While we do not claim to be tax experts, and often suggest that clients enlist the advice of a CPA for their unusual tax questions, sometimes the tax effects on one’s financial situation are a bit more obvious. This might be one of those times.

Mostly everyone is aware that the tax bill passed during the end of 2017 has had some large effects on our corporate world, and generally people are aware that it’s more important than before to run a hypothetical tax return to look for changes under the new rules.

One area, however, that appears to apply to many of our clients is the area of bunching deductions. In days gone by most people arranged their deductible expenses to even out cash flow. For example, they would have a knee replaced one year and then do dental work the following year to spread out the expenses. This worked well in the past, but that may no longer be the case. Now, it looks like many can benefit by bunching deductible expenses such as medical expenses, charitable gifts, or real estate taxes in order to take advantage of the increased standard deduction. By ‘bunching’ these costs and creating a less steady cash flow, many clients can get a better tax break in the long term by taking the standard deduction one year, and then bunching their expenses into the next year and itemizing them.

Let me give you an example. If John’s itemized deductions are $13,000 one year, including his $3000 charitable contribution, he would be better off itemizing. His itemized deductions of $13,000 are higher than the standard deduction of $12,000. However (pay attention now), by combining two years of charitable contributions into one year, he can receive the standard deduction of $12,000 in one year and then he can make two years’ worth of charitable deductions the next year. With $6,000 charitable donations plus $10,000 of other deductions, he itemizes $16,000 in total deductions. This will increase his overall deductions over the two years from $26,000 (two years at $13,000) to $28,000 which is one year at the $12,000 standard deduction and one year at the $16,000 itemized.

Instead of business as usual, and tax-filing as usual, one might give some thought to looking into the future at 2-year periods to study how bunching might benefit the tax picture in the long term.  It’s a bit more hassle to think ahead, but perhaps it could offer a bit of a dividend – over a longer timeframe. If you’re thinking this might be a good idea for you, a call to your CPA would potentially be a good investment.

Market Minute – There Actually is Some Economic News this Week!

Despite the headlines regarding the FED meeting and the political circus that’s been playing 24/7, we had some economic updates this week. The FED raised their estimate for 2018’s GDP (gross domestic product) from a strong-ish 2.8% to a stronger 3.1%. IF that is achieved, it will be the highest annual GDP rate in 14 years, so that’s pretty positive. They also upped their growth forecast for 2019.

This week’s minor pullback in markets likely had nothing to do with the FED comments, but more likely with the continuing concerns over the US/China discussions – or lack thereof. The cancellation of the Chinese trade meeting which would have been in the US is not encouraging.  We believe there are many concerns that both countries need to get through before a new trade agreement will come to pass, but have expectations that it will happen during the fourth quarter. 

The real estate front is encouraging with mortgage applications up, purchases up and refi’s up.

The domestic economy is looking extremely strong. I continue to believe that when (not if) the trade noise is settled we will be looking at a melt-up. Ignore the noise and be ready to participate in what is likely to be a strong finish to this year’s market returns.  

Ronald P. Denk, CFP®
Investment Advisor
Denk Strategic Wealth Partners
10000 N. 31st Avenue, Suite C-262
Phoenix, AZ 85051
Phone (602) 252-8700
Fax (602) 252-8701
Toll-Free (877) The-Denk
www.denkinvest.com

This weekly article reflects news, commentary, opinions, viewpoints, analyses and other information developed by Denk Strategic Wealth Partners and/or select but unaffiliated third parties. DSWP provides Market Information for illustrative and informational purposes only. If you wish to receive this weekly commentary by email please contact us at 602-252-8700 or by e-mail at lindaw(at)denkinvest.com. If you are receiving this commentary via email and would prefer not to please let us know either by email or phone.

Ronald Denk is an Advisory Representative offering services through Denk Strategic Wealth Partners, A Registered Investment Advisor. He is also a Registered Representative, offering investments through Lincoln Financial Securities Corporation, Member FINRA/SIPC.

Denk Strategic Wealth Partners is not affiliated with Lincoln Financial Securities Corporation. Information in this commentary is the sole opinion of Denk Strategic Wealth Partners. Past performance is no guarantee of future returns. All market related investments involve various types of risk, which include but are not restricted to, credit risk, interest rate risk, volatility, going concern risk, and market risk.

The Update provides information of a general nature regarding legislative or other developments. None of the information contained herein is intended as legal advice or opinions relative to specific matters, facts, situations or issues. Additional facts, information or future developments may affect the subjects addressed in this document. You should consult with an attorney, accountant or DSWP planner about your particular circumstances before acting on any of this information because it may not be applicable to your situation.

Lincoln Financial Securities and Denk Strategic Wealth Partners and their representatives do not offer tax advice. Please see your tax professional regarding your individual needs.

*The indices are representative of domestic markets and include the average performance of groups of widely held common stocks. Individuals cannot invest directly in any index and unlike investments, indices do not incur management fees, charges, or expenses, therefore specific index returns will be higher. Past performance is not indicative of future results.

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