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Tax Tips: Know Your Taxpayer Bill of Rights

The IRS has established a Taxpayer Bill of Rights to protect all taxpayers. You have the right to:

  • Receive prompt, courteous, and professional service from the IRS
  • Easily understand what the IRS is saying
  • Receive clear and easy-to-understand communication from the IRS
  • Speak to a supervisor if you receive inadequate service
  • Have your questions answered promptly, accurately, and thoroughly
  • Objective advice

Head over to the Taxpayer Bill of Rights on IRS.gov to understand what you’re entitled to.

* This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax professional.

Tip adapted from IRS.gov[10]
[10] IRS.gov, July 31, 2020

Stocks Have Mixed Reaction – WEEKLY UPDATE – AUGUST 3, 2020

The Week on Wall Street
Stocks were mixed last week amid a busy week of earnings, some troubling economic data, and seemingly little progress on a new fiscal stimulus package.

The Dow Jones Industrial Average slipped 0.16%, while the Standard & Poor’s 500 increased by 1.73%. The Nasdaq Composite Index surged 3.69% for the week. The MSCI EAFE Index, which tracks developed stock markets overseas, dipped 0.75%.[1][2][3]

Stocks Buffeted by Crosswinds
Stocks rode a roller coaster last week, reacting to a conflicting stream of corporate events and economic data.

Investors were optimistic on Monday about the ability of mega-cap technology companies to thrive in an uncertain economy, but worried on Tuesday about pending Congressional testimony involving the CEOs of these firms.

On the economic front, a strong June durable goods orders report on Monday bolstered investor sentiment. But the optimism faded on a disappointing jobless claims number and a troubling second-quarter GDP number that-while anticipated-was a bit unsettling.[4][5][6]

Following some exceptional earnings results from the mega-cap technology companies, stocks managed to rally in the final hour of trading on Friday.

U.S. Dollar Continues Its Decline
Since peaking in mid-March, the U.S. dollar has dropped nearly 9%. Some of the potential beneficiaries of a weak dollar are global American businesses whose products and services become less expensive in overseas markets.[7]

Conversely, international companies may suffer lower sales in the U.S. as their products become more expensive. It’s a mixed bag of potential outcomes, but Wall Street has become more and more focused on the dollar’s trajectory.

Final Thoughts
August has historically been a particularly volatile month. For instance, in 2019, the S&P 500 posted moves of more than one percent in 22 trading days.[8]

One of the possible reasons is that many traders are away on vacation, resulting in light volume, which may amplify market volatility. But this year, it’s uncertain whether traders will be away on vacation due to the pandemic. Should markets become volatile in the weeks ahead, investors may want to remind themselves of the seasonal trends that may be at work.

[1] The Wall Street Journal, July 31, 2020
[2] The Wall Street Journal, July 31, 2020
[3] The Wall Street Journal, July 31, 2020
[4] CNBC.com, July 27, 2020
[5] CNBC.com, July 30, 2020
[6] BEA.gov, July 30, 2020
[7] Reuters.com, July 28, 2020
[8] CNBC.com, August 31, 2019

Tax Tips: How Are Bonds Taxed?

Bonds are sometimes used as an investment vehicle, but as with any investment, there are tax considerations as well. The interest you receive from corporate bonds may be taxable, which means that those taxes impact a portion of your earnings. In addition, savings bonds and government-issued Treasury bonds may be exempt from state and local taxes, but they may be taxable on the federal level. On the other hand, municipal bonds may be tax-exempt on the federal level, but they may be taxed at the state and local level.

With this being said, it’s always important to understand the tax implications of your investments. After all, it’s not about what you make – it’s about what you make after taxes!

* This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax professional.

Tip adapted from IRS.gov[9]
[9] IRS.gov, July 23, 2020

Stocks React to Jobs Report – WEEKLY UPDATE – JULY 27, 2020

The Week on Wall Street
Stocks slipped in the final days of trading last week on higher jobless claims and rising tensions in the U.S.-China relationship.

