Monthly Archives: January 2018

Financial Fact | Selling Your Home? Don’t Miss Out On These Tax Exemptions

January 29, 2018

Are you planning to sell your main home for more than its initial purchase price? 
Have you owned your primary residence for at least two years?

If so, you may qualify for an IRS exemption that can reduce the amount of taxes you pay on the sale or exchange of your home.


Selling Your Home and the Capital Gains Tax Exemption

Whenever you have an asset that you sell for more than its initial purchase price, you have a capital gain and are usually responsible for paying taxes on the asset’s growth. However, the IRS has provided an exemption that applies to the sale of your primary residence, which states the following:  


If you are a single individual, you can exclude up to $250,000 of gain on the sale or exchange of your main home.

If you are married and filing jointly, you can exclude up to $500,000 of gain on the sale or exchange of your main home.  


For example, consider that you are single and purchased your home for $300,000.  If you sell your residence for $600,000, you will only be required to pay a capital gains tax on $50,000 of your asset’s gain (refer to the chart pictured above). 


What does the IRS define as a Primary Residence/Main Home?

For a residence to qualify as your main home, you must have owned and used it as your main home for at least two of the last five years before the date of the sale. Additionally, you cannot have claimed an exclusion for the sale of a previous home within the last two years from the date of the sale.


Remodeling Your Home May Increase Its Purchase Price and Decrease Your Taxes

Another thing to consider when selling your home is to review the improvements and remodeling you have performed on the structure since its purchase.  


If you have an older home, you have likely remodeled or replaced aging infrastructure, such as new plumbing or a new roof. Such major expenditures may increase the cost basis of your house and potentially reduce the portion of your home sale that is subject to taxation. However, the IRS has specific rules that distinguish expenditures that only count as repairs from those that increase the cost basis of the home.


If you are planning to sell your main home, please consult with your tax advisor to see if you can qualify for capital gains relief before taking action. For more information, or to set up a free consultation, please contact a member of the WJA team.



Willis Johnson & Associates is a registered investment advisor. Information presented on Portfolio Updates is informational and educational for specific clients of Willis Johnson & Associates. It should not be considered specific investment advice, does not take into consideration your specific situation, and does not intend to make an offer or solicitation for the sale or purchase of any securities or investment strategies. Investments involve risk and are not guaranteed. Be sure to consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed herein. Insurance products and services are offered or sold through individually licensed and appointed agents in various jurisdictions. 



Jason Mishaw, Associate Wealth Managers,Jason Mishaw, MSF



As an associate wealth manager at Willis Johnson & Associates, Jason Mishaw is actively involved in both the Financial Planning role and the Investment Management role. On the financial planning side, he helps to implement customized financial plans for WJA clients. On the Investment Management side, under the supervision of a Senior Wealth Manager, he assesses the financial goals of WJA clients and assists in creating a customized strategy to further those goals.


Jason received a Master of Science in Finance at the University of Houston C.T. Bauer College of Business, a B.A. in economics and a B.S. in biochemistry and cell biology from Rice University.


Thoughts From Willis | Building Our Library With You In Mind

January 19, 2018

Throughout 2017, Willis Johnson & Associates worked to expand our online library of educational resources and share this information with corporate professionals and executives.

As you take on 2018, it’s important you reflect on what you’ve learned over the past year, which is why I’d like to take a moment to revisit some of our previously published content that I believe can provide value as you continue your financial journey.



The articles listed below offer a variety of technical and conceptual content that serve to address the main concerns and interests of our readers. Whether you’re looking for guidance when selecting a financial advisor, understanding your investment options, assessing market activity, or even something as specific as handling the financial aspects of one’s Hurricane Harvey recovery, the following articles may be of use to you.


The WJA team will continue to build our educational library around these topics to help our readers deepen their understanding of their financial planning needs and options. Please let us know if there’s something else you’d like to see us write about in 2018! If you have any questions, contact a member of the WJA team and we will work to provide you with the information you need. Click on the links below to explore our most popular educational content of 2017. 



