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Tax Tips – Passport Power

Did you know that if you owe $52,000 or more to the Internal Revenue Service, the IRS can revoke your passport? That’s right. Under the Fixing America’s Surface Transportation (FAST) Act, the IRS has the power to revoke the passport of any taxpayer owing $52,000 or more, including penalties and interest.

Notably, if you are currently paying off the debt or are contesting a tax bill in court, you should not be affected. However, anyone under an IRS tax lien could find their ability to travel hampered.

If you have any questions about tax debts or other complex tax issues, contact a qualified attorney or tax specialist.

* 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.

Adapted from IRS.gov[7]
[7] www.irs.gov/newsroom/individuals-with-significant-tax-debt-should-act-promptly-to-avoid-revocation-of-passports

Further Gains for Stocks – WEEKLY UPDATE – JANUARY 13, 2020

The Week on Wall Street
The market had a choppy five days, with traders reacting to geopolitical developments and weaker-than-expected jobs data. Even so, the three major U.S. equity indices posted weekly gains and continued their strong start to the new year. During Friday’s trading session, the Dow Jones Industrial Average topped 29,000 for the first time.

Rising 1.75% for the week, the Nasdaq Composite outgained both the Dow (up 0.66%) and the S&P 500 (up 0.94%). The story for foreign stocks was different: the MSCI EAFE index declined 0.30%.[1][2]

Holiday Hiring Numbers
Wall Street was unimpressed by the latest jobs report from the Department of Labor. Employers added 145,000 net new workers in December; economists surveyed by Dow Jones had forecast a gain of 160,000. Wages grew less than 3% year-over-year for the first time in 17 months.

Unemployment remained at a 50-year low of 3.5%, however. The broader U-6 jobless rate, which also includes the underemployed, declined to 6.7%, the lowest in 26 years of recordkeeping.[3]

Oil Prices Decline
The rally in crude oil spurred by strained U.S.-Iran relations ebbed this past week. At Friday’s closing bell, WTI crude was worth $59.04 a barrel on the New York Mercantile Exchange, down 6.36% for the week and 3.31% year-to-date.[4]

What’s Ahead
A new earnings season starts Tuesday, with big banks leading off and reporting fourth-quarter results. Chinese Vice Premier Liu He will be in Washington, D.C., through Wednesday, and during his visit, he and President Trump are expected to sign the phase-one trade deal between the U.S. and China.[5]

[1] www.wsj.com/market-data
[2] quotes.wsj.com/index/XX/MSCI%20GLOBAL/990300/historical-prices
[3] www.cnbc.com/2020/01/10/us-nonfarm-payrolls-december-2019.html
[4] www.marketwatch.com/investing/future/crude%20oil%20-%20electronic
[5] www.cnbc.com/2020/01/09/chinas-vice-premier-liu-to-sign-us-trade-deal-in-washington-next-week.html

Tax Tips – Report Hobby Income

Many people do side hobbies for fun, which also happen to bring in extra income. Whenever taxpayers make money from their hobbies, they must report the income to the IRS. Here are some tips to help you correctly claim your income and expenses:

    Discern between a hobby or business: You can use this IRS checklist to help guide you to identify which type of income you have.

    Deduct expenses: Your hobby probably has necessary expenses that you must spend in order to do it well. For example, you may need to buy yarn to knit scarves. You can deduct any expenses that fall within these categories.

    Follow deduction limits: You can only deduct approvable expenses, up to the amount you brought in for income.

Other details may apply, and you can find more information on the IRS website.

* 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[7]

[7] www.irs.gov/faqs/small-business-self-employed-other-business/income-expenses/income-expenses

Concerns About Oil – WEEKLY UPDATE – JANUARY 6, 2020

The Week on Wall Street
Stocks descended from record highs Friday, as traders reacted to a U.S. drone strike that killed Iran’s top military officer. Oil prices rose more than 3% following the breaking news.[1]

Wall Street benchmarks ended up having a sideways week, shortened by the New Year’s Day holiday. The Dow Jones Industrial Average lost 0.04% across four trading sessions; the S&P 500, 0.16%. In contrast, the Nasdaq Composite rose 0.16%. The MSCI EAFE index, benchmarking developed overseas stock markets, added 0.30%.[2][3]

Oil Takes Center Stage
WTI crude oil settled at $63.07 a barrel on the New York Mercantile Exchange Friday, down from an intraday peak of $64.09 (which was its highest price since April).

The commodity rallied Friday, as energy traders considered the possibility of supply disruptions in the Middle East in retaliation for last week’s U.S. air strike.[4]

Manufacturing Activity Declines
At the start of each month, economists watch the Institute for Supply Management’s Purchasing Managers Index for the factory sector, which is considered a key barometer of U.S. manufacturing health.