The Dow Jones Industrial Average lost 0.76%, while the Standard & Poor’s 500 dipped 0.28%. The Nasdaq Composite Index dropped 1.33% for the week. The MSCI EAFE Index, which tracks developed stock markets overseas, rose 1.24%.[1][2][3]

Stocks Lose Momentum
Stocks marched higher to begin the week on progress with a COVID-19 vaccine and a string of upbeat corporate quarterly reports. Firming oil prices and the passage of a fiscal stimulus bill by the European Union also helped buoy investors’ spirits.

Market sentiment, however, turned negative after Thursday morning’s report of an uptick in new unemployment claims, which suggested a possible slowdown in hiring. The market was led lower by the technology sector ahead of quarterly reports from some of the sector’s biggest names.[4]

U.S.-China Tensions Escalate
Tensions escalated last week as the U.S. ordered China to close its consulate in Houston, which the White House claimed was stealing American information. A day earlier, the U.S. had accused China of attempting to steal COVID-19 research data. China responded by ordering the U.S. to close its consulate in the city of Chengdu.[5][6]

The markets appear more focused on the apparent deteriorating relations between the two nations, worried about a repeat of the trade battle in 2018. Whether the rancor is managed is likely to remain a top concern for investors in the weeks ahead.

Final Thoughts
The mega-cap technology companies’ market dominance is a concern to some. Last week it was reported that six of these mega-cap stocks represent 41% of the Nasdaq market capitalization.Five mega-cap names included in the S&P 500 Index account for 22% of that index’s market capitalization.[7]

Investors have embraced these firms because they appear to be able to show solid financial performance in the midst of an economy coping with COVID-19.

[1] The Wall Street Journal, July 24, 2020
[2] The Wall Street Journal, July 24, 2020
[3] The Wall Street Journal, July 24, 2020
[4] NYTimes.com, July 23, 2020
[5] CBSnews.com, July 22, 2020
[6] APNews.com, July 24, 2020
[7] CNBC, July 22, 2020

Tax Tips: 501(c)(3) Organizations vs. 501(c)(4) Organizations: What’s the Difference?

Whether you’re donating to a local animal shelter, a soup kitchen, or an arts program, it feels great to give back. There are many different types of organizations to support. Let’s look at two of the most common:

  • 501(c)(3) organizations are nonprofit organizations that are dedicated to religious, charitable, or educational purposes. Donations to 501(c)(3) organizations may be tax deductible. These organizations may not attempt to influence legislation or participate in any campaign activity for or against political candidates.
  • 501(c)(4) organizations are social welfare groups that can engage in more lobbying and advocacy. Contributions to 501(c)(4) organizations may not be tax deductible.

It’s important to know what kind of organization you are donating to if you want to know if your contributions can be tax deductible.

* This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax professional.

Tip adapted from IRS.gov[9]
[9] IRS.gov, May 27, 2020

Stocks See a Mixed Week – WEEKLY UPDATE – JULY 20, 2020

The Week on Wall Street
Stocks were mixed last week as investors reacted to positive economic data, progress on a COVID-19 vaccine, and the continued nationwide increase in COVID-19 cases.

The Dow Jones Industrial Average gained 2.29%, while the Standard & Poor’s 500 rose by 1.25%. But the Nasdaq Composite Index dropped 1.08% for the week. The mega-cap technology companies saw some profit-taking last week, sending the Nasdaq Composite to its first loss in three weeks. The MSCI EAFE Index, which tracks developed stock markets overseas, ended 2.19% higher.[1][2][3]

Stocks Find a Way Higher
After a Monday rally melted away on news that California was rolling back its reopening plans amid rising infections, a new earnings season began on a hopeful note. Stocks posted back-to-back daily gains on the strength of positive earnings surprises from a few money center banks and encouraging news about progress in the development of a COVID-19 vaccine.[4]

Despite a strong retail sales number, new jobless claims and rising U.S.-China tensions reminded investors that global economic recovery remains fragile, leading stocks to pare some of the week’s earlier gains.[5][6]

Earnings Season Begins
While investors long ago accepted the idea that this earnings season would be ugly, reflecting the impact of the economic shock due to COVID-19, it didn’t mean that there weren’t important insights to be gained from this quarter’s earnings reports.

