Tax Reform May Hurt Financial Newsletters

WASHINGTON — Newsletters and taxpayers who rely on them for financial information are bracing for unwelcome changes under tax reform.

Some changes are “discriminatory and ridiculous,” said James Davidson, editor of the Strategic Investment newsletter.

Under current law, investors have been able to write off the expense of newsletters that tell them how and where to invest money--in stocks, bonds, mutual funds, commodities, collectibles, etc.

That has been good for the newsletter business, and good for some subscribers.

Now, both newsletter publishers and non-business subscribers say they don’t like parts of the tax revision bill that Congress is expected to pass before its 99th session ends.

The new law says individual taxpayers no longer will be able to deduct miscellaneous business expenses--such as newsletters and other publications, union dues, moving costs and tax preparation bills--unless they exceed 2% of gross income.

In other words, a taxpayer who earns $40,000 would not be allowed to write off personal business expenses unless they amount to more than $800.

Businesses still would be allowed to write off the full expense of newsletters.

But the restriction on individuals may be enough to persuade some investors to cancel subscriptions to newsletters--and that is expected to affect the industry.

“It’s going to hurt,” said Charles Allmon, editor of Growth Stock Outlook, a popular newsletter that has been around for 22 years.

“Like in anything else,” said tax attorney Joel Weingarten of Bethesda, Md., “the really good (newsletters) probably don’t have that much to worry about. But the marginal ones--that’s another question.”

They are not worried at the Kiplinger Washington Newsletter. “It isn’t going to have much effect on us because we’re not that expensive . . . just $48 a year,” said Jack Kiesner, chief of staff at Kiplinger.

But many of the hundreds of available financial newsletters are expensive--costing hundreds of dollars a year.

Davidson said some of the “worst and high-priced” newsletters may not survive tax revision. The irony is, said Davidson, “people will need investment newsletters more than they have in the past” because tax reform is going to encourage investors to put their money in financial markets.

The tax bill closes most of the shelters that, for years, encouraged investors to put money in such non-liquid assets as real estate, timber and farming. And “buying and holding will no longer be advantageous” under tax reform because of a reduction of long-term capital gains advantages.

“The way to get rich used to be find loopholes, let time raise their value and cash them in at a low rate of tax,” said Davidson. “The new law says if you make a profit in five minutes, it will be taxed the same as if you had it 50 years.”

Thus, investors likely will seek quick profits in financial markets--creating a greater need for professional advice through newsletters and other means.

“It would be to the government’s advantage to allow and encourage professional advice to be written off” because the government will benefit from tax revenues generated by greater profits in financial markets, said Davidson.

Imposing a 2% trigger for personal business deductions is arbitrary, said Davidson. And “it could be that all newsletters will suffer because people are stupid,” he said.