Nicholson Financial Services,Inc.David S. NicholsonFinancial Advisor89 Access RoadSte. CNorwood, MA 02062781-255-1101866-668-1101david@nicholsonfs.comwww.nicholsonfs.com

Spring 2018Quiz: Can You Answer These Social SecurityBenefit Questions?

The College Landscape After Tax Reform

I received a large refund on my tax return thisyear. Should I adjust my withholding?

What is the difference between a taxdeduction and a tax credit?

Nicholson Financial ServicesDid You Know...?Mid-Year Planning: Tax Changes to Factor In

See disclaimer on final page

I am finishing up my Spring newsletter onthe first day of summer. Spring has been avery busy time for me the past 7 years. Asmany of you know, I have coached boysand girls lacrosse every spring. I havealways found it to be tremendouslyrewarding and fun to coach kids and seethem improve. This season was somewhatbittersweet. My son just finished his 8thgrade season, his last in youth lacrosse.He is now on to high school. I have beenthe head coach of his team for 7 straightyears and coached 5 seasons in anothertown before I had kids. After 12 years ofcoaching boys lacrosse, this was my last. Itwill be tough for me next spring, eventhough I will have a lot more free time!Luckily, I have one more season to coachmy daughter's team as she enters into 8thgrade next year. It will be great to focus oncoaching 1 team rather than 2 or 3. Manyof you who have coached kids in the pasthave told me "you will miss it when it isover." I have no doubt that is true.

The Tax Cuts and Jobs Act,passed in December of lastyear, fundamentallychanges the federal taxlandscape for bothindividuals and businesses.Many of the provisions in thelegislation are permanent,others (including most of the

tax cuts that apply to individuals) expire at theend of 2025. Here are some of the significantchanges you should factor in to any mid-yeartax planning. You should also considerreviewing your situation with a tax professional.

New lower marginal income tax ratesIn 2018, there remain seven marginal incometax brackets, but most of the rates havedropped from last year. The new rates are 10%,12%, 22%, 24%, 32%, 35%, and 37%. Most,but not all, will benefit to some degree from thelower rates. For example, all other things beingequal, those filing as single with taxableincomes between approximately $157,000 and$400,000 may actually end up paying tax at ahigher top marginal rate than they would havelast year. Consider how the new rates will affectyou based on your filing status and estimatedtaxable income.

Higher standard deduction amountsStandard deduction amounts are nearly doublewhat they were last year, but personalexemptions (the amount, $4,050 in 2017, thatyou could deduct for yourself, and potentiallyyour spouse and your dependents) are nolonger available. Additional standard deductionamounts allowed for the elderly and the blindremain available for those who qualify. If you'resingle or married without children, the increasein the standard deduction more than makes upfor the loss of personal exemption deductions.If you're a family of four or more, though, themath doesn't work out in your favor.

Itemized deductions — good and badThe overall limit on itemized deductions thatapplied to higher-income taxpayers is repealed,the income threshold for deducting medicalexpenses is reduced for 2018, and the income

limitations on charitable deductions are eased.That's the good news. The bad news is that thededuction for personal casualty and theft lossesis eliminated, except for casualty lossessuffered in a federal disaster area, andmiscellaneous itemized deductions that wouldbe subject to the 2% AGI threshold, includingtax-preparation expenses and unreimbursedemployee business expenses, are no longerdeductible. Other deductions affected include:

• State and local taxes — Individuals are onlyable to claim an itemized deduction of up to$10,000 ($5,000 if married filing a separatereturn) for state and local property taxes andstate and local income taxes (or sales taxesin lieu of income).

• Home mortgage interest deduction —Individuals can deduct mortgage interest onno more than $750,000 ($375,000 for marriedindividuals filing separately) of qualifyingmortgage debt. For mortgage debt incurredprior to December 16, 2017, the prior $1million limit will continue to apply. Nodeduction is allowed for interest on homeequity loans or lines of credit unless the debtis used to buy, build or substantially improvea principal residence or a second home.

Other important changes• Child tax credit — The credit has been

doubled to $2,000 per qualifying child,refundability has been expanded, and thecredit will now be available to many whodidn't qualify in the past based on income;there's also a new nonrefundable $500 creditfor dependents who aren't qualified childrenfor purposes of the credit.

• Alternative minimum tax (AMT) — The TaxCuts and Jobs Act significantly narrowed thereach of the AMT by increasing AMTexemption amounts and dramaticallyincreasing the income threshold at which theexemptions begin to phase out.

