Brinker was live with guest Barbara Weltmann in the third hour. See Frankj's summary below where the new tax bill is discussed, and Frankj does a comparison analysis of how much a caller pays now and how much he would pay under the new plan.
STOCK MARKET....Brinker commented that next week would be a short week because of Thanksgiving on Thursday. He said to expect light trading volume the last couple of hours on Wednesday - and the market is closed on Thursday and shortened on Friday.
BRINKER'S 2018 STOCK MARKET PREDICTIONS: (Keep reading, they are below after he explains the economic reasons he bases his prediction on.)
HOUSING STARTS UP.... BB comments: Housing starts really good - increased by 13.7% in the month of October, and up to an annual rate of 1.29 million - the highest level in one year.
UPCOMING FOMC MEETING - INTEREST RATE CHANGE.....BB continued: "Put the housing start data in the plus column for the probability that the Federal Open Market Committee, at their up coming December 12th and 13th meeting, will announce an increase in the overnight Federal Funds lending rate from the current range of 1 to 1 1/4% to a new range of 1 1/4 to 1 1/2%. This announcement expected with high probability....."
JANET YELLEN'S LAST MEETING....BB continued: "Also there could be what very well may be the final media conference for the current Fed Chair and outgoing Fed Chair, Janet Yellen. She is able to serve her term out into the beginning of February when it is expected the reigns will be passed to the newly nominated Fed Chair who has to get through his confirmation process....."
BUILDING PERMITS....BB comments: Building permits rose close to 6%, the best gains since June. A big increase in the multi-family sector.
BUILDER CONFIDENCE.... BB said: Builder confidence remains very, very high based on the NAHB Wells Fargo survey.....That's all good news...
SMALL BUSINESS OPTIMISM....BB said: "Small business optimism increased again in October. It's at a level now of 103.8, and it's been above 100 for eleven consecutive months....Small business owners are optimistic, and if they look at the tax bill, they should be super-optimistic....."
ECONOMY IN GENERAL....BB comments: It continues to move along at a moderate pace. So far this year we have nine months of data and we will get an update on 3rd quarter by the end of this month.....
LOOKING AT Q1, Q2 AND Q3 GDP ESTIMATES....BB comments: The annual rate of growth for the first nine months of this year for real Gross Domestic Product......is 2.37%. For many years, we've been clicking along with an annual GDP growth rate in the low-2's, area of 2.2%....
WHY MODERATE GROWTH IS GOOD.... BB continued: So 2.37 is a decent number that has allowed the economy to grow without creating a lot of the excesses that can put serious pressure on an economic recovery......
NO OVERHEATING, NO INFLATION.... BB continued: We have not had the problem of an overheating economy, and as a consequence, the economy has continued to grow year after year at a moderate pace. And that has created an economy where corporate earnings can continue to grow, inflation stayed low - up until now.
CONSEQUENCES FOR THE FED..... BB said: "And it has created an economy where interest rates are reasonable, therefore the Fed has been able to maintain it's accommodative stance....."
CONSEQUENCES FOR THE STOCK MARKET....BB said: "So all of this has been happening here in 2017, and the stock market has liked this. The reason the stock market has liked it is because corporate earnings are the lifeblood of common stock prices....."
FORCASTING A GOOD STOCK MARKET IN 2018.... BB said: "Not only are we seeing an increase in corporate earnings in 2017 but in addition to that, the outlook is we are going to see a handsome increase in corporate earnings in 2018 in the stock market. If nothing else, the stock market is a discounting mechanism. It discounts future developments - primarily in the economy and as it relates to corporate earnings. So investors are looking, not only at a good 2018 earnings picture, they are looking at what has the potential to be an excellent 2018 earning picture...."
