Information updated 12-26-2017.

Keep in mind:

The tax reform bill does not take effect until 2018.  Our 2017 taxes that we file in the beginning of next year will not be affected by this bill.  With one exception explained below, most all of the information in this email pertains to your 2018 tax return that we will file in 2019.  The Tax Cuts and Jobs Act tax reform bill passed the House and Senate and was signed into law by the President on Friday, December 22, 2017.  This is the first major overhaul of the tax code in over 30 years.  Many of the individual provisions are set to expire by the end of 2025 (unless congress later extends or makes them permanent), but most of the corporate provisions are permanent (until the law gets changed).

**PLEASE KNOW…MAJOR DISCLAIMER…

For my tax clients… I am working hard on creating a spreadsheet that will clearly show you how your 2018 taxes will be different from your 2017 taxes that we will file at the beginning of next year.  As you can imagine, it’s going to take me some time to get this spreadsheet up and running, but by the time we meet for taxes, I will be able to clearly show you how the law will personally affect you and how to make any necessary changes.  This spreadsheet will be done by the time we meet, and I hope you understand that for now, I cannot easily calculate exactly how this law will affect you.  I will be able to do so very soon however.

PLEASE READ…. A few other disclaimers:

This email is long…by far the longest email I’ve ever written.  Since this is the first major tax reform in over 30 years, I guess it warrants a long email. The new tax bill is 1,097 pages long, and obviously this email doesn’t contain everything that’s in the new “Tax Cuts and Jobs Act” tax reform bill.  I have tried my best to summarize and highlight the most relevant parts of the bill that will affect most of us.  Also, as I hope you know, I always do my best to make sure the information I provide is accurate and correct.  That being said, although I hope there are no mistakes in this email (including grammatical), please forgive me if you do find an error.  If you do see something incorrect, let me know, and I’ll do my best to clarify and correct the mistake.  Finally, I am anticipating that I will be receiving a ton of emails and phone calls in the coming weeks.  I will do my best to reply in a timely manner, but please forgive me if I take a bit longer than usual to respond.

Before reading any further… please go get a copy of your 2016 tax return. 

A lot of the information I provide below will make much more sense to you if you have a copy of your return with you.  I’m hoping I’ve provided enough information for you to see how the new law affects you personally, but I’m sure you’ll still have some questions, so please feel free to contact me if you do.  As I wrote earlier, I’m currently working on spreadsheet that will show you how the tax law will personally affect you.  Until this spreadsheet is completed, I will not be able to easily show you how the changes will affect you. 

3 THINGS YOU CAN DO NOW BEFORE THE END OF THE YEAR.

This information only applies if you itemize.  Here’s how to know if you itemize your deductions:

On your 2016 tax return:

• If you filed Form 1040-A or 1040-EZ last year, you took the standard deduction and DID NOT itemize.

• If you filed “Single” on Form 1040 – look at line 40 on your 1040, if the amount is over $6,300, you itemized.
• If you filed “Married” on Form 1040 – look at line 40 on your 1040, if the amount is over $12,600, you itemized.
• If you filed “Head of Household” on Form 1040 – look at line 40 on your 1040, if the amount is over $9,300, you itemized.

Pay Property Taxes Early

If you itemize, and you can afford to, you may want to pre-pay your property taxes that are due in March before the end of this year.  In 2018, there will be a cap of $10,000 on the amount you can deduct from your State and Local Taxes, including your Property Taxes. For many of us in California, we are above the $10,000 amount… see line 9 on your Schedule A for your total amount.  If you have an escrow account and pay your taxes with your mortgage, be sure to call the bank who holds your loan and see how you can go about paying your taxes early.

Give to Charity

Since the standard deduction is almost doubling in 2018, many people who currently itemize and deduct their charitable giving, may not be able to do so next year.  If you itemized in 2016, and your amount on line 40 of your 1040 is below the new Standard Deduction amounts (see the section below), you may want to consider giving more this year since you may not be able to deduct your giving next year.

Pay more on your Equity Loan on your home

In 2018, we will no longer be able to deduct our equity line of credits from our income.  If you can afford to pay a bit more now, you can get a little more write-off this year for the little bit of extra interest you’ll pay.

2018.  Everything below affects your 2018 taxes that we file in 2019.

I’ve labeled everything below as either good news or bad news.  This is my opinion based on how I see the changes affecting most people’s personal taxes.  These opinions are all based on how the changes will affect our pockets… and not based on anything political.

Good News:  Educator Expense Deduction, Student Loan Interest Deduction, and Medical Expenses Deductions are staying put. 