• Roth conversion recharacterizations — In apermanent change that starts this year, Rothconversions can't be "undone" byrecharacterizing the conversion as atraditional IRA contribution by the return duedate.

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Quiz: Can You Answer These Social Security Benefit Questions?Most people will receive Social Securitybenefits at some point in their lifetimes, but howmuch do you know about this important sourceof income? Take this quiz to learn more.

Questions1. Can you receive retirement and disabilitybenefits from Social Security at the sametime?

a. Yes

b. No

2. If your ex-spouse receives benefits basedon your earnings record, your benefit will bereduced by how much?

a. Reduced by 30%

b. Reduced by 40%

c. Reduced by 50%

d. Your benefit will not be reduced

3. For each year you wait past your fullretirement age to collect Social Security,how much will your retirement benefitincrease?

a. 6%

b. 7%

c. 8%

4. Monthly Social Security benefits arerequired to be paid by which of thefollowing methods?

a. Paper check only

b. Paper check, direct deposit, or debit card

c. Direct deposit or debit card

5. Are Social Security benefits subject toincome tax withholding?

a. Yes

b. No

6. Once you've begun receiving SocialSecurity retirement benefits, you canwithdraw your claim if how much time haselapsed?

a. Less than 12 months since you've beenreceiving benefits

b. Less than 18 months since you've beenreceiving benefits

c. Less than 24 months since you've beenreceiving benefits

Answers1. b. No. If you receive a disability benefit, it willautomatically convert to a retirement benefitonce you reach full retirement age.

2. d. Your benefit will not be reduced if yourex-spouse receives Social Security benefitsbased on your earnings record.

3. c. Starting at full retirement age, you will earndelayed retirement credits that will increaseyour benefit by 8% per year up to age 70. Forexample, if your full retirement age is 66, youcan earn credits for a maximum of four years.At age 70, your benefit will then be 32% higherthan it would have been at full retirement age.

4. c. Since 2013, the Treasury Department hasrequired electronic payment of federal benefits,including Social Security. You can sign up fordirect deposit of your benefits into your currentbank account or open a low-cost ElectronicTransfer Account (ETA) at a participatingfinancial institution. Another option is to sign upfor a Direct Express® prepaid debit card. Underthis option, your Social Security benefits aredeposited directly into your card account, andyou can use the card to make purchases, payexpenses, or get cash.

5. b. No. Withholding isn't mandatory, but youmay voluntarily ask the Social SecurityAdministration to withhold federal income taxfrom your benefits when you apply, or later, ifyou determine you will owe taxes on yourSocial Security benefits (not everyone does).You may choose to have 7%, 10%, 15%, or25% of your benefit payment withheld. Ask atax professional for help with your situation.

6. a. If something unexpected happens andyou've been receiving Social Security benefitsfor less than 12 months after signing up, youcan change your mind and withdraw your claim(and reapply at a later date). You're limited toone withdrawal per lifetime, and there are alsofinancial consequences. You must repay allbenefits already paid to you or your familymembers based on your application (anyoneaffected must consent in writing to thewithdrawal), and repay any money previouslywithheld, including Medicare premiums orincome taxes.

Did you know that 94% ofall workers are coveredunder Social Security?

Source: Social Security FactSheet on the Old-Age,Survivors and DisabilityInsurance Program, July2017

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The College Landscape After Tax ReformCollege students and their parents dodged amajor bullet with the Tax Cuts and Jobs Act of2017. Initial drafts of the bill included theelimination of Coverdell Education SavingsAccounts, the Lifetime Learning Credit, and thestudent loan interest deduction, along with thetaxation of tuition waivers, which are usedprimarily by graduate students and collegeemployees. In the end, none of theseprovisions made it into the final legislation. Buta few other college-related items did. Thesechanges take effect in 2018.

529 plans expandedThe new law expands the definition of 529 plan"qualified education expenses" to include K-12tuition. Starting in 2018, annual withdrawals ofup to $10,000 per student can be made from a529 college savings plan for tuition expensesrelated to enrollment at a K-12 public, private,or religious school (excluding home schooling).Such withdrawals are now tax-free at thefederal level.