FRANKJ'S MONEYTALK SUMMARY OF TAX EXPERT BARBARA WELTMAN
PLUS, FRANKJ'S TAX EXPERTISE ON THE TAX BILL AND ANALYSIS OF ONE CALLER'S QUESTION:
Bob announced in the first
hour that he’d have an important guest in the third hour and he did – in my
opinion. The redoubtable Barbara
Weltman, tax expert and contributor to the J. K. Lasser tax handbooks was the guest
on the November 19, 2017 edition of MoneyTalk.
The Wall Street Journal has called her the Guru of Small Business
Taxes. Barbara has been a regular, often
appearing during a December broadcast, so it was nice to hear her in November. (Editorial
comments in italics as usual.)
Speaking of being a regular, I think she qualifies
for ALL levels of MoneyTalk SWAG: the
MoneyTalk pen and pencil set, coffee mug, golf visor, shoulder bag,
windbreaker, attaché case, and the sought after leather StarShip flight
jacket.
Not surprisingly the tax reform
being mulled over in the DC Swamp took up much of the interview.
Is it truly a
simplification?: Yes and
no. The reduction in the number of tax
brackets from 7 to 4 in the House bill looks like a simplification but with
most people doing their taxes using software or a preparer, it is not that
relevant. The elimination of tax breaks
simplifies things, yes. But, she said
the rules on the pass through taxes for small businesses are “exceedingly
complex.”
What about the loss of
state and local tax deductions and possibly the property tax deduction? Bob asked
Barbara what she thought about this, being a New York resident where these
taxes are high. Barbara said she now
lives in Florida. Bob got a chuckle out
of that and Barbara picked up the thread and said about two-thirds of filers
don’t itemize anyway. She said “we
can’t know” what effect that the loss of the property tax deduction might have
on real estate values. She pointed out
that Florida manages to provide services without an income tax or high sales
taxes.
What will CEOs do with
the money saved by lowering the corporate income tax? Bob challenged the notion that they would distribute
the largess to employees in the form of raises as has been suggested. Barbara may have agreed with Bob but if she
did she wasn’t very emphatic about it.
Bob posed a fairness
question: consider a very well paid
employee of a small business paying in the high 30’s (%) on a salary, and here
the owner of the business who presumably is also highly compensated, is taxed
at 25%. Barbara reminded Bob that the
owner of the business doesn’t necessarily get to take all that income
home. They need to invest some of that
income in the business.
Barbara was not overly
impressed with the new proposed rules for estate taxes. Both the
Senate and House versions propose to double the exemption and the House version
will do away with it entirely. Barbara’s
take: the super wealthy have already
figured out ways to avoid it using charitable deductions and foundations. In the end it raises a very minor amount of
revenue, given the complexity of an
estate tax return. (I read somewhere recently that the number of estates paying the federal
estate tax in a recent year was a little more than 5200).
Loss of the 401K
deduction? This seemed
to have been considered by the “reformers” for about 15 minutes which is how
long it took them to either come to their senses or to realize their phone
lines were jammed with irate voters.
Talk about a stupid idea – considering the pathetic rate of retirement
savings in this country.
Barbara seemed puzzled by
the idea and pointed out how it benefits many employees and that recently
companies got the OK for automatic enrollment of employees.
What about people who
work overseas? Barbara said the proposed rules say that you
can no longer deduct the taxes you pay to a foreign country but you can still
take advantage of the foreign tax credit.
Yeah, well… my experience with the
foreign tax credit for taxes paid on dividends from foreign stocks is this
: you don’t get it all back in a single
year, and yes, you can carry it forward, but I’ll never recover all of it.
Gremlins got in the lines
while Barbara was giving this answer. It
went out 5 x 5 over the airwaves but apparently Bob didn’t hear it so she
gracefully repeated it.
A favorite topic of
Bob’s: carried interest. John in
Albany, NY brought this up: Hedge fund
guys and gals get to pay capital gains tax rates on their income while the rest
of us pay ordinary income tax rates.
Barbara said there is no change to this in the proposals but some fix
may be slipped in late in the game. Bob
said the donors who include hedgies have a lot to say about this reform. Barbara seemed to hold out that the change
could happen. She said if everyone
complains about the reform then it might be a success.
