Work continues on the new building in Harleysville. We’re looking forward to the New Year, when we anticipate moving in and all four of our business units serving you from under one roof. Stay tuned for continued updates.
On Saturday, June 16, 2018, Team Canon Capital joined the many participants in Indian Creek Foundation’s annual Roll, Stroll & Run, an event including opportunities to raise funds by running, walking, or cycling.
Canon Capital Payroll processer/tax preparer Linda Covel brought some family members along for the 5K walk while Canon Capital Wealth Management project coordinator, Brian Erkes, his wife, Janice, and son, Frank, ran in the timed 5K portion of the event, where they placed within the top 15 participants.
In addition to sending a team, we served as the event’s Volunteer Shirt Sponsor.
We are proud to support the efforts of Indian Creek Foundation, whose mission is “to provide opportunities for people with intellectual and developmental disabilities to live in and enrich the community throughout their lives.”
We are excited to inform you that later this year, we are looking forward to moving from our Souderton and Hatfield offices to combine under one roof at our newly-acquired Harleysville location.
We’ll keep you posted on our progress with the building renovations as we work to make it our own before settling in. Until then, we are happy to continue to serve you at our Souderton and Hatfield locations.
One Source. Many Services. The Right Decision. This is our motto, which we strive to embody each and every day as our four business units work to serve your Accounting, Computer Solutions, Payroll, and Wealth Management needs.
Many are wondering how the new tax laws will affect them in the short and long-term. Our Wealth Management unit dedicated the first Financial Literacy seminar of the year to the topic, with our managing director of Wealth Management, Dr. Peter Roland, providing an overview of what to expect and how best to prepare.
The official name for the bill that passed in December 2017 is “An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018.” Not very catchy, Congress has dubbed it the “Tax Cuts and Jobs Act.” No matter the name, what this bill was designed to do is lower general tax rates, while also making changes to the deductions and exemptions many have grown accustomed to. With that, this bill creates “winners,” “losers,” and considerations and opportunities for both short and long-term wealth management.
Changes in Tax Rates and Deductions/Exemptions
With this new plan, individual tax rates have dropped, meaning many are seeing more money in their paychecks. At the same time, the standard deduction amounts have nearly doubled. However, this can lead to an issue at tax time for taxpayers with large itemized deductions and personal exemptions. Their tax liability may go up even though the rate at which they are being taxed is lower. To make sure you’re not headed for a surprise when your 2018 taxes are being prepared, do what we call a “Paycheck Check-up”. Use the withholding calculator provided by the IRS to make sure enough money is being withheld from your pay.
Among the changes in itemized deductions in the Tax Cuts and Jobs Act:
- Medical expenses for 2018 and 2019 are now deductible in excess of 7.5% of adjusted gross income (AGI). Before it was in excess of 10% of your AGI.
- Deduction for State, Local, and Real Estate taxes (SALT) is limited to $10,000.
- Deduction for Mortgage Interest Qualified Acquisition Debt reduced from $1,000,000 to $750,000 for first or one second home.
- Home Equity Loans other than the amount used to acquire or improve the home are no longer deductible.
- Charitable contributions can now offset 60% of AGI (was 50%).
- Casualty losses eliminated except for federally-declared disaster areas.
- Miscellaneous Itemized Deductions eliminated (unreimbursed employee business expenses, investment fees, tax prep fees).
- Personal Exemptions have been eliminated (was $4,050 per Exemption in 2017).
- Higher exemptions for Alternative Minimum Tax.
- Alimony is not taxable by recipient (or deductible by payor) for new agreements after 12/31/2018.
- Homeowners gain exclusion ($250,000/$500,000) now requires that the homeowner must live in the residence five of the prior eight years as opposed to two of the prior five years.
This new law has also affected credits and deductions related to child care and college savings:
- Child Care Credit increased from $1,000 to $2,000.
- Section 529 Education Plans allowed to distribute up to $10,000 for elementary, secondary, and certain home school expenses.
- Investment income of child now taxed at higher trust tax rates vs. individual tax rates.
Estate & Gift Taxation as changed as follows:
- Federal exemption of estate tax is now $11.2 million per person (to be adjusted for inflation).
- Higher Annual Gift Tax exemption amount of $15,000 (raised from $14,000).
Business owners will see a reduction in tax rates as well:
- Regular “C” Corporation: highest tax rate reduced from 35% to 21%
- Higher Section 179 depreciation deduction limits
- New deductions for 20% of qualified business net income from passthrough entities (S Corporations, Partnerships, LLC’s, Sole Proprietorships).
- Income limits for 20% benefit – $157,500 and $315,000 taxpayer income.
