Feature Article »
Our annual tax and financial planning guide is designed to help you assess your current tax situation and plan for any changes that may improve your tax liability both this year and next.
Behavioral Finance »
Economic models error by treating humans as making optimal choices when in reality supposedly irrelevant factors have a big impact.
Current news items of interest to individual investors.
Members comment on our special issue highlighting James Cloonan’s founding of AAII and his contribution to the education of individual investors over the years, as he prepares to retire.
A comprehensive listing of the articles that have appeared in the AAII Journal this year.
This issue features our annual tax guide. It was finalized just a few days after the House of Representatives passed its version of the Tax Cuts and Jobs Act —better known to most of you as simply the tax reform bill. Our guide covers both the 2017 and the 2018 tax year. Yes, I said the 2018 tax year.
How did I know what data to use for the 2018 tax year? I went with what was a certainty at the time of our deadline (November 20, 2017) and left out what was speculative. The possibility of significant revisions to the guide being necessary is something I’m fully aware of. By the time you read this, the information for 2018 tax rates, exemptions and deductions may well be incorrect. Then again, it could all still be accurate. I’m not going to make a prediction that could prove to be laughable in hindsight. Rather, I’m going to simply be cognizant of the known unknowns and promise you that a revised version of the guide will be published if a significant change to the tax code is passed by Congress.
The model I’m using for this issue is based on our experience in 2012 with the then-threatened fiscal cliff. As some of you may recall, a political standoff threatened to cause both a hike in taxes and cuts in spending. I postponed including the tax guide in the December 2012 AAII Journal in the hope of a resolution being reached before Christmas. Waiting until January 2013 to publish our annual guide turned out to be the wrong decision. Potentially helpful year-end data was not sent out until after 2012 had ended, and we still had to turn around and publish an amended version of the tax guide in the March 2013 issue.
I’m making a conscious choice not to repeat the same mistake by sticking to our regular schedule of including the annual tax guide in the December issue. The TCJA will not be retroactive, meaning the data for 2017 will not change. As far as 2018 is concerned, we shall see. As I write this, the Republicans are feeling pressure to pass a bill before Christmas—an artificial deadline placed upon them by donors, commentators, party stalwarts and self-created pressure. Whether the Republicans will be able to muster the necessary votes in the Senate (assuming the Democrats stay unified in opposition) and then agree on a bill in reconciliation without either violating the deficit cap or losing key votes is an unknown as of press time.
One member suggested I include a table detailing the proposed alterations as we know them at deadline. Due to the differences between the current House and Senate bill, the possibility of alterations and the space limitations of a print publication, I’ve chosen not to. I have noted throughout the guide where things may change, however. From a purely investment standpoint, be aware of the possibility of no longer being able to undo a Roth IRA conversion (a process known as recharacterization), not being able to specify which lots of stock are sold and having interest on private activity bonds taxed. As of press time, there were also proposals to implement new rules on 457 plans (supplemental retirement plans for government workers) and establish an income cap on catch-up contributions for employer-sponsored retirement plans. Check the current version of the legislation to see if these clauses are still included.
On a lighter note, this issue also features an interesting interview with Richard Thaler. Approximately four weeks after Computerized Investing editor Jaclyn McClellan and I sat down with Thaler, he was awarded the Nobel Prize in economics for his work in behavioral finance. We discussed his insights into what influences the decisions people make. Be sure to check out the bonus audio at the end of the interview.
On behalf of everyone at AAII, I wish you a Merry Christmas, a Happy Hanukkah and a very prosperous and healthy new year.
Charles Rotblut, CFA
Editor, AAII Journal