Bob pointed out that about
45% of filers don’t pay any federal income tax.
Barbara agreed.
FIFO or LIFO? Caller Neil
said the reform may remove the ability for an investor to elect the Last In
First Out provision when selling a part of a position, whether a mutual fund or
an individual stock. The new rules would
force one to use First In, First Out accounting for the gain. Barbara said it was probably part of the
plan to mitigate the loss of tax revenue because the first shares bought in an
investment would probably have the highest gain.
Barbara told John from KSFO
Country that the reason there is no step up on an inherited IRA is because
there was no tax on the income that went in (and no tax on the earnings).
Deferred compensation. Kirk
(Curt?) from Los Angeles called with a question about a deferred comp plan at
his company. But it was Kirk’s wife that
came on the line (“He can’t talk). And we could barely make out the question
because the audio quality from her phone was bad. Barbara and Bob pointed out that you better
be confident in your company’s future because if things go south, too bad you
may get nothing.
Finally, Patrick from
Chicago rounded out the batting order with a statement that with 4 kids, he
thinks he’s going to end up paying more in taxes with the loss of the personal
exemptions on himself, his wife, and all 4 kids. Barbara said the things he mentioned are
deductions to gross income but the child and family tax credit is going up from
$1000 to $1600. These are credits which
will reduce the taxes owed on a dollar for dollar basis.
I did some Jethro ciphers and compared what Patrick
might have owed on his 2016 taxes using the rules in effect then. Assumptions:
adjusted gross income 100,000.
Deductions: standard, and 4 personal exemptions totaling $36900. No itemizing, no other adjustments.
From Bankrate.com:
Taxable income $63,100. Tax $8541.
Child tax credit 4 x 1000 = 4000.
Tax owed, $4541.
Using the Senate proposal. $100,000 less 24,000 standard deduction =
$76,000 taxable income. Tax on that is
$8739. (The first 19,050 taxed at 10%
and the rest at 12%). Senate uses $2000
per child for child tax credit = $8000.
Tax owed $739.
This is such a big swing I wonder if it can be
right, but that’s how it came out.
Didn’t Paul Ryan say some families will save enough to remodel their kitchen? Patrick and his wife might want to start
discussing countertops, window treatments and appliances.
Bob wrapped up at around
3:54 pm
Guest author Barbara Weltman: "J.K. Lasser's Your Income Tax 2018: For Preparing Your 2017 Tax Return"
Radio Stations
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36 comments:
At about 1:35, sounded like the Bob went offline. The calls seem spliced. Perhaps Bob went on an extended break..?
.
Mike,
I haven't noticed anything wrong so far. I don't recognize any of the callers.
What station are you listening to?
I'm listening to KNUS. it was right after the 1:30 break.
On KNUS, the second half hour was reruns.
.
Wow...Jim and Mike...You caught something that I missed.
So now I'm wondering if this second hour is also reruns since Brinker didn't do any opening monologue in it.
What do you guys think?
The third half hour on KNUS is also reruns.
.
Jim and Mike. I'm looking at my notes, the first call was right after the break at 1:35.
I'm suspicious that ALL the calls have been reruns and he has not said anything in between them.
Plus, no phone numbers in second hour - and no one talking about the big deal this week going on with the tax votes.
He claimed the guest today would be special. So we will see what happens in the 3rd hour.
In hour two, Bob's answer regarding an annuity came to a very abrupt end. That made me think the hour was in fact a repeat.
.
Yes, anonymous that needs a handle,
I have heard several things that tip off that it's re-runs now that Mike and Jim have called my attention to it.
Brinker is trying to outsmart us here....
Is it dirty to be so duplicitous? You betcha! In my opinion.
In the 2nd half hour, Bob answered a call from an elderly man with a question about his RMD. I believe I've heard that call in the last month or so...
The litmus test for me will be if he has a guest in hour 3!