Although earlier proposals discussed eliminating these deductions, they have remained intact.  The final bill keeps all of these deductions and actually expands the medical expense deduction for 2018 and 2019.

Good/Bad News: Coming Soon…Changes to your paychecks.

Beginning in February, exemption/withholding calculations on your paychecks will be changing based on what you are claiming on your paycheck.  For many people, this change will cause your withholding to lower the amount withheld for federal taxes (which will increase your take home pay).  Because these withholding calculations are based on a certain formula, and are not based on your individual taxes/situation, this change may or may not be good for you.  Once these changes go into effect, it would be very smart to review your specific situation and see if you need to make any adjustments to your paycheck based on this change.  As most of my tax clients know, I always encourage everyone to review their paychecks to make sure there are no hidden surprises when filing taxes for the following year.

Good News:  Tax Rates are decreasing.

For the most part, our tax rates are decreasing.  The current tax rates are:  10%, 15%, 25%, 28%, 33%, 35% and 39.6%.  These rates will now be 10%, 12%, 22%, 24%, 32%, 35% and 37%.  Although it may sound odd, keep in mind, this doesn’t necessarily mean you’ll be paying less in total taxes.  Because we are losing some deductions/credits, and because some items are being capped, your taxes could be higher.  You have to review every aspect or your personal situation to get a clear idea of how your total taxes will be personally affected.

Good News… for some.  Standard Deduction Nearly Doubles.

To know how this will affect your 2018 tax return that we will file in 2019 see below:

• If you filed “Single” in 2016:
  • Your 2018 tax return will be the greater amount of either $12,000 or an amount similar to what you have currently listed on Line 40 of your 1040.If you filed a 1040A, the amount on line 24 will be $12,000 on your 2018 tax return.
• If you filed “Married” in 2016:
  • Your 2018 tax return will be the greater amount of either $24,000 or an amount similar to what you have currently listed on Line 40 of your 1040.If you filed a 1040A, the amount on line 24 will be $24,000 on your 2018 tax return.
• If you filed “Head of Household” in 2016:
  • Your 2018 tax return will be the greater amount of either $18,000 or an amount similar to what you have currently listed on Line 40 of your 1040.If you filed a 1040A, the amount on line 24 will be $18,000 on your 2018 tax return.

Very Bad News:  Personal Exemptions have been eliminated:

Within certain income limits, today you’re allowed to claim a $4,050 personal exemption for yourself, your spouse and each of your dependents. This amount lowers your taxable income.  The tax bill eliminates this major deduction. To see how this affects you, look at your 2016 tax return, the amounts listed on the below returns will no longer be deducted from your income:

1040- line 42…this amount will now be $0.
1040A- line 26.. this amount will now be $0.

Bad News: Caps on state and local tax deduction.

If you itemize your deductions, one of the benefits you receive is the ability to deduct state and local taxes along with property taxes.  Today the deduction is unlimited for your state and local property taxes plus income or sales taxes.  Although you can still deduct these taxes, there is now a cap of $10,000.  If you look at line 9 of your Schedule A, this amount will be capped at $10,000.  If you are currently under $10,000, this cap does not affect you.  If you are over $10,000, then this obviously does affect you.

Great News:  Child tax credit expanded

The credit has been doubled to $2,000 for children under 17 (currently $1,000).  It is also now available to more people because the bill raises the income threshold under which filers may claim the full credit to $200,000 for single parents, up from $75,000 today; and to $400,000 for married couples, up from $110,000 today.

Good News: Temporary credit for non-child dependents.

The bill allows parents to take a $500 credit for each non-child dependent for whom they’re supporting, such as a child 17 or older, an ailing elderly parent or an adult child with a disability.

Bad News:  Cap on mortgage interest deduction is lowered.

If you take out a new mortgage on a first or second home you will now only be allowed to deduct the interest on debt up to $750,000, down from $1 million today. Homeowners who already have a mortgage would be unaffected by the change.

Bad News:  Interest on Home Equity Loans will no longer be deductible.

The bill no longer allows a deduction for the interest on home equity loans. Currently that’s allowed on loans up to $100,000.

Good News:  Electric car tax credit remains.

Drivers of plug-in electric vehicles can still claim a credit of up to $7,500. Just like before, the full amount is good only on the first 200,000 electric cars sold by each automaker. GM, Nissan and Tesla are expected to reach that number some time next year.

Good News:  Capital Gains Tax when selling primary home remains the same.

Homeowners who sell their house for a gain will still be able to exclude up to $500,000 (or $250,000 for single filers) from capital gains, so long as they’re selling their primary home and have lived there for two of the past five years.