Last week, ISM announced a December reading of 47.2 for this index, the poorest in more than ten years. A reading below 50 indicates manufacturing activity is contracting rather than expanding.[5]

[1] www.investors.com/market-trend/stock-market-today/dow-jones-dives-us-airstrike-gold-prices-oil-prices-jump-tesla-stock/
[2] www.wsj.com/market-data
[3] www.wsj.com/market-data/quotes/index/XX/990300
[4] www.reuters.com/article/us-global-markets/oil-safe-havens-surge-after-u-s-strikes-kill-iran-commander-idUSKBN1Z2042
[5] www.marketwatch.com/story/us-manufacturing-slumps-worsens-in-december-as-ism-index-falls-to-10-year-low-2020-01-03

Tax Tips – End of Year Tax Tips for Small-Business Owners

If you’re a small-business owner, there are a few tax planning strategies you can implement at the end of the year to save money. Here are just a few:

    Claim 100% bonus depreciation for asset additions – If you have new or used property, you may be eligible for a first-year bonus depreciation. In other words, you may be eligible to write off some of your 2019 asset additions. The same rule may also be applicable for heavy SUV, pickup, or van purchases.
    Time your business income for tax savings – If you conduct your business using a pass-through entity, your share of your business’s income is passed through to you. This means that deferring income into next year makes sense if you expect to be in the same or lower tax bracket next year. The qualified business income from pass-through entities deduction can also help because deductions can be up to 20% of a pass-through entity owner’s qualified business 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 Market Watch[12]

[12] www.marketwatch.com/story/7-year-end-tax-planning-strategies-for-small-business-owners-2018-10-22

The Year in Review – WEEKLY UPDATE – DECEMBER 30, 2019

What Drove the Markets?
Four factors influenced investment performance in 2019: a shift in U.S. monetary policy, the ongoing trade dispute between the U.S. and China, earnings, and the economy.
Stocks reached record highs in 2019. The S&P 500 climbed above 3,000 for the first time. The benchmark ended Friday’s trading session up 29.25% for the year. At Friday’s close, the Dow Jones Industrial Average showed a year-to-date advance of 22.95%, while the Nasdaq Composite was up 35.74% YTD. The MSCI EAFE index, representing foreign stocks, was up 18.10% YTD through December 27.[1][2]

The Federal Reserve Eased
The central bank made three quarter-point cuts to the benchmark short-term interest rate in 2019. That was a change from 2018, when the Fed worked on normalizing monetary policy with interest rate increases, while thinning its large bond portfolio.

By and large, investors welcomed the policy shift. At the end of 2018, there were concerns that the Fed’s effort to tighten the money supply had backfired, with higher U.S. interest rates impeding both the domestic and global economy.[3]

The U.S. and China Trade Quarrel Cooled Down Slightly
In December, representatives from both nations agreed on a “phase-one” trade deal after a year-and-a-half of imposing tariffs on each other’s products. This pact, which is expected to be signed in 2020, is characterized as an initial step toward a larger deal.

In May, the U.S. put 25% tariffs on $200 billion of Chinese imports; a month later, China imposed a 25% import tax on $60 billion of U.S.-made goods reaching its shores. These tariffs may be reduced or removed as part of the phase-one deal. (Another $120 billion worth of Chinese goods are currently under a 7.5% tariff, reduced from 15% by the new agreement.)[4]

Earnings Beat (Low) Expectations
Stock market analysts were pessimistic about corporate profits as the year began. With economies worldwide slowing down in 2018, year-over-year earnings growth for S&P 500 firms seemed poised to decelerate.

Deceleration was evident, but later in the year, many firms managed to exceed reduced estimates. According to stock market analytics firm FactSet, 75% of S&P 500 components beat earnings-per-share estimates in Q3, compared to a 5-year historical average of 72%.[5]

The Economy Maintained Momentum
Gross domestic product came in at 3.1% in Q1, 2.0% in Q2, and 2.1% in Q3. Through November, nonfarm payrolls growth had averaged 180,000 per month during 2019. Manufacturing output varied, as CEOs were less certain about expansion and capital investments in the first half of the year; it declined in Q1 and Q2 before improving again in Q3.[6][7]

The Conference Board’s consumer confidence index was at 125.5 in November, above its (revised) January mark of 121.7. Inflation stayed under 2% for most of the year before reaching a 12-month high of 2.1% in November.[8][9]

