2025 Social Security Changes
Next year, Social Security recipients will receive one of the smallest increases in several years, with benefits increasing by 2.5%. If you are still working and reach full retirement age (FRA) in 2025 but claim benefits before that age, you can make $62,160 without having any Social Security payments withheld. Those who reach FRA after 2025 and claim benefits early can earn up to $23,400 before having some benefits withheld. For workers, the wage base increases by $7,500 to $176,100. All tax rates remain the same for employees, employers and self-employed.
AI and Robots = Productivity and Growth
While Artificial Intelligence is used for everything from answering simple questions on the internet to self-driving cars, its greatest use may come from teaching robots to do human things. Robotics in manufacturing has been around for a long time, but many tasks have, up to now, been too delicate for robots to perform. However, that may soon change as AI learns some of these tasks from humans. While this could lead to the loss of some jobs, it will increase productivity, adding to economic growth, which will be imperative for the U.S. economy to grow at a greater rate than 3%.
Qualified Charitable Deduction Increased
If you are over 70 ½ and looking to give money to charity, one of the most tax-efficient ways to make a donation is to withdraw funds from your IRA, via the use of a Qualified Charitable Deduction. If you need to take Required Minimum Distributions (RMD), the QCD qualifies as part or all your RMD. When this provision first came about, it was pegged at $100,000. A few years ago, Congress decided to adjust the amount for inflation. In 2024, the amount is $105,000, increasing to $108,000 in 2025. Additionally, leaving retirement plan assets at death to a charity avoids income taxes and estate taxes. If you want to learn more, give us a call.
Want to Sell/Buy a Home?
It is a frustrating time for both sellers and buyers in the housing market. While many owners would like to move to upgrade or relocate, they are reluctant to give up a mortgage under 4% to get a mortgage over 6%. Potential buyers grow frustrated by limited inventory, especially when there are so many all-cash buyers.
Though it remains a seller’s market, it is taking longer to sell a home, and as a result, some discounts occur, though not rampant. Home prices will likely continue increasing in the coming year, but not nearly as quickly as in the past few years. Homebuilders find that there is a market for new inventory, but they are having to make concessions. All in all, the market will not be robust again until interest rates get below 6%, which is not likely to occur until late next year at the earliest.
Florida Community Property Trust: A Way to Maximize Tax Savings for Married Couples
In 2021, Florida introduced the Community Property Trust (CPT) to help married couples gain potential tax benefits. By classifying assets as “community property” through this trust, couples may reduce capital gains taxes on asset sales after one spouse’s passing. Though Florida is not a community property state, the CPT mimics the advantages found in community property states like Texas or California.
Like other common-law states, Florida does not typically offer community property tax benefits. However, the new CPT option allows Florida couples to treat assets as community property. The primary advantage lies in the “double step-up in basis” provision. Typically, in Florida, only the deceased spouse’s portion of jointly owned property receives a step-up in basis, leaving the surviving spouse potentially liable for capital gains on their half of the asset’s value. With a CPT, both spouses’ portions of the asset receive a full step-up to the current market value, potentially allowing the surviving spouse to sell the asset with minimal capital gains tax and substantial tax savings.
The CPT also simplifies estate planning by allowing couples to manage and distribute assets more efficiently, potentially reducing the tax burden for beneficiaries. This option may also appeal to couples moving to Florida from community property states, as it enables them to maintain similar tax advantages.
Despite these benefits, the CPT isn’t ideal for everyone. Assets held in a CPT may lack the creditor protection afforded by other types of ownership, such as tenants by the entirety, a common arrangement for married couples in Florida. In the CPT structure, creditors of one spouse may be able to access assets, unlike assets held as tenants by the entirety, which are generally protected from individual creditors. Additionally, the IRS has not yet issued clear guidance on the tax treatment of CPTs, so there is some uncertainty about whether the anticipated tax benefits will be fully honored.
For couples who keep their assets separate, the CPT may not align with their goals because these assets are classified as marital property and subject to division in a divorce.
The trust must include specific language identifying it as a Community Property Trust to establish a legally binding CPT in Florida. Additionally, at least one trustee must be based in Florida (or be a corporate trustee authorized to act within the state), and both spouses must sign the agreement.
For some couples, a CPT can be a strategic way to optimize asset management and tax efficiency. However, given the nuances of creditor protection, divorce considerations, and tax uncertainties, consulting an estate planning attorney and financial advisor is essential to determine if a Florida Community Property Trust aligns with your unique financial situation and goals.
Sources:
- Florida Bar Journal, “Understanding the New Florida Community Property Trust,” floridabar.org
- DHC Law, “What is a Florida Community Property Trust?”, dhclaw.com
- Comiter, Singer, Baseman & Braun, LLP, “Florida Community Property Trusts Explained,” comitersinger.com
- Gould Cooksey Fennell, “Florida Community Property Trusts: Legal and Tax Issues,” gouldcooksey.com
Sector Spotlight Series: Consumer Discretionary
This month’s edition of the Sector Spotlight Series covers the consumer discretionary sector of the stock market. The sector has a broad range of stocks, including innovative companies with potential growth prospects, such as Airbnb (ABNB) and Carvana (CVNA), as well as companies in more mature firms like McDonald’s (MCD) and Home Depot (HD).
These stocks like to ride the waves of the economy and are sensitive to changes in the economic cycle and consumer confidence. If the economy expands, consumers will have more disposable income to spend on non-essential items like cars, vacations, and entertainment. On the flip side, if the economy is contracting, consumer confidence falls and consumers spend less on non-essential items, impeding the sales growth of consumer discretionary stocks.
Consumer discretionary stocks typically exhibit greater volatility than defensive stocks but incorporating them into a portfolio can offer exposure to companies that thrive during economic expansions. Because consumer discretionary stocks tend to outperform the market in expansionary economic environments, they pair well with less volatile stocks and bonds, adding higher growth potential and diversification to a portfolio. Overall, the performance of consumer discretionary stocks depends on consumer spending patterns, but they can be the superstar in your portfolio when the economy is booming. If you want to expand your knowledge of the different stock market sectors, keep an eye out next month for the Sector Spotlight on communication services.
Carrying on the Tradition at Provise
Up Your Assets™ Podcast Begins
We are excited to announce a new podcast hosted by Ray Ferrara, CFP®, Founder and Executive Chair of ProVise entitled Up Your Assets™. In this edition, Ray interviews David Yeske, CFP® and Yusuf Abugideiri, CFP®, as they explore the market’s reaction to past presidential elections and the impact (or lack thereof) that past presidents have had on the overall market and economy. Click the link below of your preferred listening source and please let us know what you think. We want your feedback. Just drop us a note at ferrara@provise.com. Please enjoy.
- Spotify:https://open.spotify.com/episode/7pZ96bwU4VjN50Dul714SE?si=7154119065e9404b
- YouTube: https://youtu.be/nP_u9gS0NgQ?si=LK6WMRYBxSqY37v1
- Apple: https://podcasts.apple.com/ca/podcast/up-your-assets/id1779355462 (Audio Only)
Recent Comments