President and CEO, CFP®
Willis Johnson 


 (Your 2017 Favorites) 

What Nick’s Reading | Tax Cuts & Jobs Act: The Basics

What Nick’s Reading | How to Compare: Roth Contribution vs. Roth Conversion vs. Roth Re-Characterization

What Nick’s Reading | Sequence of Return Risk

Thoughts From Willis | Filling Your Grain Elevator: Storing Your Profits for the Years Ahead

What Nick’s Reading | 401(k) Loans vs. Home Equity Loans: The Real Cost of Borrowing from Your 401(k)

What Nick’s Reading | P/E Ratios Predict Long-Term Returns

Financial Fact | Exchange Traded Funds vs. Mutual Funds: What You Need To Know

Financial Fact | Do You Have a Non-Qualified Retirement Plan?

Thoughts From Willis | What it Means to Have a Proactive Versus a Reactive Advisor

Financial Fact | How to Make the Most of Your Hurricane Harvey Property Loss Deductions

Financial Fact | Net Unrealized Appreciation

Thoughts From Willis | Remembering Black Monday: What We Can Learn From the 1987 Market Crash

What Nick’s Reading | State Income Tax May Impact Where You Buy Your Retirement Home

Thoughts From Willis | A Guide for Your 1st Meeting With a Financial Advisor: What to Expect



Willis Johnson & Associates is a registered investment advisor. Information presented is for educational purposes only. It should not be considered specific investment advice, does not take into consideration your specific situation, and does not intend to make an offer or solicitation for the sale or purchase of any securities or investment strategies. Investments involve risk and are not guaranteed. Be sure to consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed herein.

Financial Fact | Solo 401(k)s and Your Contribution Strategy

January 16, 2018

Are you still consulting even though you’re “retired?”
Have you considered saving any of your self-employment income in tax-deferred retirement accounts?

If this sounds familiar, it might be beneficial to consider contributing to a Solo 401(k).


What is a Solo 401(k)?

A “solo 401(k),”or “Keogh defined contribution plan,” is meant for those self-employed individuals who are running a business where they are the sole employee.   


The business owner, or self-employed individual, functions as both the employee AND the employer. Therefore, he or she can make contributions to a solo 401(k) in both capacities.


a)  As an “employee,” one can make elective deferrals of up to the lesser of 100% of compensation or the annual limit.* 

b)  As an “employer,” one can make profit-sharing contributions of up to 20% of their net adjusted business profit.**

*For the 2017 tax year, this limit is $18,000 for those under age 50, and $24,000 for those over age 50
**This is one’s net self-employment income after expenses and deductions, with self-employment taxes accounted for. 

How to Determine an Appropriate Solo 401(k) and Profit-Sharing Contribution


Let’s walk through an example of how you can determine the appropriate profit-sharing contribution for your situation. Consider that you’re a sole proprietor who earned $100,000 after the deduction of business expenses.


In the situation outlined on the right, you could allocate nearly half of your yearly earnings to a tax-deferred retirement account. 


Compared to other tax-deferred plans available, the solo 401(k) plan often allows the most funds to be contributed for a self-employed person. 


An SEP (Simplified Employee Pension) IRA allows for a contribution of the lesser of 25% of compensation or $54,000 if under 50 or $60,000 if over 50 (for 2017). So, in the situation outlined in the graphs on the right, the sole proprietor would only be able to put away $25,000 instead of $42,587.  A Traditional IRA allows for a contribution of $5,500 (under 50) or $6,500 (over 50).  


Solo 401(k) Dates to Remember

If you’re considering a solo 401(k) to help save for your retirement, you should remember the following dates:


a) You can make contributions to a solo 401(k) for the 2017 tax year before you file your tax return as long as you opened the solo 401(k) plan before December 31, 2017.

b) If you are consulting in 2018 and are interested in contributing to a solo 401(k), it’s pertinent to open the plan before December 31, 2018.*

*For 2018, the employee contribution has increased up to $18,500 for individuals under age 50, and up to $24,500 for individuals over age 50. 


Even when you’re technically ‘retired,’ solo 401(k)s can enable you to take advantage of tax deductions and deferrals as you continue to cushion your nest egg for the years to come. If you would like to learn more about solo 401(k)s, you can contact a member of the WJA team for additional information.



