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Washington Update

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March 21, 2018

One Good Reason to Review Your Estate Plans Now

THE 2017 TAX LAW DOUBLED the federal estate tax exemption to $22.36 million for couples and $11.18 million for individuals, shielding all but the wealthiest Americans from federal estate taxes. But that larger exemption (which also applies to gift and generation-skipping transfer taxes) expires in 2025, after which the exemptions will drop by about half unless Congress extends them.

Given the temporary nature of this exemption, now might be a very good time to review existing planning documents, such as wills and trusts, to make sure there are no unintended consequences. That’s the recommendation of a new “Wealth Strategy Report: Estate Planning After the 2017 Tax Act,” from the National Wealth Planning Strategies Group.

The new report examines a wide range of scenarios, taking into account how issues such as capital gains and state taxes could affect your estate planning decisions.

Use the report as a guide to discussions you may want to have with your tax, legal and financial advisors. Consider what combination of gifts, credit shelter trusts, and other approaches could help you pass along your wealth to loved ones as tax efficiently as possible—and whether a gift now or a bequest later might make more sense.

The new report examines a wide range of scenarios, taking into account how issues such as capital gains and state taxes could affect your estate planning decisions. These hypothetical scenarios could help drive a conversation with your team about what’s best for your unique situation.

To learn more about how the new tax law could affect your personal estate planning, download “Estate Planning After the 2017 Tax Act” here.

March 15, 2018

Will Your Business Qualify for the New 20% Deduction?

MANY SMALL BUSINESS OWNERS RECEIVED WELCOME NEWS in the new tax bill: the opportunity to deduct 20% of qualified business income from their federal taxes. As simple as that sounds, the small business provisions contain numerous exceptions, are among the most complex parts of the bill, and need to be studied carefully.

As a business owner, you can get a better idea of where you stand by reading the new report from our Chief Investment Office, “Business Income from Pass-Through Entities: The New 20% Deduction,” which offers a detailed, step-by-step analysis along with some possible actions to consider.

The law limits that 20 percent business deduction for what it terms “service businesses”—legal and medical practices, accountants, consultants and others.

Generally, the 20 percent deduction applies to sole proprietors, S corporations, LLCs and other “pass-through” businesses whose owners pay taxes on personal income rather than as corporate taxes. (Even with the business deduction, you still get the personal deductions—standard or itemized—that other taxpayers receive.)

Among the complications: the law limits that 20 percent business deduction for what it terms “service businesses”—legal and medical practices, accountants, consultants and others. For those businesses, after certain income thresholds, the deduction decreases or disappears entirely. If your income stream is flexible, accelerating deductions or deferring income in a given year could help you qualify for the full or partial deduction, the report suggests.

You’ll also find analyses of other complex rules regarding partnerships, Real Estate Investment Trusts and other issues. Use this report as the basis for detailed discussions with your tax specialist—a must before making any tax decisions. Then, speak with your advisor about how the law might affect your business and personal financial goals.

For insights on taxes and your small business, download “Business Income from Pass-Through Entities: The New 20% Deduction”.

January 26, 2018

Washington and The Economy: Beyond the Shutdown

All eyes seem to be on Washington these days. The federal government reopened on January 22 after a weekend shutdown, and Congress now has until February 8 to agree upon a budget or possibly shut down all over again. If you're wondering how government actions might affect the economy and financial markets in 2018, it's important to look beyond the shutdown drama, says Chris Hyzy, Chief Investment Officer for Bank of America Global Wealth & Investment Management.

Shutdowns, while unsettling, tend to have little lasting impact, according to research by our Chief Investment Office (CIO). For some fascinating historical perspective on past government shutdowns, read this CIO Investment Insights, written just prior to the last shutdown. And in the event of another one, keep in mind that Social Security, Medicare, defense and other services deemed essential to people's lives and safety, will remain open regardless.

Government policies, ranging from taxes to international trade, will more likely help to shape the economy in 2018, says Hyzy. In a new CIO video, "2018 Year Ahead: Taxes, the Economy and Where to Look for Growth," he outlines some key points to consider. Watch the video here, and then visit our Outlook 2018 page for more market insights.