.
Mike...I've now heard several that I recognized - including the one on gold and the one on annuities.
About the third hour: Maybe yes, maybe no. FrankJ and I suspected that he pre-recorded the guest last week - and even added in one phone call - possibly pre-arranged.
I just heard Bob make a blunder. The guy's wife would get step up when he passes, so she would have new basis in the stock tax free. He told him it would make sense to sell Huh?
.
Billy,
Brinker put that same misinformation out there when the call originally aired.
FrankJ made a post about it in hopes the caller would read it.
.
He's live again on third hour.
Phone number and back in real time with week ahead.
Ya, I caught that to, although I think it was his daughter getting the stock at death.
John from SF said:
Just the fact that he may make a current comment doesn't mean he's live (unless it's about a live event). He could record comments and have them inserted along with the other bits and pieces. We may only really know he's live if someone we trust calls in and gets put on the air live. Maybe we need to categorize his programs as "fresh" or repeat."Live" might be an exaggeration.
I would love if Bob accepted twitter messages rather than long phone calls.
I wish Bob accepted only long distance calls. That way his wife, kids and neighbors wouldn't keep calling in from the next room with prime-the-pump hero worship calls.
At least require calls from further away than Nye County, his next mailing address by the way, next to Art Bell's place. Or maybe he bought Art's place. You've seen it, those two single-wides connected by a shanty with the alien receiver dish pointed almost horizontal toward the Chicken Ranch.
Did Art's place finally sell?
Every flight to Vegas passes directly above. Watch out for the blue icicles.
-Ace Freeman, Capt (left seater)
Ace Freeman, hilarious.
Agree with BB stance on gold, silver, and annuity. Put reverse mortgages on that list, too.
The inheritance advice to sell stock since the owner had such low income tax to establish a new basis. I thought, upon inheritance, the new owner did have a new basis?
When BB claims the lower corp tax rate will not impact the corp workforce earnings rate. Well, that is right. The connection is $2 trillion corp capital brought back to our shores will stimulate the economy and job growth. This will put pressure on wage rates. Also, when BB is suggests that corps will get a free lunch with taxpayer money he forgets corps are currently paying zero U.S. tax now. So, his comment is pure partisan talking points we here so much of with little vetting. The guest probably just capitulated since driving a stake through BB often stated comments would have been an embarrassment for him.
The caller all confused on bond funds. BB gave her a reading list to bone up on the subject. I'm thinking, this is the place a managed fund may be a better choice. BB just now learned to go more junk bonds as the choice may not be as risky as once thought. Bonds have a learning curve and one does have to keep up with the market. For example bonds are way over priced now. Historically, at the 95% of all time high. Returns for such a high priced asset will be low. Much money flowing into bonds. So, the international bond market a better value. Junk bonds are more risky, but since bonds so overpriced anyways, probably less so. One has to stay abreast of junk bond risk, though. T bills are the safest, but you are basically losing money due to inflation.
So, I'm in Wellesley as my safety investment. It has more risk, but much higher rate of return. The fund knows bonds and has proven track record. Highly regarded in financial community. This is my bond fund. They have just introduced an international version of which may prove to be a safer bet? To soon to tell. What is good about this all in one safety investment:
1. They can practice TAA by changing investment term length, junk, international, and stable. Also, by sliding investments to and from stocks a tad. Also, very low cost.
Oh, I guess I just had one. This fund represent 30% of investments, just like the recommended percentages.
The market is closed on Thursday and a shortened day on Friday.
If corporations can repatriate money from overseas I don't think giving out raises will be high on their list of things to do with it. High on the list but not necessarily in this order are: raise the dividend, pay down debt, buy back shares, make capital investments.
Re: FIFO or LIFO?
This article discusses the proposal (is only in the Senate version):
https://www.cnbc.com/2017/11/15/senate-tax-bill-boosts-taxes-on-stock-sales.html
Note that the proposal is to eliminate the Specific Identification method, leaving only FIFO for sales of stock shares.