The information provided is not intended to be a substitute for specific individualized tax, legal or estate planning advice. Individual situations will vary. We can assist you in making informed decisions. No single solution meets all investor’s needs. Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. 
Willis Johnson & Associates is a registered investment advisor. Insurance and additional investment advisory services offered through Willis Johnson & Associates, a registered investment advisor.
Willis Johnson & Associates does not offer tax or legal advice.



Alexis Long, MBA, CFP®



Alexis Long is a wealth manager at Willis Johnson & Associates. For Alexis, financial planning combines an interest in producing detail-oriented financial plans with a desire to help people obtain their goals, ranging from retiring early, paying for their grandchildren’s educations, buying a second home or leaving a legacy for their children. Understanding what is truly important to a client is key to good financial planning, along with providing solid technical advice.


Alexis earned her undergraduate degree in International Business from Texas Tech University and her Finance M.B.A. from the University of St. Thomas.



Tax Cuts & Jobs Act: The Basics

January 9, 2018

After much negotiation, and many compromises, the GOP has passed the final tax reform plan, which looks quite a bit different than the simplified version Trump and Ryan were pushing for in early 2017.

In the end, the GOP did succeed in lowering both corporate and personal rates, but it did not simplify tax rules for Americans.



Instead, the revised tax code will complicate financial planning for individuals going forward. Financial advisors will require a thorough understanding of the changes implemented in order to help individuals create or alter their long-term financial plans.

2018 Tax Reform: Personal Tax Rates

Yes, personal tax rate reductions were put in place and most households should see a tax decrease, however there are some exceptions. It’s also important to note that personal tax rate reductions are not permanent and will be subject to Sunset Provisions.


The Sunset Provision only allows Senate legislation to be passed with a simple majority if it does not result in net tax cuts beyond a 10-year period (otherwise, it requires 60 votes to prevent a legislation-stopping filibuster). Republicans had to allow Sunset Provisions into law since they did not have enough votes to prevent a filibuster in the Senate. However, many Republicans anticipate that they will eventually be able to make the rules permanent, because when the 10 years are up, the “fiscal cliff” it creates may compel Congress to act to prevent a tax increase. (This is similar to how the sunset provisions of President Bush’s tax cuts were ultimately made permanent).


Want to get an idea of how it will affect you? CNN put out a fairly robust tax calculator that does a reasonable job estimating your change in after-tax income.


2018 Tax Reform: Corporate Tax Rates

Unlike personal tax changes, corporate tax rate reductions are permanent. In addition, the rules for corporate tax rates (especially pass-through entities) are quite complex and we are expecting many to focus in on loopholes to game the system going forward. Though, not a focus of this article, if you own a small business, are a consultant, or receive pass-through income, we highly recommend you speak with a tax advisor to discuss strategies going forward.


Tax Brackets

Individuals will still face seven tax brackets, on top of the Alternative Minimum Tax (AMT), which the GOP was unable to do away with despite it being one of their goals going into reform. The final tax brackets under the GOP Tax Plan, though, followed the original Senate proposal, which retained our existing seven tax brackets, and simply trimmed (most of) the tax brackets by a few points. In the end, the Tax Cuts & Job Acts (TCJA) official tax brackets will be 10%, 12%, 22%, 24%, 32%, 35%, and a top rate of 37%, and will remain in place until the end of 2025, when they will sunset.


While tax reform is estimated to create savings for most households, wealthier households are expected to receive a larger percentage of positive change in their after-tax income. Likewise, in an attempt to reduce the impact of the marriage penalty, married couples generally receive more of the benefit compared to individuals (unless they earn over $600,000). This can best be seen in the comparison of marginal rates between the old law and the new. See the chart below from


tax bracket graph-kitces


There are only a small number of married households that will have a higher marginal rate; specifically a few households with income slightly above $400,000, whereas the majority of individual filers with incomes between $200,000 and the low $400,000s have a higher marginal rate.


It’s important to note, that just because a marginal rate at a certain income level is higher under tax reform, does not mean taxes paid are actually higher. Remember it’s the effective tax rate that matters and even if you are paying a higher marginal rate of 35% (vs 33%) at $250,000 of income, you had lower rates of 12%, 22%, and 24% (vs 15%, 25%, and 28%) at lower income brackets.