Good News:  529 savings accounts can be used in new ways.

In the past, funds invested in 529 savings accounts wasn’t taxed, but it could only be used for qualified college tuition/expenses. In the new law however, up to $10,000 can be distributed annually to cover the cost of sending a child to a “public, private or religious elementary or secondary school.”

Are you, or someone you know, thinking of buying a home sometime soon?  If so, before you start looking for a home, here is the first thing you need to do:

Get Pre-Approved with a Qualified Lender First!

There are obviously many steps involved when buying a home, but the very first thing anyone looking to buy a home should do is get pre-approved with a qualified lender.
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Not All Pre-Approvals are Created Equal!

Many people don’t know this, but a pre-approval is only about as good as the paper it’s written on.  A pre-approval is verification from a lender that you should qualify for a loan.  Obviously there are many steps to a loan process (including going through an underwriter) and you want to make sure your lender is very good at figuring out early on if you’ll most likely be approved for a loan.

I have heard stories after stories of people who have told me they were “pre-approved” with a lender only to find out later that they didn’t qualify for a loan.  PLEASE, PLEASE, PLEASE do yourself a favor and make sure the lender you are talking to gathers enough information from you to make a well-informed decision.
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Why Work With Me To Do Your Home Loan?

As you know, I do many things along with assisting my clients with their home financing needs.  I do income tax preparation, financial/retirement planning, life insurance…. just to name a few.  I believe this provides me with a uniquely insightful perspective when it comes to buying a home.
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I can help you with buying a home in ways that no other lender I know can help:

• I can very accurately show you how much money you’ll save in income taxes as it relates to buying your home.
• I can show you how to adjust your paycheck to take home more money each month due to your income tax savings.
• I can provide a much wider range of advice than any other lender is allowed.
• I work with several lenders to get you the best rates and loan product for your needs.

 So, if you’re thinking of buying a home, or you know of someone who is, please feel free to contact me anytime, and we can begin the process of getting you into the home you want.

If this is true for you, give me a call or shoot me an email, and I’ll be happy to send you the forms you need…. whether or not you’re a client, I would be happy to do this free of charge for you!
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If you are a current client of mine, and you’d like to also meet to review your accounts, I would be happy to do so.
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If you’re not a current client, and you’d like to make sure you’re in the right investments for you, feel free to contact me and we can do a quick review of your accounts.  There is no charge for an initial consultation.  I simply educate and inform you on all your options.  If you choose to work with me after that… great!  If not, that’s fine too… I may cry a little after you leave though… but I’ll be okay

If so… and you haven’t already refinanced out of the loan, it’s time to seriously take a look at your loan, and look into refinancing now.

If you haven’t refinanced, you are most likely paying a much higher interest rate on your loan than you could be if you refinanced.

If you recall, the CalSTRS 80/17 home loan program was unique to teachers and employees within the CalSTRS system.  At the time you purchased your home, you only had to put down 3% for your down payment.  80% of your purchase price was your first mortgage, and the other 17% was a sort of “silent second” that you didn’t have to pay on for the first 5 years of your loan.  After 5 years, the principle and interest payment on this 17% begins and be amortized over 25 years.

This program was a fantastic way for teachers to buy a home, and during the first 5 years everything was great.
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The problem is that after 5 years, everyone in this program is realizing that their mortgage payment is increasing by around $400  – $600 a month.

If you still have this loan, call me today!

In just the past couple of months I have helped 2 clients refinance out of this loan.  Both are now saving over $400/month!  It is highly likely that I can help you do the same!

Back in January, the Federal Housing Administration (FHA) lowered the annual premium on its mortgage insurance from 1.35% of the outstanding loan balance to 0.85%.  So, if you acquired an FHA loan prior to January 26th, there’s a very good chance you could save a few hundred dollars a month by doing a simple FHA Streamline Refinance.
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What is and FHA Streamline Refinance?

The FHA Streamline Refinance is a special mortgage product, reserved for homeowners with existing FHA mortgages.  It is a fairly straightforward way to refinance your existing FHA mortgage to lower your monthly payments.
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Obviously there are some requirements set forth by FHA, but if you qualify, you could save quite a bit of money on your monthly house payment.

Some of the requirements are:

• You must be able to realize a minimum 5% reduction in payment.
• You must have a minimum of 6 payments made on your current FHA mortgage before being eligible for refinance.
• The refinance can only be to reduce your rate and/or term – cash out is not allowed.
• Appraisal not required under most circumstances.