Three money center banks last week kicked off the earnings season, reporting substantial declines in profits and an additional cumulative $28 billion set aside for loan-loss reserves.[7]

Banks are an important economic bellwether since they touch every part of the U.S. economy. Although their earnings were significantly lower, they actually beat consensus Wall Street estimates, which encouraged investors and set the stage for stocks to move higher. The story on this quarter’s earnings season, however, is far from finished as investors await the stream of companies releasing their quarterly results in the days and weeks ahead.

[1] The Wall Street Journal, July 17, 2020
[2] The Wall Street Journal, July 17, 2020
[3] The Wall Street Journal, July 17, 2020
[4] CNBC.com, July 14, 2020
[5] WSJ.com, July 16, 2020
[6] CNBC.com, July 16, 2020
[7] The New York Times, July 15, 2020

Tax Tips: Couples Who Work Together, Tax Together

More and more couples are starting to do business together. There are some considerations to working together, though, and they’re not just who’s going to drive the car to work that day.

In terms of taxes, there are a few considerations to be aware of.

  • You should first establish if you have a partnership business (where both spouses have an equal say in the affairs, services, and capital of the business) or an employee-employer relationship (where one spouse substantially controls management decisions). These relationships face different tax situations.
  • If there is an employee-employer relationship, the “employee” spouse may be subject to income tax, Social Security, and Medicare.
  • If there is a partnership relationship, your business income may need to be reported on Form 1065, U.S. Return of Partnership Income.

*This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax professional.

Tip adapted from IRS.gov[8]
[8] IRS.gov, May 27, 2020

Stocks Gain After Volatile Week – WEEKLY UPDATE – JULY 13, 2020

The Week on Wall Street
Stock prices notched solid gains last week, looking past an increase in COVID-19 cases and any potential economic concerns raised by the trend.

The Dow Jones Industrial Average increased by 0.96%, while the Standard & Poor’s 500 climbed 1.76%. The Nasdaq Composite Index bounded 4.01% higher for the week. The MSCI EAFE Index, which tracks developed stock markets overseas, gained just 0.07%.[1][2][3]

Virus Concerns
Stocks experienced a volatile week as investors negotiated the crosswinds of encouraging overseas economic data with an accelerating number of COVID-19 cases in several states. Ongoing support of the financial markets by the Federal Reserve appeared to offset any concerns about an economic rebound.

The big technology companies continued to shine, leading the Nasdaq Composite to multiple new record highs. News of positive trial results for a potential COVID-19 treatment boosted stocks on the final trading day, closing the week on an encouraging note.

On the Record
Regional Federal Reserve presidents had several speaking engagements last week, and the message was a consistent one: expect the economic recovery to remain bumpy.

Cleveland Fed President Loretta Mester said that the economy in her region is slowing due to rising COVID-19 cases. She linked gains in combating the virus with further economic progress. She also echoed earlier comments by Fed Chairman Powell that more fiscal support is necessary.[4]

Meanwhile, San Francisco Fed President Mary Daly observed that it was unlikely many companies would be rehiring all their employees. Thomas Barkin, president of Richmond Federal Reserve, reiterated the challenges of a labor recovery, but also spoke of the strain on local and state governments.[5][6]

[1] The Wall Street Journal, July 10, 2020
[2] The Wall Street Journal, July 10, 2020
[3] The Wall Street Journal, July 10, 2020
[4] CNBC, July 7, 2020
[5] MarketWatch, July 7, 2020
[6] MarketWatch, July 7, 2020

Tax Tips: Don’t Forget Tax Day!

