For 2019, if you’re single with taxable income of $39,375 or less or married filing jointly with taxable income of $78,750 or less, your long-term capital gains are taxed at 0%. 

With all the recent talk of the effects of the 2018 tax plan on Americans I wanted to make sure and point out this tax tip.

If you are younger and your income is below this level, take this opportunity, that may only be available for the next couple of years to reset your cost basis higher.

If you are retired and your income is lower than these levels, you really should consider taking your gains now. Lock them in and reset your cost basis higher. If you have questions on how to do this, reach out to your financial advisor, CPA or CERTIFIED FINANCIAL PLANNER

Do you have parents who you think may be below these income thresholds? Make sure to share this tax tip with them. Remember, you could be 70 years old, have $5 million in non-qualified investments and a social security benefit and qualify! It is not based on asset size, it is based on income level.

Good Luck!

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9to5Mac and Verge noted a serious privacy bug in Apple’s software at the moment that allows a user to listen to another iPhone without them accepting a Facetime call. It will also share video if ignored. Wow! Reached for comment, an Apple spokesperson said: “We’re aware of this issue and we have identified a fix that will be released in a software update later this week.”

Meantime, to protect your privacy I would turn off the Facetime App. You can do that by going to your Settings, choosing Facetime and toggling the button off until this bug is fixed. I would suggest doing this immediately.

Here is the article from the Verge.

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I was just walking through Towson University watching students go back and forth to class and it got me thinking, many of my clients and many of you sent students off to college and paid college tuition bills.  While my kids are only 8 and 4 at this point, I have heard the gut-wrenching stories of writing those large tuition checks.  While my wife and I are putting away what we can for our kids’ future educations,  (A big shout out to our parents and brothers and sisters for helping as well) I am sure I will cringe when I write the checks for college education as well.

College is an investment that should pay off in the future; however, for many graduates and their families, it can also be a financial burden.  To help ease that burden, the government offers money to go to college in the form of tax credits.  I am not talking about student loans here, that is an entirely different process.  Did you know that the government offers two tax credits that can be available if you qualify?  While we are bombarded with messages of how to save for a future education, many Americans don’t realize how many programs are available to help and how best to actually make the payments when the tuition is due.  In this article, I hope to help provide some guidance.

If your income is above an modified adjusted gross income (MAGI on your tax return) $160,000 if married filing jointly, or $80,000 if filing single there is no need to read on because none of the credits are available to you.  But, if you aren’t, be sure to read on…  (MAGI for most people is the amount of AGI, adjusted gross income, shown on your tax return. On Form 1040A, AGI is on line 22 and is the same as MAGI.)

Tax Credits

Credits, if you qualify are extremely important because this is just like receiving a check from the government for taxes owed.  Credits reduce what you owe in taxes dollar for dollar.  These are much more powerful than deductions from income. These credits are generally based upon your household income so I will segment this by income levels.  You can go to the IRS website here and answer a few questions to see if you qualify.

If your modified adjusted gross income (MAGI on your tax return) is less than $60,000 filing single or $120,000 if filing jointly you can claim at least a partial credit for the following 2 Educational Credits

1) The Lifetime Learning Credit, provided by 26 U.S.C. § 25A(b), is available to United States taxpayers who have incurred education expenses. For this credit to be claimed, the student:

1. Must attend school on at least a part-time basis
2. Education expenses are incurred by the taxpayer, the taxpayer’s spouse, or the taxpayer’s dependent.
3. Must be at an eligible, qualified institution.  Click here for a list.

This credit allows for a 20% non-refundable tax credit for first $10,000 of qualified tuition and expenses to be fully creditable against the taxpayer’s total tax liability. The maximum amount of the credit is $2000 per household.

The credit is available for net tuition and fees (less grant aid) paid for post-secondary enrollment. This credit is only available at the family level, not individual student.  So, if you have 3 children in college at once (ouch), the credit is only available one time.  However, it is available one time for an unlimited period of years.  So, if you know any people who attend school for 6-8 years, it can be used each year as long as they are attending at least part-time.

This credit is not applicable for room and board and other incidentals.

The credit amount is phased out gradually once a taxpayer’s modified adjusted gross income (MAGI) exceeds $50,000 ($100,000 if married filing jointly) and the credit is phased out entirely once a taxpayer’s modified adjusted gross income exceeds $60,000 ($120,000 if filing jointly).

2) Second, the American Opportunity Tax Credit is a partially refundable tax credit first detailed in the American Recovery and Reinvestment Act of 2009.

The American Opportunity Tax Credit is a much broader, more powerful tax credit that increased the Hope Scholarship Credit to 100 percent of qualified tuition, fees and course materials paid by the taxpayer during the taxable year up to $2,000, plus 25 percent of the next $2,000. The total credit does not exceed $2500.

Even better, this credit is available on a per-student basis!  So, like above, if you had 3 children in college at once, you could claim this credit for all 3 of them in the same year.  The catch, if you want to call it that is that it only applies to the first four years of post-secondary education.  So, if your son or daughter is on year 5,6 or 7 the credit goes away.  Additionally, if the child has a felony drug conviction this credit is not available.

You may notice that this credit also applies to “course materials” or books.  So, if you are going to college for free tuition, but have expenses related to course materials you could claim the credit.

This tax credit is subject to a phase-out for taxpayers with modified adjusted gross income (MAGI) in excess of $80,000 individually or $160,000 for married couples filing jointly.

A key point here is that you CANNOT claim both the American Opportunity Credit and the Lifetime Learning Credit in the same year for the same person.