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Contact Me Anytime!

If you have any questions about whether or not you qualify, feel free to contact me anytime.  We can quickly figure out if you qualify and are able to refinance and save money.

–Written on July 29, 2015

You may or may not have heard, but back in June, Governor Brown signed Assembly Bill 1469 which will increase member, employer, and state contribution amounts over the next several years to the CalSTRS program.

Before this bill, the California State Teachers’ Retirement System (CalSTRS) was only 67 percent funded and would have run out of money in 33 years.

Shared, gradual contribution rate increases for members, employers and the state take effect July 1, 2014.  Most teachers will first see this change on their September 30th paycheck.  Provisions of the bill are as follows:
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Member Contribution Increases

AB 1469 increases member contributions on compensation that is creditable to the Defined Benefit Program, which previously had been set at a rate of 8 percent of payroll.

* Rate imposed on 2% at 62 members is based on the normal cost of benefits for the Defined Benefit Program. The contribution rate in future years assumes no change in normal cost.
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Employer Contribution Increases

School employer contributions will increase from 8.25 percent to a total of 19.1 percent of payroll, phased in over the next seven years.

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State Contribution Increases

AB 1469 increases the state’s contribution attributable to the benefits in effect in 1990 but does not change the base rate of 2.017 percent. Thus, the state contribution rates, which in Fiscal Year 2013-14 were 3.041 percent, will increase over the next three years to a total of 6.328 percent. When contributions for purchasing power protection are included, the state’s total contribution rate in 2016-17 will be 8.828 percent.
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Other Provisions

Increased member and employer contributions under AB 1469 are only payable for compensation that is creditable to the Defined Benefit Program. Compensation creditable to the Defined Benefit Supplement Program will continue to be credited with member and employer contribution rates of 8 percent each.

Contributions CalSTRS receives for Defined Benefit Supplement compensation that are attributable to increases under AB 1469 will be returned to school district employers. School district employers will then return excess member contributions to their employees and the returned pre-tax contributions will be considered taxable income in the year they are received by the employee. This will occur regardless of when the contribution was initially paid.

AB 1469 grants the Teachers’ Retirement Board limited rate setting authority for contribution rates. Member rates will remain fixed in statute. Lastly, the bill requires CalSTRS to report to the Legislature on the fiscal health of the Defined Benefit Program every five years beginning on or before July 1, 2019.

This legislation represents a prominent milestone in CalSTRS’ funding history and demonstrates the leadership and commitment of the Legislature, Administration and our stakeholders. With a responsible funding plan firmly in place, CalSTRS is on target to meet the promise of a secure financial future due to California’s educators.

For more information, cut and paste the following links in your browser:
http://www.calstrs.com/calstrs-2014-funding-plan
http://gov.ca.gov/news.php?id=18581

–Written on September 22, 2014

How do loan inquiries impact my credit score?

The good news is that there are new laws that allow consumers to rate shop for credit cards and other type of loans without taking a hit on their credit scores.
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The new inquiry timetable looks at what are considered “like” inquiries.

For example, a consumer can shop for multiple auto loans within a 45-day period. No matter how many auto dealers the consumer visits, the inquiries are all auto loans, and are therefore considered “like” inquiries. If a consumer shops for multiple auto loans within a 45-day period, their actions will appear as only one inquiry on the credit report, no matter how many auto loans they actually applied for.

This also holds true for mortgage loans, credit card offers and other extensions of credit. As long as the inquiries are considered similar, only one inquiry will appear on the credit report within an isolated 45-day period.

However, if a consumer shops for a mortgage loan, an auto loan, and a credit card within in 45 days, this will appear as three inquiries on the credit report. The reason for this is because the consumer has shopped for three different categories of “like” loans or credit offers.

In addition, a 30-day provision has been added for mortgage loans and auto loans.  If your borrower shops for a mortgage loan within a 30-day period, they will NOT receive an inquiry on their credit report.  The same holds true for an auto loan.  However, as soon as they go beyond the 30-day period, they are now in the 45-day provision, and all inquiries will count as one.

Remember, if you’re looking to purchase a home, or refinance your existing mortgage, I’m here to help!  Feel free to email, or call me anytime.

— Written September 20, 2014

Have You Gotten the Call Yet?

The IRS Phone Scam is back, full force and effect.   I’ve already received 3 calls from these people since April 15th.

One message sounded like SIRI was calling and threatening me with tax fines.  Another message was left by someone claiming to be an “IRS Agent” with an “official badge numbers” and everything.  The last message I  received sounded like someone was talking either through a speaker phone or a megaphone.