At the state level, some states automaticallyupdate their state 529 legislation to align withfederal 529 legislation, but other states willneed to take legislative action to include K-12tuition as a qualified education expense. Inaddition, 529 plan institutional managers willlikely further refine their rules to accommodatethe K-12 expansion and communicate theserules to existing account owners. Parents whoare interested in making a K-12 contribution orwithdrawal should understand their plan's rulesand their state's tax rules.

The expansion of 529 plans may impactCoverdell Education Savings Accounts (ESAs).Coverdell ESAs let families save up to $2,000per year for a child's K-12 or college expenses.Up until now, they were the only option fortax-advantaged K-12 savings. But now the useof Coverdell ESAs may decline as parents arelikely to prefer the much higher lifetimecontribution limits of 529 plans — generally$350,000 and up — over the $2,000 annual limitfor Coverdell accounts. In addition, CoverdellESA contributions can only be made forchildren under age 18.

Coverdell ESAs do have one importantadvantage over 529 plans, though: investmentflexibility. Coverdell owners have a wide varietyof options in terms of what investments theyhold in their accounts, and may generallychange investments as often as they wish. Bycontrast, 529 account owners can invest only inthe investment portfolios offered by the plan,and they can change their existing planinvestments only twice per year.

In addition, the new tax law allows 529 accountowners to roll over (transfer) funds from a 529account to an ABLE account without federal taxconsequences if certain requirements are met.An ABLE account is a tax-advantaged accountthat can be used to save for disability-relatedexpenses for individuals who become blind ordisabled before age 26. Like 529 plans, ABLEplans allow funds to accumulate tax deferred,and withdrawals are tax-free when used for aqualified expense.

New calculation for kiddie taxThe tax reform law changes the way the "kiddietax" is calculated. Previously, a child'sunearned income over a certain amount wastaxed at the parents' rate. Under the new law, achild's unearned income over a certain amount($2,100 in 2018) will be taxed using thecompressed trust and estate income taxbrackets. This change may make the use ofUTMA/UGMA custodial accounts less attractiveas a college savings vehicle due to the reducedopportunity for tax savings.

New tax on large college endowmentsThe tax law creates a new 1.4% tax on the netinvestment income of large collegeendowments. Specifically, the tax applies toinstitutions with at least 500 tuition-payingstudents and endowment assets of $500,000 ormore per student. Approximately 30 collegesare expected to be swept up in this net in 2018,including top-ranked larger universities andsmaller elite liberal arts colleges. Some affectedcolleges have publicly stated that the tax willlimit their ability to fund certain programs,including financial aid programs.

Loss of personal exemptionsStarting in 2018, the tax law eliminatespersonal exemptions, which were $4,050 in2017 for each individual claimed on a taxreturn. So on their 2018 tax returns (which willbe completed in 2019), parents of collegestudents will lose an exemption for each collegestudent they claim. However, this loss may beat least partially offset by: (1) a larger standarddeduction in 2018 of $24,000 for joint filers (upfrom $12,700 in 2017); $12,000 for single filers(up from $6,350 in 2017); and $18,000 forheads of household (up from $9,350 in 2017);and (2) a new family tax credit of $500 in 2018for each dependent who is not a qualifying child(i.e., under age 17), which would include adependent college student. The incomethresholds to qualify for this credit (and the childtax credit) are significantly higher: up to$400,000 adjusted gross income for joint filersand up to $200,000 for all other filers.

Note: Investors shouldconsider the investmentobjectives, risks, charges,and expenses associatedwith 529 plans and ABLEplans before investing.Specific information can befound in each plan's officialstatement. Participating in a529 plan or ABLE plan mayinvolve investment risk,including the possible lossof principal, and there is noguarantee that anyinvestment strategy will besuccessful. Investmentsmay not perform wellenough to cover collegecosts as anticipated. Aswith other investments,there are generally fees andexpenses associated withparticipation in a 529savings plan, and each planhas its own rules andrestrictions, which canchange at any time. Beforeinvesting in a 529 plan or anABLE plan, considerwhether your state offersresidents favorable state taxbenefits, and whether thosebenefits are contingent onjoining the in-state plan.Other state benefits for 529plans may include financialaid, scholarship funds, andprotection from creditors.