Due to the COVID-19 pandemic, the deadlines to file and pay federal income taxes were extended to July 15, 2020, which is just around the corner! If you haven’t yet, make sure to get your taxes in order or file for an extension. This also includes individuals, including sole proprietors, who should make estimated tax payments throughout the year.

*This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax professional.

Tip adapted from IRS.gov[11]
[11] IRS.gov, May 29, 2020

Special Update: Quarterly Report – WEEKLY UPDATE – JULY 6, 2020

The Week on Wall Street
In a holiday-shortened week, stock prices turned higher as encouraging economic data outweighed an increase in COVID-19 cases and a rollback in economic re-openings.

The Dow Jones Industrial Average rose 3.25%, while the Standard & Poor’s 500 increased by 4.02%. The Nasdaq Composite Index gained 4.62% for the week. The MSCI EAFE Index, which tracks developed stock markets overseas, picked up 0.22%.[1][2][3]

The Quarter in Brief
As a new quarter begins, we look back on an eventful second quarter for households and investors alike – a quarter in which the economy took a mighty hit, while the stock market soared. Complying with stay-at-home orders, Americans abruptly cut back on discretionary spending, traveling, and commuting, resulting in a dire scenario for some industries. Unemployment rose as business revenue declined. Fundamental economic indicators saw big swings, and on one trading day, oil prices actually collapsed into negative territory. Homes became easier to finance; though, transactions declined. The Federal Reserve made proactive moves to try and foster a bit more economic stability. While Main Street quieted, Wall Street rallied, sensing that an economic rebound might be starting. The Standard & Poor’s 500 gained 19.95% for the quarter.[4]

What’s to Come
The rally that started in late March continued in the second quarter. Traders were encouraged by better-than-expected earnings in certain industries, positive news about potential COVID-19 treatments and vaccines, and the commitment of the Federal Reserve to address turbulence in the economy and the markets.

All three of the big Wall Street benchmarks recorded their best quarters of the century. The Nasdaq Composite closed at 10,020.35 on June 10, reaching a new milestone. The Nasdaq ended Q2 at 10,058.77; the S&P, at 3,100.29; the Dow Jones Industrial Average, at 25,812.88.[5][6]

As this quarter starts, investors are wondering… is the worst of this recession now behind us? A quick answer may prove elusive. The third quarter may bring more signals that Main Street is bouncing back, but it could also bring a reversal of economic momentum if states continue to halt or reverse phases of opening. For the market to climb higher off of its Q2 melt-up, earnings and economic indicators have to keep showing improvement or least stability. The same goes for COVID-19 case counts. If they keep rising this summer, the bulls could easily be held back.

Jobs, Jobs, Jobs
The ultimate measure of economic recovery is jobs for Americans, and last week, Wall Street got an update from three different perspectives.

First, the ADP (Automatic Data Processing) National Employment Report, which reported private-sector employers added 2.37 million jobs in June. Next, an update on jobless claims, which showed 1.43 million claims, slightly higher than estimates. And finally, the June employment report from the Bureau of Labor Statistics, which showed 4.8 million jobs added, and the unemployment rate falling to 11.1%.Both numbers were better than expected.[7][8][9]

While the employment numbers painted a mostly positive picture, it’s important to remember that the June wave of rehiring was prior to the increase in COVID-19 cases, which has caused some states to revisit their re-opening plans.

[1] The Wall Street Journal, July 2, 2020
[2] The Wall Street Journal, July 2, 2020
[3] The Wall Street Journal, July 2, 2020
[4] CNBC.com, June 30, 2020
[5] CNBC.com, June 30, 2020
[6] The Wall Street Journal, June 30, 2020
[7] MarketWatch, July 1, 2020
[8] CNBC, July 2, 2020
[9] The Wall Street Journal, July 2, 2020