recoup the lost revenue.
  • The decision avoids a decline in health care stock values.  Many companies – particularly for-profit hospitals – benefit from the greater insurance coverage provided by the ACA.  However, premium increases discussed above could cause the feared “death spiral”, in which higher premiums leads to fewer healthy enrollees, which leads to higher premiums, etc.  That consequence could hurt health care stock values down the road.
  • The decision eliminates any realistic possibility of repeal of the 3.8% surtax on investment income for higher-income taxpayers.  Revenue from that tax is used to pay for the bulk of the insurance subsidies that the Court upheld.  There is no realistic prospect of a reduction in tax rates in sight.

 


Andrew H. Friedman is the principal of The Washington Update LLC and a former senior partner in a Washington, D.C. law firm.  He speaks regularly on legislative and regulatory developments and trends affecting investment, insurance, and retirement products.  He may be reached at www.TheWashingtonUpdate.com.

Neither the author of this paper, nor any law firm with which the author may be associated, is providing legal or tax advice as to the matters discussed herein.  The discussion herein is general in nature and is provided for informational purposes only.  There is no guarantee as to its accuracy or completeness.  It is not intended as legal or tax advice and individuals may not rely upon it (including for purposes of avoiding tax penalties imposed by the IRS or state and local tax authorities).  Individuals should consult their own legal and tax counsel as to matters discussed herein and before entering into any estate planning, trust, investment, retirement, or insurance arrangement.

Copyright Andrew H. Friedman 2015.  Reprinted by permission.  All rights reserved.

What is the Generation Skipping Transfer Tax?

Recently, M Financial posted a brief blog on the generation skipping transfer tax.  Please copy and paste the link below into your internet browser to read.Transfer Tax

http://mfin.com/m-intelligence-details/Understanding the Generation Skipping Transfer Tax

 

Life Insurance in a Rising Tax Environment

In March, we posted an article about investing in a rising tax environment.  We at WealthPoint thought the article in the link below would be a good follow up to that article.  Please take a moment to read through it.

Rising Tax Environment

Please click the link below.

WP_Marketing Intelligence Report – Life Insurance in a Rising Tax Environment

U.S. HOUSE PASSES ESTATE TAX REPEAL DESPITE VETO THREAT

US House of Rep

By Richard Cowan and David Lawder

WASHINGTON (Reuters) – The U.S. House of Representatives on Thursday ignored a White House veto threat and passed legislation to repeal the estate tax that hits inherited assets worth $5.4 million or more.

By a mostly partisan 240-179 vote, the Republican-backed bill will be sent to the Senate, where Democrats are expected to use procedural hurdles to try to block it. Even if it passes the Senate, it would likely fail to achieve a two-thirds majority needed to override a veto.

House passage was timed for the week when most Americans file their tax returns. Conservatives, who refer to the estate tax as the “death tax,” have long railed against it, arguing it hurts the families of small business owners and farmers.

“It’s past time to repeal this unacceptable tax. Every American deserves the ability to pass their life’s savings to their kids,” said Representative Tom Graves, a conservative Republican from Georgia.

Repealing the tax would boost the federal deficit by about $269 billion over 10 years, according to Congress’ Joint Committee on Taxation.

Few Americans pay the 40 percent tax on assets above the $5.4 million exclusion amount. About 5,400 estates, equal to 0.2 percent of taxpayers, will owe such taxes in 2015, according to the JCT.

(Reporting By Richard Cowan and David Lawder; Editing by Dan Grebler)

The Impact of True Collaboration

Recently, Ryan and Tim were asked by STAFDA, a large national trade association we have spoken to, to write an article for their upcoming trade magazine.  This article highlights the impact of collaboration with an entrepreneurial family group and their advisory team.

Please click the link below to view the PDF file.

The Impact of True Collaboration – Ryan Barradas – Tim Young

Common Life Insurance Mistakes

We at WealthPoint continually strive to provide insight to our clients and advisory community.  The attached piece was written by M Financial and discusses life insurance policy issues that have been encountered through the years.  Please click the link to review the white paper.

 

 WP_AMI_Common Life Insurance MistakesMistake

Investing in a Rising Tax Environment

Rising Tax Environment

We at WealthPoint are always looking for pieces that educate our readers and provide insight.  Andrew H. Friedman of TheWashingtonUpdate.com recently wrote the article attached to this post.   This white paper discusses the likely future direction of taxes, and what investors can do to minimize the tax impact on their investment returns.

Investing_in_a_Rising_Tax_Enviroment_2015

Click on the link above to view the full article (PDF)

 

Obama comments on IRA fiduciary rules

Presidential Seal[The update is of interest primarily to financial advisors.]

Last week the President gave a speech in which he focused on forthcoming Labor Department rules intended to ensure that IRA holders receive investment advice unencumbered by financial advisor conflicts of interest.  In conjunction with the President’s speech, the Labor Department will be re-issuing proposed rules addressing the extent to which financial advisors may receive compensation in connection with investments made by IRAs and other retirement accounts they advise.  The new proposed rules should be available in the next 60-90 days.

The Labor Department first issued proposed rules on this subject in 2010.  Of great concern to the financial services industry, the 2010 proposed regulations effectively would have precluded financial advisors from receiving commissions and other payments on IRA transactions and investments.  DOL withdrew the proposal in 2011 due to public pressure and concern.

The President’s comments last week contained a good bit of anti-Wall Street rhetoric (“A system where Wall Street firms benefit from backdoor payments and hidden fees if they talk responsible Americans into buying bad retirement investments – with high costs and low returns – instead of recommending quality investments – isn’t fair.”).  They make clear that the Administration is determined to continue to press this issue in some form.  At the same time, the White House material accompanying the comments states that the new proposal will “ensure that all common forms of compensation, such as commissions and revenue sharing, are still permitted.”  This language suggests that the new proposal will be more lenient than the original.

For instance, the new proposal could permit all forms of advisor compensation but require the advisor to disclose to the client conflicts of interest, such as where particular investments result in higher commissions or other payments to the advisor.

The Administration’s continued concern about arrangements that heretofore had not been thought to pose problems is worrisome from the perspective of the securities industry.  On the other hand, the fact that all forms of compensation will remain acceptable suggests that the newly proposed regulations will be at least somewhat less harsh.  My guess is that the industry is still likely to be unhappy with the new proposal, and will push back once it is announced.  The DOL has said the public will have the opportunity to comment on the proposal, including at a public hearing, before final regulations go into effect, so the matter is far from resolved.

 


Andrew H. Friedman is the principal of The Washington Update LLC and a former senior partner in a Washington, D.C. law firm. He speaks regularly on legislative and regulatory developments and trends affecting investment, insurance, and retirement products. He may be reached at www.TheWashingtonUpdate.com.

Neither the author of this paper, nor any law firm with which the author may be associated, is providing legal or tax advice as to the matters discussed herein. The discussion herein is general in nature and is provided for informational purposes only. There is no guarantee as to its accuracy or completeness. It is not intended as legal or tax advice and individuals may not rely upon it (including for purposes of avoiding tax penalties imposed by the IRS or state and local tax authorities). Individuals should consult their own legal and tax counsel as to matters discussed herein and before entering into any estate planning, trust, investment, retirement, or insurance arrangement.

Copyright Andrew H. Friedman 2015. Reprinted by permission. All rights reserved.