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Nicholson FinancialServices, Inc.David S. NicholsonFinancial Advisor89 Access RoadSte. CNorwood, MA 02062781-255-1101866-668-1101david@nicholsonfs.comwww.nicholsonfs.com

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2018

This information, developed by anindependent third party, has been obtainedfrom sources considered to be reliable, butRaymond James Financial Services, Inc.does not guarantee that the foregoingmaterial is accurate or complete. Thisinformation is not a complete summary orstatement of all available data necessary formaking an investment decision and does notconstitute a recommendation. Theinformation contained in this report does notpurport to be a complete description of thesecurities, markets, or developments referredto in this material. This information is notintended as a solicitation or an offer to buy orsell any security referred to herein.Investments mentioned may not be suitablefor all investors. The material is general innature. Past performance may not beindicative of future results. Raymond JamesFinancial Services, Inc. does not provideadvice on tax, legal or mortgage issues.These matters should be discussed with theappropriate professional.

Securities offered through Raymond JamesFinancial Services, Inc., memberFINRA/SIPC, an independent broker/dealer,and are not insured by FDIC, NCUA or anyother government agency, are not deposits orobligations of the financial institution, are notguaranteed by the financial institution, andare subject to risks, including the possibleloss of principal.

What is the difference between a tax deduction and atax credit?Tax deductions and credits areterms often used togetherwhen talking about taxes.While you probably know that

they can lower your tax liability, you mightwonder about the difference between the two.

A tax deduction reduces your taxable income,so when you calculate your tax liability, you'redoing so against a lower amount. Essentially,your tax obligation is reduced by an amountequal to your deductions multiplied by yourmarginal tax rate. For example, if you're in the22% tax bracket and have $1,000 in taxdeductions, your tax liability will be reduced by$220 ($1,000 x 0.22 = $220). The reductionwould be even greater if you are in a higher taxbracket.

A tax credit, on the other hand, is adollar-for-dollar reduction of your tax liability.Generally, after you've calculated your federaltaxable income and determined how much taxyou owe, you subtract the amount of any taxcredit for which you are eligible from your taxobligation. For example, a $500 tax credit willreduce your tax liability by $500, regardless ofyour tax bracket.

The Tax Cuts and Jobs Act, signed into law latelast year, made significant changes to theindividual tax landscape, including changes toseveral tax deductions and credits.

The legislation roughly doubled existingstandard deduction amounts and repealed thededuction for personal exemptions. The higherstandard deduction amounts will generallymean that fewer taxpayers will itemizedeductions going forward.

The law also made changes to a number ofother deductions, such as those for state andlocal property taxes, home mortgage interest,medical expenses, and charitable contributions.

As for tax credits, the law doubled the child taxcredit from $1,000 to $2,000 for each qualifyingchild under the age of 17. In addition, it createda new $500 nonrefundable credit available forqualifying dependents who are not qualifyingchildren under age 17. The tax law provisionsexpire after 2025.

For more information on the various taxdeductions and credits that are available to you,visit irs.gov.

I received a large refund on my tax return this year.Should I adjust my withholding?You must have beenpleasantly surprised to find outyou'd be getting a refund fromthe IRS — especially if it was a

large sum. And while you may have consideredthis type of windfall a stroke of good fortune, isit really?

The IRS issued over 112 million federal incometax refunds, averaging $2,895, for tax year2016.1 You probably wouldn't pay someone$240 each month in order to receive $2,900back, without interest, at the end of a year. Butthat's essentially what a tax refund is — ashort-term loan to the government.

Because you received a large refund on yourtax return this year, you may want to reevaluateyour federal income tax withholding. That wayyou could end up taking home more of your payand putting it to good use.

When determining the correct withholdingamount, your objective is to have just enoughwithheld to prevent you from having to owe alarge amount of money or scramble for cash attax time next year, or from owing a penalty forhaving too little withheld.

It's generally a good idea to check yourwithholding periodically. This is particularlyimportant when something changes in your life;for example, if you get married, divorced, orhave a child; you or your spouse change jobs;or your financial situation changes significantly.

Furthermore, the implementation of the new taxlaw at the beginning of 2018 means yourwithholding could be off more than it might be ina typical year. Employers withhold taxes frompaychecks based on W-4 information and IRSwithholding tables. The IRS released 2018calculation tables reflecting the new rates andrules earlier this year. Even so, the old W-4 andworksheet you previously gave to youremployer reflect deductions and credits thathave changed or been eliminated under thenew tax law.

The IRS has revised a useful online withholdingcalculator that can help you determine theappropriate amount of withholding. You stillneed to complete and submit a new W-4 toyour employer to make any adjustments. Visitirs.gov for more information.1 Internal Revenue Service, 2018

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