2018 Year Ahead: Taxes, the Economy And Where to Look for Growth With Christopher Hyzy

Chief Investment Officer Bank of America Global Wealth & Investment Management

Please see important information at the end of this program. Filmed on January 10, 2018

Hello I’m Chris Hyzy. As we begin to work through 2018, I wanted to share some thoughts about the markets, the economy and the impact we think the recent Tax Reform Bill might have on your portfolio.


Our Outlook for 2018

  • Global expansion strengthens

First of all, the broad global expansion that began last year should continue to strengthen in 2018. Developed countries and emerging markets alike should benefit from healthy consumer spending and a pick-up in capital investment by businesses. As this point in the cycle, this should lead to increased productivity and accelerating wage growth in many economies.


Our Outlook for 2018

  • Global expansion strengthens
  • Solid profits picture continues

The solid corporate profits picture should also continue, and we’re projecting another year of double digit earnings per share growth (on average) for companies around the world.

[LOWER 3rd] ]

Lower U.S. corporate tax rate should boost growth in corporate earnings and gross domestic product.

In the U.S., the new lower corporate tax rate should help earnings growth approach the mid-teens and give at least a short-term boost to real gross domestic product growth. And the reduced tax rate for foreign earnings should encourage many U.S. companies to repatriate much of the total 1.7 trillion dollars in cash they currently hold overseas.

Some industries and sectors should benefit from the new tax law more than others. So it will be important to be selective in how you invest this year.


Our Outlook for 2018

  • Global expansion strengthens
  • Solid profits picture continues
  • Financial conditions remain attractive

We think financial conditions will also remain attractive. And that should support areas like housing, particularly among Millennials who are benefitting from rising wages and continued low interest rates. A stable dollar should allow emerging markets to remain a major tailwind to world growth.


Our Outlook for 2018

  • Global expansion strengthens
  • Solid profits picture continues
  • Financial conditions remain attractive
  • Innovation cycle enters a new phase

In addition, the global innovation cycle we’ve been in for several years could be entering an entire new phase. This should unlock new growth opportunities in a variety of areas, such as healthcare, smart infrastructure, the internet of things, a new cloud architecture, robotics and other sectors that are being transformed by new technologies.

We do also see some risks that investors should be aware of too:


Risks for 2018: Potential for a higher-than-expected rise in inflation.

First off, the strong economy, rising commodity prices and labor shortages could lead to a higher-than-expected rise in inflation. That could quicken the pace of interest rates hikes here in the U.S. and eventually in Europe, and this could have a direct impact on the markets especially the bond market.


Risks for 2018: Geopolitical tensions and policy uncertainty in Washington.

We could also see an increase in geopolitical tensions, such as in the Middle East and North Korea. And policy uncertainty in Washington particularly around trade and the midterm elections later this year could also present risks.


Risks for 2018: Possible return of market volatility.

Finally, after an unusual period of calm in 2017, we could see a return of some market volatility. However, we continue to believe that any weakness in equities would represent an opportunity for investors to buy stocks at more attractive prices given the strength of global corporate profits and attractive financial conditions.

[LOWER 3rd] ]

Rebalancing and portfolio diversification will be important for investors in 2018.

These and other potential risks mean that regular rebalancing and portfolio diversification will be even more important in the coming year.

In sum:


Our Outlook for 2018

  • Preference for stocks over bonds
  • Emerging Markets and large-cap U.S. multinationals look attractive
  • Technology, healthcare and financials could offer growth and value
  • Preference for high-quality corporate and municipal bonds over Treasuries and high-yield

We maintain our preference for stocks over bonds; and believe that non-U.S equities particularly emerging markets, as well as large-cap U.S. multinationals, offer solid growth opportunities.

Within sectors, we believe technology, healthcare and financials offer investors good long-term growth and value.

In fixed income—which remains an important part of portfolios, despite higher rates—we suggest investors consider high-quality corporate and municipal bonds, over U.S. Treasuries and high yield bonds.

Be sure that whatever changes you make to your investment strategy, they are built around your own financial goals, risk tolerance and life priorities. Thanks for watching.


Information as of 1/10/2018.

Investing involves risk, including possible loss of principal. Asset allocation, diversification and rebalancing do not ensure a profit or protect against loss in declining markets.

Merrill Lynch does not provide legal or tax advice. We recommend that you consult with your lawyer, accountant or other advisor about questions affecting your individual circumstances.

