4th Quarter 2017 Market Review

The last days of the year produced the most significant tax overhaul in decades, with far-reaching ramifications for most investors. Originally intended to be a simplification of the tax code, the bill turned out to be a series of tweaks and adjustments to both personal and corporate income taxes for 2018. While it is always advisable to consult your tax professional on these changes, here is a brief summary of how the bill impacts taxpayers.

• ​The bill retained the 7 tax brackets, but did provide for new lower rates of 10%, 12%, 22%, 24%, 32%, 35% and 37%. 
  
• The Standard Deduction almost doubled to $24,000 for married filing jointly and $12,000 for single filers.
• Personal exemptions which used to be $4,050 per person were eliminated entirely but the child tax credit doubles to $2,000 per dependent child under age 17.
• Limits to state and local taxes ("SALT"). Under the bill, you may only deduct up to $10,000 in state and local taxes, including sales, income, and property taxes. This deduction was not previously subject to limitation.
• Mortgage interest deductions for current homeowners are still allowed, but it caps the interest deduction at $750,000 in mortgage debt for homes bought in 2018 and beyond.
• 529 College Savings Plans can now make qualifying distributions for the use of primary and secondary schools, including private schools.
• Medical deductions are expanded. Current law allows for the deduction of medical expenses over 10% of adjusted gross income (AGI). The bill lowers the threshold to 7.5%. 
• All miscellaneous itemized deductions, including payment of tax preparation and investment advisory fees, are eliminated.
• The impact of the Alternative Minimum Tax (AMT) is greatly reduced, with a higher exemption limit ($109,400 from $86,200 for married filers) and a higher phase out.
• The corporate tax rate is significantly reduced to 21%.
• Pass through businesses such as sole proprietors, partnerships, S-Corps and LLC’s will be able to deduct 20% of their business income from taxable income. There are some restrictions on the type of business and income thresholds that should be addressed with a tax professional to determine if the business qualifies.
• The Estate and Gift tax exemptions doubled up to $11 million for individuals and $22 million for couples.
• The individual mandate for health insurance and the accompanying penalty as part of the Affordable Care Act is repealed effective 2019.

 
Market Summary
News of tax reform didn’t overshadow another strong year for markets. Major equity asset classes around the globe all posted double digit gains. Emerging markets led the way +37.28% for the year. International Developed markets were up +25%. The S&P 500 posted another great year +21.83% and US small caps gained 14.65%. US Bond markets also fared reasonably well, turning in a positive 3.54% return. 

Last year around this time all the buzz was about the United Kingdom's vote to leave the European Union, the surprise election of Donald Trump, and how global markets would respond. One could have easily made the argument that such uncertainty would have had a negative impact. Now that the results are in, talk turns to whether stocks are overpriced or underpriced and how much longer this bull market can continue.
 
The fact of the matter is, predicting the next bear market isn’t necessary for the success of long term diversified investors. Most of us will see numerous bull/bear market cycles throughout our investment lifetime (We’ve seen 5 changes in the last 27 years.) Things like behavioral discipline, rebalancing, and making intelligent financial planning decisions are always going to be far more important to long term success. ​

WealthShape, LLC provides this communication as a matter of general information. No one should assume that any discussion or information contained in this material serves as a receipt of, or as a substitute for, personalized investment, tax or legal advice.