Displaying items by tag: taxes

(Washington)

RIAs are furious about one aspect of the broader tax package passed last month. That is the way the government puts limits on the amount of income and type of entity that can use the new lower tax rate for pass through entities. RIAs say the new rules discriminate against RIAs that are not set up as C Corps. There is already a major movement to get the rule changed being led by Savant Capital Management. “We believe RIAs deserve the same tax treatment as other business owners” says TD Ameritrade.

FINSUM: We noticed before the new package got passed that it seemed to very deliberately exclude some sectors. Hard to judge the chances of this push succeeding.

(New York)

Goldman Sachs just reported its first quarterly loss since 2011. The good news is that the loss does not mean the sky is falling in on investment banking or the markets. The loss was because of a huge $4.4 bn tax charge the company took in advance of the new tax regime for this year. Aside form the tax charge, Goldman’s business looked solid, with higher overall revenue and pre-tax margins in 2017. The one sore spot was bond trading, which produced only $1 bn of revenue.

FINSUM: The fall in bond trading revenue at GS has been prolific. In 2009 the firm created $23 bn of revenue in FICC trading. In 2017 revenues were just $5.3bn.

(Washington)

Advisors need to pay very close attention to what states are doing on taxes. As might have been expected, states with high taxes are working hard to come up with solutions that protect their residents from the higher payouts trying to be imposed by the federal government. The new tax package limits state and local deductions (“SALT”) to just $10,000, which means much higher tax bills for residents of higher tax states. While New York is preparing to sue the federal government over the changes, California has already come up with what looks like a good solution. Residents of the state can simply donate to the “California Excellence Fund” instead pf paying taxes, as such a charitable gift is deductible in the new federal package.

FINSUM: New York may also use the same plan as California is using. All the states seem likely to do this. What a big waste of time and energy because of a silly rule.

(New York)

Consider this a warning shot across the bow on a piece of information that no one seems to see coming. The Wall Street Journal has put out a piece saying that fourth quarter earnings season, set to start soon, is going to be miserable. The reason why is that many companies are going to intentionally incur some huge expenses as occurring in the fourth quarter as a way to take best advantage of the new tax regime being brought in during 2018. This will heavily cut into fourth quarter profits, leaving some very ugly numbers.

FINSUM: The piece says this is going to be the weirdest earnings season in years, and that seems right as these losses are somewhat artificial. However, it is never good to have some very poor numbers come out, which could lead to some short-term misunderstandings and volatility.