An important consideration going forward will be to optimize tax brackets given current and projected taxable income. For retirees, this will include when one should begin Social Security, receive distributions from insurance products (like variable annuities), and withdraw from pre-tax retirement accounts. Pre-retirees should consider whether additional deferrals should be placed in pre-tax or post-tax (Roth) retirement accounts given current and projected tax rates. For some households, low current tax rates may mean Roth deferrals are more attractive in an environment where rates are expected to go up in the future.


Standard Deductions

Standard deductions have almost doubled and the personal exemption has been removed with the new tax reform. Households will still be able to claim most deductions, but many are now limited. For example:


· A single filer’s deduction increases from $6,350 to $12,000.

· The deduction for Married and Joint Filers increases from $12,700 to $24,000.


The deduction increase is predicted to cause fewer people to itemize deductions, but they may miss out on the benefits bundled deductions can offer. Estimates are that 94 percent of taxpayers will take the standard deduction, which provides even more opportunity to bundle deductions in the future. And with a higher standard deduction, far fewer will itemize at all. As such, bundling deductions may become more and more important going forward. Overall, the strategy for bundling deductions will change and you will need to consult your tax advisor to determine the best strategy for bundling in the future.  


Many people will not be able to itemize every year. If charitably inclined, you may choose to bundle deductions using a Donor-Advised Fund, or DAF. Consider bundling deductions one year and taking the standard deduction the next. A DAF may allow you to maintain your effective charitable contributions, while still bundling your deductions.


Capital Gains

Before tax reform, the threshold for long-term capital gains (and qualified dividend) rates correlated with tax brackets. For instance, if you were in the 15%, 35%, or 39.6% marginal bracket or below, you paid a 0%, 15%, or 20% long term capital gains rate. In the new tax plan, the GOP moved the income levels for the tax brackets, but did not move the income levels for capital gains and qualified dividends. As a result, preferential capital gains and qualified dividend rates will no longer line up cleanly with the ordinary income tax brackets. See the chart from below.


capital gains graph-kitces


As such, it will be even more important going forward to complete tax planning for higher net worth households. Such individuals will need to choose (when possible) between filling up low tax bracket retirement years by receiving additional income from realized capital gains instead of implementing ordinary income from strategies like low-bracket Roth conversions, which will have more complex trade-offs going forward.


If you have any questions regarding the recent tax reform plan and how it may affect your financial future, consult your tax advisor or reach out to a member of the WJA team.


Willis Johnson & Associates is a registered investment advisor. Although this information has been gathered from sources believed to be reliable, it cannot be guaranteed. Federal tax laws are complex and subject to change. Willis Johnson & Associates does not offer tax or legal advice. As with all matters of a tax or legal nature, you should consult with your own tax or legal counsel for advice.


nickNick Johnson, CFA®, CFP®



Nick Johnson believes that financial planning is more than numbers on a balance sheet and a standardized process. People are unique and should be treated as such.


As Vice President and Wealth Manager at Willis Johnson & Associates, his goal is to really get to know his clients, all the while providing a proactive approach to comprehensive wealth management.




Market Update | The Markets (2017 Annual Review)

January 2, 2018

The year 2017 was eventful, to say the least. President Trump and Congress tried, without success, to repeal the Affordable Care Act, known as Obamacare. However, the new year-end tax law included the elimination of the individual health insurance mandate. The U.S. economy started slowly but picked up steam as the year progressed. Ten years after its onset, the financial crisis officially came to an end in 2017.




The gross domestic product expanded at an annual rate of 3.2% in the third quarter. The unemployment rate fell from 4.7% to 4.1%, while upwards of 2 million new jobs were added. The Federal Reserve, based on the strength of the economy and labor market, began to roll back its stimulus program and raised interest rates three times during the year.The stock market reached several historic highs in 2017. Consumer income rose and purchases increased, but inflation remained stubbornly below 2.0%. Business investment expanded in 2017 and is expected to surge in 2018. The year ended with the passage of sweeping tax reform legislation…Click here to read the full article. 

Allow Us to Accompany You on Your Journey