A third accounting method, Average Cost, is presently available for sales of mutual fund shares. Average Cost accounting for mutual funds would remain unchanged under the proposal. So if this becomes law, as I understand it a mutual fund investor could still chose between average cost or FIFO.
Biker: They are turning up the heat with the FIFO diktat. Quite a change from the old days before "covered shares" were introduced. An investor will no longer have the option of selling the more recently acquired shares to generate income and leave the oldest blocks of shares as a legacy for an heir (who would get the step-up).
On another note I was talking to a private tax preparer friend last week. She went to a seminar where an IRS agent spoke. She said he was surprisingly critical of his agency. Qualified people leaving and not being replaced; out-of-date computer systems; weak vetting and investigation for fraud; widespread fraud associated with Earned Income Tax Credit.
It is popular for some to dislike the IRS and politicians like to yap about "doing away with the IRS." I think Congress has limited their budget thinking it would endear them to voters. And with Commissioners like Koskinen and hacks like Lerner, why not? I say if their assignment is to collect taxes that are fairly owed, and investigate fraud, then give them the money to do it property. My guess is the dollars put into these efforts will pay off.
Re: FIFO or LIFO?
They need to leave the SIM alone.
I don't even know how the IRS would keep up with this. Presumably the broker would report your basis in stock sale and if it differed from what you report that would red flag it. I just recently jumped from one broker to another and the new broker doesn't have a clue on some stocks I own what my basis is. I on the other do know my basis right down to the penny.
I use Specific Identification method.
KISS principle is in play.
smile
For those reading about this, the broker sends a 1099 B to you and the IRS. It would behoove you to make sure the new broker has an accurate cost basis. It is good to know your basis down to the penny BUT, if yours differs from what the broker reports to the IRS their computer will catch you even though it may take a year.
Seems worthwhile to keep the detailed cost data from the previous broker. Vanguard as detailed breakdowns that are easy to print.
I agree it is a good idea to make sure that your basis is consistent with what the broker has my issue is in some cases the broker has no cost basis for some of my stocks.
If I recall correctly from 2016 tax returns the 1099 B in some cases the broker would put a cost basis in there and send that to the IRS and other cases they wouldn't. I think I remember checking a box in one or more cases which stipulated whether or not the broker sent the basis to the IRS.
Smile
That is the case with one of my stocks. I know the basis but the broker doesn't have it and I'm not sure if they would accept what I told them it was so I have not bothered to try.
I wonder out loud if the Senate version to try to eliminate the Specific Identification method is actually legal. For example if I wanted to sell 9.654 shares of Facebook and I have a tier that shows 9.654 shares of Facebook and cost of let's say $19 a share what the Senate is proposing that I do is to substitute an artificial lifo or fifo means of cost basis for an actual cost basis seems to me that's not right. Res ipsa loquitur.
Probably the brokerage firms' lobbyist at work.
Guess we'll just have to wait and see.
Smile
I was mulling over Bogle's predictions for '18 and beyond. Interesting that he still thinks U.S. is still the best place for investments. Our country is a proxy for internationals. It's considered by Jack as the safest market with best earnings. Our corporations do a great job. Much talent in U.S. and our financial markets very trust worthy as compared to competition. We have best national security and reporting.
JB's calculations of returns appears to be based on normalizing interest rates over the next decade. This would push dividends down from current 4.4% to 2% as companies prefer less debt and invest more internal for successful future. I would guess this would occur given the steep rate of change within technology. He surmises the total return of stocks given historical profits would drop to 6% as result of lower dividend rate and a correction.
Bonds would be impacted per rising interests. Lots of risk with long term bonds and index funds that reflect the loss in value. JB thinks his 50/50 bond fund would drop from 6.1% to 3.1% return for next decade.
JB is thinking stocks will readjust down to more historical P/E ratio. Now, 24x will drop to 20 or less by decade end. This is two years out a 20% correction. The loss will reflect in lowering return averages.
