Hope everyone had a great Thanksgiving holiday and, for the 99% of Pennsylvania males (not me) who hunt deer, hope you score a ten-point buck this season.
I'm intentionally ignoring the stock market tumult this week. As I mentioned recently, we feel good about the US economy, but the trade war stuff could cause market trouble. Sure enough, Trump's "I'm the tariff man" tweet this week caused a major market sell-off
Our outlook remains the same: If the US reaches a trade détente with China we'll likely see another market rally; if not, a serious stock market slump is likely. Stay invested.
Maybe because I was raised amongst the Virginia battlefields, ever since I was a kid I've had a keen interest in the Civil War. Heck, I'm almost known by first name in Gettysburg.
One of the most bizarre events during the war was "The Battle of the Crater", which occurred in July 1864 during of the siege at Petersburg, Virginia. I've read about the Crater for nearly fifty years and, thanks to dear friends, I finally had a chance to tour the Petersburg battlefield and see it over the Thanksgiving holiday.
Some backdrop. After assuming control of the Army of the Potomac, US Grant went on the offensive to finally destroy Robert E. Lee's Army of Northern Virginia through attrition. He launched several frontal attacks trying to capture Richmond but was rebuffed each time. A final effort to capture Richmond stalled at Petersburg and a grueling, nine-month siege ensued.
Early in the siege, a regiment of enterprising Pennsylvania coal miners – who else? - devised a creative way to break through the thin Confederate defensive lines. They convinced a skeptical Grant and his military brass to allow them to hand dig a tunnel under the confederate lines and blow them to smithereens.
When completed a month later, the tunnel was a 3 x 4.5 foot bore and over five-hundred feet long! It took only a month to dig, with solders removing dirt with buckets and rudimentary sleds. See below the picture that I took of the tunnel entrance.
At 4:45 in the morning on July 30th, 1864, eight thousand pounds of gunpowder stuffed into the tunnel was ignited, causing a massive explosion, instantly killing nearly 300 rebel soldiers and creating an earthen crater thirty feet deep, 80 feet wide and 110 feet long. The first leg of the plan had worked: a two-hundred foot gap in the rebel lines was created.
However, inept Union military leadership led to a horrific debacle. Instead of following the plan to attack around the crater, Union troops were led straight into it. The stunned Confederates recovered, counter-attacked and then slaughtered the Union troops trapped in the giant hole in what was later referred to as a "turkey shoot".
Grant referred to the failed Crater assault as "the saddest affair I have witnessed in this war".
The siege lasted another nine months and the botched Crater initiative wasted chance to end the war nearly a year sooner.
Petersburg is a beautiful, well-preserved park and worthy of a visit, even for non-geeks.
Since we are in the home stretch of 2018, let me offer a final reminder about the significant changes to the federal income tax law that took effect this year and a couple tax planning pointers.
· The media is now rightly buzzing about the new limitation on state and local tax itemized ("SALT") deductions.
Starting in 2018, taxpayers that itemize their deductions cannot deduct more than $10,000 of SALT taxes. This weird limitation was politically motivated and contains a marriage penalty since an individual taxpayer gets the same deduction as a married couple even through the couple's income is taxed jointly. The impact will be a tax increase for many folks.
· An offset to the SALT limitation is a doubling of the standard deduction. The standard deduction is now $12,000, $24,000 for married couples. I read that before 2018 about thirty-percent of US taxpayers itemized deductions; that percentage is predicted to drop to just 10% with the new standard deduction, which could lead to a nice tax savings for some.
· One of the unintended casualties of the tax law could be less charitable giving. Like it or not, a key motivator for charitable giving in December is tax motivated. A real, perhaps existential concern for some not-for-profits is the prospect of a material drop in charitable giving if the taxpayer no longer itemizes deductions.
I recommend you still write those checks to your favorite charities this month, even upping the amount to help offset the lost tax-motivated giving.
· Interest on home equity mortgage debt is no longer deductible unless the debt is/was used for home improvements. The cost of home equity debt just went up.
· All personal exemptions are now eliminated. If you have dependent children, it will be negated with a liberal child credit. For the rest of us, lost personal exemptions will mean a tax increase.
· Personal income tax rates have been modestly lowered for 2018. The 15% bracket was reduced to 12%, the top rate was lowered from 39.6% to 37% and the taxable income bands were widened, all of which means a slight tax cut.
· Some good news: The alternative minimum tax was not eliminated, but it was so emasculated it will no longer be a factor for all but the 0.1%.
· Note the penalty for not purchasing health insurance that meets minimum federal standards is eliminated starting in 2019, not 2018.
· Capital gain tax law remained unchanged, so think about selling investments taking it on the chin this quarter and book a capital loss. Up to $3,000 of losses can be deducted against any income source if married ($1,500 for singles). Losses above that threshold can still be netted against gains to reduce capital gain tax as well.
As always, run your tax planning moves past your tax professional first. Now it's time to sign off and get back to the December bustle.
Until next time, be well….Tim.
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