This material does not take into account your particular investment objectives, financial situations or needs and is not intended as a recommendation, offer or solicitation for the purchase or sale of any security, financial instrument, or strategy. Before acting on any information in this material, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. Any opinions expressed herein are given in good faith, are subject to change without notice, and are only correct as of the stated date of their issue.

Equity securities are subject to stock market fluctuations that occur in response to economic and business developments. Investments focused in a certain industry may pose additional risks due to lack of diversification, industry volatility, economic turmoil, susceptibility to economic, political or regulatory risks and other sector concentration risks. Investing in fixed-income securities may involve certain risks, including the credit quality of individual issuers, possible prepayments, market or economic developments and yields and share price fluctuations due to changes in interest rates. When interest rates go up, bond prices typically drop, and vice versa.

Income from investing in municipal bonds is generally exempt from Federal and state taxes for residents of the issuing state. While the interest income is tax-exempt, any capital gains distributed are taxable to the investor. Income for some investors may be subject to the Federal Alternative Minimum Tax (AMT). Investments in high-yield bonds (sometimes referred to as “junk bonds”) offer the potential for high current income and attractive total return, but involves certain risks.

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January 22, 2018

Tax Reform Melt-up

All through 2017, a constant question was "how much of the prospective tax reform package is already priced in the equity market?" Answering that question with confidence was difficult. For one thing, there were a wide variety of views about the likelihood, if any, of tax reform making it through the legislative sausage-making machine. Second, even if it did become law, there were a wide variety of views about what it would ultimately look like. Two things now seem apparent with the benefit of hindsight: (1) there was a significant body of opinion that doubted a bill would emerge from the contentious legislative process and (2) even those who believed tax reform would happen felt it would be watered down from the ambitious initial proposals. For example, even optimists felt the corporate tax rate was more likely to end up around 25% rather than the 21% that ultimately prevailed. They believed the higher 25% rate would be necessary to offset revenue losses from personal tax cuts.

To learn more, click here.

January 4, 2018

Note to self: Review Investments Now that Tax Reforms is Law

THE NEW TAX LAW THAT KICKED IN ON JANUARY 1 could affect more than your personal taxes; it just might cause you to rethink your investments. At the very least, make it a topic of conversation with your tax professional and advisor in the coming weeks, suggests the Chief Investment Office (CIO). According to the CIO, the new 21% corporate tax rate (down from 35%) could add momentum to an economy already seeing higher consumer confidence and spending, private investment, and low energy prices, creating potential winners (and losers) along the way.

To help you better understand these forces, the CIO team offers a detailed analysis of how the new tax law could affect various sectors, along with 30 points investors should consider for 2018 and beyond. Among the CIO team's observations:

  • With a reduced tax rate for foreign earnings, U.S. companies are expected to repatriate much of the $1.7 trillion in cash they currently hold overseas. That, combined with a provision enabling companies to expense 100% of their capital spending for the next five years, could lead to a wave of corporate expansion projects. Such projects could benefit industrial and infrastructure-related companies.
  • U.S. consumers, many of whom will pay lower income taxes starting this year, may be more inclined to spend—directly benefiting retail grocers and other consumer-related companies. Technology and financial companies could benefit as well.
  • Yet not all sectors of the economy may benefit, and strong economic growth could lead to a rise in volatility, which underscores the need to diversify your portfolio, the CIO team believes.

Read the CIO team's latest Investment Insights report, "Tax Reform and Year-Ahead Thoughts," and then speak with your tax professional and advisor about how the new tax law could inform your investment decisions in the New Year.

For a deeper dive on the economic and investment implications of the new tax law, download the latest Investment Insights.

December 22, 2018

The Tax Bill is Signed. Here's a Guide to What's In— and Out

TODAY, THE PRESIDENT SIGNED INTO LAW the most sweeping revision of the U.S. tax code in decades. The new legislation should take effect immediately and may influence almost every area of your financial life, from the amount withheld from your paycheck to decisions about where you live and how you plan for your children's education or your own retirement. Because of that, it's important to understand the provisions contained within it.

The latest Tax Bulletin from the Chief Investment Office provides a guide to key changes in the tax law that may impact your life. Use it to help inform conversations with your tax professional and advisor about the best ways to respond to the new legislation and prepare yourself and your family for the year ahead.

For a detailed analysis of the new tax legislation—and some insights on what it might mean for you—download the latest Tax Bulletin.

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