- 20% deduction of income from REIT dividends, Master Limited Partnership dividends, and Co-ops.
- Real Estate now counts as a qualified business.
A “Truc” is not some advanced financial term. It’s the word our local Pennsylvania Dutch use for “trick.” Under this new tax law, even though for many the tax rate will go down, the amount of tax owed will increase. In addition:
- These reduced tax rates and standard deduction changes for individuals will sunset, aka disappear, in 2025.
- Those beneficial provisions will be disappearing on a now-expanded income base.
- The new IRS inflation factor calculation for brackets modified are now using “Chained CPI,” resulting in higher taxes over time as a result of “taxflation.”
How can you make the best of the advantages and disadvantages of this new tax law? In addition to the “Paycheck Check-up” we recommended earlier, you might also consider:
- Take advantage of “Tax Arbitrage” when possible.
- Use donor-advised funds to “bunch” charitable contributions, using appreciated assets when possible.
- Look at your “bucket list,” the funds you choose to be taxed now, taxed later, and never taxed (i.e., Roth IRA).
- Review Roth IRA opportunities
- Consider real estate investments to enjoy the 20% deduction of net income from investment real estate activity. This is especially key as many will opt to rent over buying a home with the loss of the itemized deduction benefit.
- Evaluate your personal debt and consider paying off non-deductible home equity loans more quickly that are no longer subject to interest deductibility.
- Plan for and use the 20% deduction against “Qualified Business Income” and evaluate your business structure for new rules.
- Make optimal use of “portability” election in estates to maximize the exemption available to surviving spouse, not forgetting about step up in tax basis for assets flowing through estates. Also consider State inheritance taxes in your planning.
We’ve included a lot of information in this blog post. Take about 45 minutes of your time, watch the webinar, and please let us know if we can help with any questions you might have regarding this or any other financial services matter. Contact us online or call 215-723-4881.
We are proud to announce the admission of senior investment advisor Chuck Porter, Jr. to the firm as a unitholder. Porter serves as a Senior Investment Advisor specializing in serving high-net-worth individuals and families.
Porter, who joined Canon Capital Wealth Management in 2006, earned his degree in Economics with an emphasis in Personal Financial Service from Widener University. An Accredited Investment Fiduciary, Porter has also earned a Certificate in Financial Management for the Family Office from Pepperdine University’s Graziadio School of Business and Management.
“Chuck has a proven track record of client service,” said Dr. Peter Roland, managing director of Canon Capital Wealth Management and one of the founders of Canon Capital Management Group. “He exemplifies our values of acting as a trusted advisor, taking the time to learn about the needs of our clients and then developing a comprehensive service plan that acutely reflects those needs. We are pleased to welcome him as a fellow unitholder.”
Part of Porter’s success is his commitment to the community, where he makes the time to coach Souderton Area Youth Football (SAYFA), Souderton-Harleysville Youth Basketball Association (SHYBA), and baseball; as well as serve as a member of the Calvary Church Count Team.
“When I joined Canon Capital eleven years ago, I knew that this was a special company. The leadership team genuinely cares about their employees, and there is a firmwide commitment to serve our clients well and put their interests first,” said Porter. “I am extremely humbled by and grateful for this unitholder designation and the opportunity to contribute to the Canon Capital legacy of willingly investing in the things that matter. When I think about how many lives Canon Capital has touched since its founding thirty years ago, I can’t help but smile in knowing that I might be able to help carry that torch for the next thirty years.”
Canon Capital Wealth Management is a business unit of Canon Capital Management Group, celebrating 30 years of providing a single source of financial and business services.
Indian Creek Foundation 2015 Roll and Stroll
Our very own Amanda Spengler, CPA, joined 500 other participants on June 20, 2015 in the 24th Annual Indian Creek Foundation Roll & Stroll, a bike/run/walk event. The largest of Indian Creek Foundation’s fundraisers, the proceeds help further their mission of providing services for children and adults with intellectual and developmental disabilities. Thanks for representing Canon Capital, Amanda!
Matthew Witter Named to Board of Pregnancy Resource Clinic of North Penn
Every year, the Trustees of the Social Security and Medicare trust funds release reports to Congress on the current financial condition and projected financial outlook of these programs. The 2015 reports, released on July 22, 2015, show that, despite some encouraging signs, both programs continue to face financial challenges that should be addressed as soon as possible, with the Disability Insurance Trust Fund needing the most urgent attention.
What are the Social Security trust funds?