So, this to my thinking, would suggest good to stay out of long term bond index funds. A bond ladder may be good choice. Short term for safety o.k. as government offerings. A managed fund still in my mind is the best choice for the risk and return.
Maybe Jack is dismissing the possibility the markets will earn more as GNP will increase. He is one that thinks 3% will not be sustained. He may not have factored in the mix the IEA energy report that estimates U.S. will soon take the position of number one in oil production. The country will achieve oil export status. We have the largest and best refineries in world. We do import oil, but export finish product. This is a great added value industry. Natural gas will increase along with oil and we are already net exporter of that commodity. We have the largest and most cost efficient ethanol producers. Production sits at 1 MBD of which oil sits at 18. Our tech sector is pushing and incredible array of inventions to disrupt business as usual. Our open market capitalism system will adapt quicker than competition. We have the best corporations. The best R&D cooperation with industry, government, and academia. The risk to be out of market is high. Even for retirees.
By the way the oil or energy cost is one of those foundational expenses for the economy. Meaning every business and citizen will enjoy more money or profit as result. Our country did not foolishly invest/bet the economy in alternative energy, but did proceed with investments on a cost effective path. Much hype to do otherwise. We have a CIC that understands the needs and benefits to an expanding economy. We enjoy a high positivity attitude within country for a better economy. Investments will make their way to make it so.
The QQQs sure have done good this year. Poor Bob.
Regarding cost basis and the I.R.S.--
If the broker doesn't supply the data to the IRS, you can make up any number you want, within reason. They don't read every return. They just scan them digitally and a computer algorithm decides to flag the ones that look wacky. And that computer has discriminating tastes. It worries only about the cheatin' side of the ledger, the 6-figure deductions. Everyone else gets a "Don't Bother Me" hall pass.
As an example, the broker who transferred ownership of my inherited shares had the date of death and cost basis well documented. But surprisingly, when I transferred them to a Vanguard brokerage account, Vanguard lists them as "non-covered" with no date or cost basis data. If it was such a big deal, why isn't (Vanguard CEO) all over this like a hobo on a ham sandwich.
I haven't inquired why. Trying to find a reason to call. Don't like them damn phones.
Obviously, a data transfer didn't happen well. Or maybe it's company policy to not accept questionable data from a questionable broker. Hey, I'm just the consumer trying to guess where the little ball is under the three cups, for $1 a try. Makes my scalp itchy.
Anyway, I don't intend to cheat with found money. That would be foolhardy. Way too much unknown risk. BB would take me to the woodshed.
Arnie, Holiday Hill
I'm fuzzy about bond fund quarterly or yearly distributions, I know on capital gains they take out an amount then replace the same amount so your basically even. But it's a taxable event in non tax deferred accounts.
The dividends distributions puzzle me. Are you actually ahead after a dividend distribution? Or is is an even thing like capital gains? Then if so are the dividends incorporated in the share price where you don't see a transaction?
It's been my experience that bond fund distributions will make the net asset value (NAV) drop a few cents in the days following.
It's because they sent you the interest that your shares had accumulated, so the next day the asset has lesser value because the accumulated interest is gone, it's in your pocket now. However, if you had the distribution automatically re-invested, your account value should still be equal to the pre-distribution value, unless market demand changed it's trading price that day.
The part of your question about cap. gains is fuzzy, but I'm guessing you are referring to the cap. gains distributions that get re-invested. If they are re-invested, you are basically even, as you put it.
You are on the right track. Just know which funds re-invest automatically and which send you the proceeds for spending. Also, watch the number of shares owned, not just the account value. Following distributions, the re-invested dividends purchase more shares for your account. It's often called "The Magic Of Compounding". Or maybe "the incredible awesomeness of compounding" or something like that. Books have been written about it.
I apologize if this was the long way around a simple question.
-Johnnie "Roof Rat" Gentili, South Gate CA
test--dj
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