Rest Assured…THIS IS A SCAM!!

For the past 3 weeks, I have received almost a phone call a day from clients asking if this is a scam or not.  These people sound very convincing and they’re clever not to ask for personal information over the phone.

As the IRS Commissioner has stated,  “These telephone scams are being seen in every part of the country, and we urge people not to be deceived by these threatening phone calls.  We have formal processes in place for people with tax issues. The IRS respects taxpayer rights, and these angry, shake-down calls are not how we do business.”

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The IRS reminds people that they can know pretty easily when a supposed IRS caller is a fake. Here are five things the scammers often do but the IRS will not do. Any one of these five things is a tell-tale sign of a scam. The IRS will never:

1. Call you about taxes you owe without first mailing you an official notice.
2. Demand that you pay taxes without giving you the opportunity to question or appeal the amount they say you owe.
3. Require you to use a specific payment method for your taxes, such as a prepaid debit card.
4. Ask for credit or debit card numbers over the phone.
5. Threaten to bring in local police or other law-enforcement groups to have you arrested for not paying.

For more information directly from the IRS, cut and paste the following link in your browser:
http://www.irs.gov/uac/Newsroom/Scam-Phone-Calls-Continue;-IRS-Identifies-Five-Easy-Ways-to-Spot-Suspicious-Calls

–Updated July 28, 2015

 Credits for approved solar installations

If you install an approved solar-power system before the end of 2016, you can claim 30 percent of the cost as a tax credit for the year you installed it.
As a credit, you take the amount directly off your tax payment, rather than as a deduction from your taxable income. You can claim the credit for your primary residence, a vacation home, and for either an existing structure or new construction. Other than the cost of the system, there’s no limit to the dollar amount of the credit.

 Below is the exact wording directly from the IRS.

Residential Energy Efficient Property Credit This tax credit will help individual taxpayers pay for qualified residential alternative energy equipment, such as solar hot water heaters, solar electricity equipment and wind turbines installed on or in connection with their home located in the United States and fuel cell property installed on or in connection with their main home located in the United States. The credit, which runs through 2016, is 30 percent of the cost of qualified property. ARRA removes some of the previously imposed annual maximum dollar limits.

—Written July 3, 2014

1. Teachers’ classroom expense deduction. Eligible educators who work in a school providing primary or secondary instruction can deduct up to $250 worth of unreimbursed classroom expenses. This is an above-the-line deduction, which means teachers can take this deduction before adjusted gross income is calculated and regardless of whether they itemize other deductions or take the standard deduction.
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2. Exclusion of cancellation of indebtedness on principal residence. The U.S. tax code treats forgiven debts as taxable income. However, if your principle residence is foreclosed or sold in a short sale before the end of the year, this provision allows you to exclude up to $2 million of forgiven debt from your taxable income. If your home is on the verge of a foreclosure or short sale, you may want to nudge along the process before the end of the year to ensure you’re eligible for this tax break.
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3. Mortgage insurance premiums. Homeowners who purchase a home with less than 20 percent as a down payment typically pay for mortgage insurance (also known as PMI). These premiums were deductible in 2012 and 2013, but this provision is scheduled to expire at the end of this year.
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4. IRA distributions to charity. People older than age 70½ are required to take minimum distributions from their individual retirement accounts, so this provision allows them to contribute that money to charity without counting those distributions as income.
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5. State and local sales tax. If you pay state or local income tax, you can deduct that amount from your federal taxes if you itemize.  This provision allows you to deduct state sales tax if your state doesn’t have an income tax or if the amount you paid in sales tax was higher than income tax. You can estimate your sales tax total based on your income and the state you live in to calculate what would be a normal sales tax deduction, and then you can add to that certain big-ticket items like a car or major home appliance.
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6. Electric vehicles. Consumers who buy a qualified electric plug-in vehicle may be eligible for a tax credit of up to $7,500 depending on the size of the car’s battery pack. For instance, owners of the Chevy Volt and Nissan Leaf may be eligible for a $7,500 credit, while owners of the Ford Fusion Energi and C-MAX Energi are eligible for a $3,750 credit. Some lessees may be eligible for this credit as well.
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7. Remodeling your home for energy efficiency. Homeowners who remodel for energy-efficiency can take a credit of up to $500 over their lifetime. This provision has existed since 2006, so many taxpayers have already used the credit.  There is a separate $500 credit available for energy-efficient appliances. If you haven’t used the credit yet, there’s still two months left to install new windows or buy an energy-efficient air conditioner.

–Written on December 2, 2013.