The Social Security program consists of two parts. Retired workers, their families, and survivors of workers receive monthly benefits under the Old-Age and Survivors Insurance (OASI) program; disabled workers and their families receive monthly benefits under the Disability Insurance (DI) program. The combined programs are referred to as OASDI. Each program has a financial account (a trust fund) that holds the Social Security payroll taxes that are collected to pay Social Security benefits. Other income (reimbursements from the General Fund of the Treasury and income tax revenue from benefit taxation) is also deposited in these accounts. Money that is not needed in the current year to pay benefits and administrative costs is invested (by law) in special Treasury bonds that are guaranteed by the U.S. government and earn interest. As a result, the Social Security trust funds have built up reserves that can be used to cover benefit obligations if payroll tax income is insufficient to pay full benefits.
(Note that the Trustees provide certain projections based on the combined OASI and DI (OASDI) trust funds. However, these projections are theoretical, because the trusts are separate, and one program’s taxes and reserves cannot be used to fund the other program.)
Trustees report highlights: Social Security
- The combined trust fund reserves (OASDI) are still increasing and will continue to do so through 2019 (asset reserves increased by $25 billion in 2014, with year-end reserves totalling $2.8 trillion). Not until 2020, when annual program costs are projected to exceed total income, will the U.S. Treasury need to start withdrawing from the reserves to help pay benefits. Absent congressional action, the combined trust fund reserves will be depleted in 2034, one year later than projected in last year’s report.
- Once the combined trust fund reserves are depleted, payroll tax revenue alone should still be sufficient to pay about 79% of scheduled benefits in 2034, with the percentage falling gradually to 73% by 2089. This means that 20 years from now, if no changes are made, beneficiaries could receive a benefit that is about 20% less than expected.
- The OASI Trust Fund, when considered separately, is projected to be depleted in 2035 (one year later than projected in last year’s report). At that time, payroll tax revenue alone would be sufficient to pay 77% of scheduled OASI benefits.
- The DI Trust Fund is in worse shape and will be depleted in late 2016 (the same as projected last year). The Trustees noted that the DI Trust Fund “now faces an urgent threat of reserve depletion, requiring prompt corrective action by lawmakers if suddent reductions or interruptions in benefit payments are to be avoided.” Once the DI Trust Fund is depleted, payroll tax revenue alone would be sufficient to pay just 81% of scheduled benefits.
- Based on the “intermediate” assumptions in this year’s Trustee’s report, the Social Security Administration is projecting that there will be no cost-of-living adjustment (COLA) for calendar year 2016.
What are the Medicare trust funds?
There are two Medicare trust funds. The Hospital Insurance (HI) Trust Fund pays for inpatient and hospital care (Medicare Part A costs). The Supplementary Medical Insurance (SMI) Trust Fund comprises two separate accounts, one covering Medicare Part B (which helps pay for physician and outpatient costs) and one covering Medicare Part D (which helps cover the prescription drug benefit).
Trustees report highlights: Medicare
- Annual costs for the Medicare program have exceeded tax income annually since 2008, and will continue to do so this year and next, before turning positive for four years (2017-2020) and then turning negative again in 2021.
- The HI Trust Fund is projected to be depleted in 2030 (unchanged from last year, but with an improved long-term outlook from last year’s report). Once the HI Trust Fund is depleted, tax and premium income would still cover 86% of program costs under current law. The Centers for Medicare & Medicaid Services (CMS) has noted that, under this year’s projection, the HI Trust Fund will remain solvent 13 years longer than the Trustees predicted in 2009, before passage of the Affordable Care Act.
- Due to increasing costs, a Part B premium increase is likely in 2016. However, about 70% of Medicare beneficiaries will escape the increase because of a so-called “hold harmless” provision in the law that prohibits a premium increase for certain beneficiaries if there is no corresponding cost-of-living increase in Social Security benefits. If there is no COLA for 2016, the increased costs may be passed alng only to the remaining 30% not eligible for this hold-harmless provision – generally, new enrollees, wealthier beneficiaries, and those who choose not to have their premiums deducted from their Social Security benefit. If so, these individuals could see the base premium rise to $159.30 in 2016, up sharply from $104.90 in 2015.
Why are Social Security and Medicare facing financial challenges?
Social Security and Medicare accounted for 42% of federal program expenditures in fiscal year 2014. These programs are funded primarily through the collection of payroll taxes. Partly because of demographics and partly because of economic factors, fewer workers are paying into Social Security and Medicare than in the past, resulting in decreasing income from the payroll tax. The strain on ths trust funds is also worsening as large numbers of baby boomers reach retirement age, Americans live longer, and health-care costs rise.
What is being done to address these challenges?