If your modified adjusted gross income (MAGI on your tax return) is more than $60,000 filing single or $120,000 if filing jointly but less than $80,000 if filing single 0r $160,000 filing jointly you can claim the American Opportunity Tax Credit but are phased out of the Lifetime Learning Credit.

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Focusing on cash flow and how you are taxed as an individual is a powerful narrative.  Understanding how your income flows through your personal income statement is imperative to your long-term financial success.  Unfortunately, I have found, many Americans either have no idea, no desire to learn or no desire to work with someone who can help them.  They continue to run on the treadmill.

As a country, we spend billions of dollars on education.

How much is spent on financial education?  Why are there more people in financial distress than people who are financially successful?  Writers, bloggers and social media comments have all sorts of opinions.  It’s the government’s fault, it’s their parent’s fault, it’s the school’s fault, it’s the President’s fault….  Rather than focusing on fault, why don’t we focus on fixing the problem?

We have all heard that knowledge is power.  Maybe that is the key.  Having an open mind.  Not accepting conventional wisdom.  A willingness to think outside the box.  These are all qualities of many successful people.  Stop accepting your situation and think about how it can be improved.  A lack of financial education keeps many people around the world running on a treadmill and relying on someone else.

I recently spoke with faculty at a local University and asked why personal financial education was not part of the general academic curriculum?  As a country, we acknowledge that many are woefully undereducated on personal finance.  There are so many impediments at the University level to getting financial education into mainstream academia it is truly amazing.  I don’t know if it ever will and that is a shame.  Basics, such as what is a loan?  What does APR mean?  How is interest on a loan calculated?  What is your FICO score?  How is it calculated?  How can you improve it?  How can you make it worse?  What is the difference in taxation between a W-2 employee, a 1099 contractor, and LLC, a sole proprietorship, an S Corp?  All of these basic topics are financial education that could really help people.

In his book, Mr. Kyosaki says that your wealth is stealthfully taken from you over time by three factors.

1. Taxes.
2. Inflation.  (As prices rise, people work harder, only to pay more in taxes and inflation
3. Savings.  (After saving your $1 in a bank, that bank is then able to lend that dollar and 9 more to other borrowers.  Over time this contributes to reducing the purchasing power of your dollars)

That is why “Rich Dad” says, “Savers are losers.”

If you are looking to improve your financial education, these are great books to improve your knowledge.   If you liked this article please feel free to share it.

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For financial planning, one of the key determinants of success or failure is how long a retirement you will have.  Studies show that outliving your nest egg is the #1 or #2 fear of most retirees.

When social security was created, the average recipient lived roughly 7-9 years on social security before passing away.  That figure is long gone, as some retirees are planning for 30-35 years in retirement.  The inputs and assumptions of a financial plan are very important.  If you are currently doing a financial plan or looking to do one, here is a table of expectancies for various ages.  In my opinion, at a minimum increase that number by 5 years for planning purposes.

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It is at times like these that you want to remember the behavioral bias we all have lurking in our brains.  Luckily, in Baltimore, we have one of the foremost experts on the subject working right in Towson.  Dr. Victor Ricciardi is an Assistant Professor of Financial Management at Goucher College in Towson, Maryland. I met Victor about two years ago.  He teaches courses in financial planning, investments, corporate finance, behavioral finance, and the psychology of money. Professor Ricciardi is a leading expert on the academic literature and emerging research issues in behavioral finance.  Kent Baker and Victor Ricciardi are co-editors of the book Investor Behavior: The Psychology of Financial Planning and Investing published in February 2014. He has been featured on numerous podcasts, articles and videos on the topic of behavioral finance.

If you would like to learn more about how your mind can be your biggest enemy in the investing world, here are a couple of books I would recommend.

A couple of great authors on the subject include The Wall Street Journal’s Jason Zwieg.  In 2008 he wrote, Your Money and Your Brain: How the New Science of Neuroeconomics Can Help Make You Rich.  Bill Miller, former CIO for Legg Mason Capital Mgmt and current CIO of Miller Value Partners said, “Jason Zweig is one of the world’s experts on the investing process. He has written the best book yet on the emerging science of neuroeconomics. Buy it, read it, and become a more thoughtful, and a better, investor.”

A second book is another in the line of the “Little Book” series.  Written by GMO strategist, James Montier   The Little Book of Behavioral Investing is a detailed guide to overcome the most common emotional pitfalls of investing.  Bias, emotion, and overconfidence are just three of the many behavioral traits that can lead investors to lose money or achieve lower returns.

Helping to manage investor behavior is, in my opinion, one of the most important benefits of working with a financial advisor.  Recognizing that we all have these inherent headwinds is the first step to becoming a successful investor.  The second and more difficult step is effectively managing those headwinds.

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In my opinion, a healthy couple in their 60s should plan for at least 85 years old.  In reality, that number may be 90. In my opinion, it is always better to plan for a longer life expectancy to give you confidence in your plan.

Further, there is an even more significant difference between the probability that one member of a couple remains alive, versus the probability that both are alive.  A solid plan should probably include a material time period where only one member of the couple is alive, with spending adjusted accordingly.

How should you adjust spending projections? The death of one member of the couple doesn’t necessarily mean that spending falls by 50%.  While spending should be lower, my guess is, not much lower.  What really should be adjusted in my opinion is a material reduction in spending in what I would call the “advanced years”.  This is roughly a three year period near the end of life.  At this time, spending on everything other than healthcare most likely drops significantly.

As you look at your retirement plan, the time horizon of that plan is one of, if not the most important parts.  Use assumptions that make sense for you.  #sourceofthesource

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While many things are more affordable…(like the much cheaper flat screen televisions to watch College Hoops)…it is amazing to see how the cost of a college education has diverged from almost everything else we purchase (including healthcare)! #sourceofthesource

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