Both reports urge Congress to address the financial challenges facing these programs in the near future, so that solutions will be less drastic and may be implemented gradually, lessening the impact on the public. As the Social Security Board of Trustees report states, “Social Security’s and Medicare’s projected long-range costs are not sustainable with currently scheduled financing and will require legislative action to avoid disruptive consequences for beneficiaries and taxpayers.”
Some long-term Social Security reform proposals on the table are:
- Raising the current Social Security payroll tax rate (according to this year’s report, an immediate and permanent payroll tax increase of 2.62 percentage points would be necessary to address the revenue shortfall)
- Raising the ceiling on wages currently subject to Social Security payroll taxes ($118,500 in 2015)
- Raising the full retirement age beyond the currently scheduled age of 67 (for anyone born in 1960 or later)
- Reducing future benefits, especially for wealthier beneficiaries
- Changing the benefit formula that is used to calculate benefits
- Changing how the annual cost-of-living adjustment for benefits is calculated
Regardless of the long-term solutions, Congress needs to act quickly to address the DI program’s imminent reserve depletion. According to this year’s report, in the short term, lawmakers may reaollocate the payroll tax rate between OASI and DI (as they did in 1994). However, this may only serve to delay DI and OASI reforms.
You can view a combined summary of the 2015 Social Security and Medicare Trustees reports here, where you can also access a full copy of the Social Security report. You can find the full Medicare report here.
Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, or legal advice. The information presented here is not specific to any individual’s personal circumstances.
To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.
These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable – we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.
Prepared by Broadridge Investor Communications Solutions, Inc. Copyright 2015
Are you a business owner paying too much in taxes?
With year-end approaching, here’s a great way to save.
You’re in one of the highest tax brackets and already maxing out 401(k) and HSA contributions. You may even be making non-deductible IRA contributions to squeeze out a little more tax-deferred benefit. What if you’ve run out of options to shelter taxes, but you can afford to sock away more than your 401(k) plan allows every year?
Cash Balance Plan to the Rescue
A cash balance plan may be the perfect fit for you. It is ideal for business owners who: are 35 years of age or older, have 0-25 employees, already have a 401(k) profit sharing plan with the new comparability feature, and can afford to contribute more than $50,000 annually. A cash balance plan has a flexible benefit design and allows owners to potentially contribute substantial amounts of earned income with lower and more controlled costs to employees. Contributions reduce ordinary income taxes dollar for dollar, which means the effects of compound interest in a cash balance plan are nothing to walk away from.
For example, if a 45-year-old business owner contributed $150,000 in 2015 and it grows 5% per year for 20 years, it would be worth $397,995 when he/she is ready to retire at age 65. Not to mention the fact that a business owner in the 33% tax bracket would have saved approximately $50,000 in federal income taxes. The future value would be significantly less if the original amount was invested with after-tax dollars and taxes were paid on earnings every year.
Many business owners pay themselves a lower salary during the year and are looking for ways to shelter taxes on large bonus payouts before year-end. The fall season typically brings these planning questions to light since owners are getting the general feel for their year-end projections.
Why Canon Capital?
We act as your fiduciary, which means that we have a legal obligation to act in your best interests. We have the ability to work with the most reputable plan administrators in the industry. The implementation costs and recurring annual costs are typically far less than the amount of federal taxes saved every year, which makes the cash balance plan very attractive as a wealth accumulation tool. We will customize a model targeting up to 6% per year based on your risk and return objectives. The platforms that we use have access to thousands of investment choices, and our role is to narrow down the choices and invest the monies for you. The account grows annually in two ways: 1) contributions and 2) interest credits, which are guaranteed. It’s an effective way to accelerate retirement savings, and worst case scenario — if the plan terminates prematurely — each participant can roll their balance into an IRA and manage it themselves or have it professionally managed.
It’s easy to get started. Feel free to give us a call today at 215-723-4881 and ask to speak with one of our investment advisors. We look forward to the opportunity to work with you!
We’ve had a lot to celebrate this summer. The Canon Capital family is expanding due to these happy occasions.
Congratulations to all!
We had a terrific time earlier this week at the Indian Valley Chamber of Commerce 2015 Business Expo.
Matthew Witter, a senior investment advisor & financial planner
with our Wealth Management Group, talks with an Expo attendee.
Vicki Barnes, director of payroll services, and Lori Canfield, office manager, show off our team jerseys. We’re all wearing #87 to represent 1987, the year Canon Capital Management Group was established.
“Team Canon Capital” represented this year’s theme “Sporting Success…Join the Winning Team!” sharing peanuts and popcorn along with all of the services we offer to businesses and individuals in our community.