What’s Ahead
Congress passed the Setting Every Community Up for Retirement Enhancement (SECURE) Act before Christmas, and President Trump signed it into law last week. This new law alters a key rule pertaining to traditional retirement accounts. It raises the age for Required Minimum Distributions (RMDs) from these accounts, from 70½ to 72. (If you are now 70½ or older, this change does not affect your scheduled RMDs. Only those who turn 70½ in 2020 or later are subject to the new rule.)[10]

[1] www.wsj.com/market-data
[2] quotes.wsj.com/index/XX/MSCI%20GLOBAL/990300/historical-prices
[3] www.washingtonpost.com/business/2019/12/11/year-federal-reserve-admitted-it-was-wrong/
[4] www.bbc.com/news/business-45899310
[5] insight.factset.com/earnings-insight-q319-by-the-numbers-infographic
[6] www.marketwatch.com/tools/calendars/economic
[7] www.bls.gov/iag/tgs/iag31-33.htm
[8] www.investing.com/economic-calendar/cb-consumer-confidence-48
[9] tradingeconomics.com/united-states/inflation-cpi
[10] www.marketwatch.com/story/with-president-trumps-signature-the-secure-act-is-passed-here-are-the-most-important-things-to-know-2019-12-21

Leaving Your Family a Legacy – WEEKLY EDUCATIONAL UPDATE – DECEMBER 18, 2019

A family legacy can have multiple aspects. It can include much more than heirlooms. It may also include guidance on what to do with the gifts that are given.

What are your “legacy” assets? Financially speaking, a legacy asset is something that may outlast you, something that might produce income or wealth for your descendants.
To help these financial legacy assets endure, an appropriate legal structure may be necessary. The goal is to have a structure that may permit reasonable management of the legacy assets – not just five years from now, but long into the future as well.

For example, imagine that 40 years from now you have 12 heirs to the company you’ve founded. Would you expect all 12 heirs to manage the company together?

Probably not. Some of those heirs may not be old enough to handle such responsibility. Others may be reluctant or ill-prepared to take on the role.

Values are also crucial legacy assets. Early on, you can communicate the importance of honesty, humility, responsibility, compassion, and self-discipline to your children and grandkids. These virtues can help young adults do the right things in life and guide their financial decisions. Your estate strategy can articulate and reinforce these values, and perhaps, link your children or grandchildren’s inheritance to the expression of these qualities.

Make sure to address the basics. Is your will up to date? How about the beneficiary designations on your retirement accounts? Creating a trust may be a smart move. But remember, a trust involves a complex set of tax rules and regulations. Before moving forward with a trust, consider working with a professional who is familiar with the rules and regulations.

Think about the legacy you are leaving. Your thoughtful actions and guidance could help your children and grandchildren enter adulthood with good values and a promising financial start.

Tax Tips – What’s in a Password?

One of the best ways to keep your data safe online is to have a strong password. The IRS shares some tips on how to create and protect your passwords:

    • Your password should be a minimum of eight characters. The longer, the better.
    • Your password should include a combination of letters, numbers, symbols, and special characters.
    • Don’t include personal information, including names of family members or pets, identifying information about where you live, or other personal details.
    • Don’t use the same password for everything.
    • Substitute special characters and numbers for common letters to make your password more difficult to guess (ex: @ for a, ! for i, 8 for B, etc.).
    • Be aware of scams asking for your password and never tell people your passwords.

If you find yourself forgetting your passwords, a tool like LastPass can help. This tool encrypts your passwords, so they stay safe and can be downloaded on your computer. It will remember your passwords, so you don’t have 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[7]
[7] www.irs.gov/newsroom/strong-passwords-help-keep-tax-data-safe

Phase-One Trade Deal Reached – WEEKLY UPDATE – DECEMBER 16, 2019

The Week on Wall Street
The U.S. and China announced a limited trade agreement last week. That news lifted U.S. and foreign stocks, leading to weekly gains.

Advancing 0.91% on the week, the Nasdaq Composite outperformed the S&P 500 (up 0.73%) and Dow Jones Industrial Average (up 0.43%). The MSCI EAFE index, measuring the performance of developed markets overseas, improved 0.42%.[1][2]

Phase-One Trade Deal Reached, December Tariffs Averted
Friday, White House and Chinese officials confirmed an agreement on what has been characterized as an initial step toward a larger trade pact. As a result of this phase-one deal, new U.S. tariffs (slated to go into effect on December 15) were canceled. The 15% tariffs (imposed on $110 billion of Chinese goods in September) now fall to 7.5%.

In return, China commits to buy greater quantities of American crops, factory goods, and energy products.[3]

Fed Holds Steady on Short-Term Interest Rates
The last Federal Reserve meeting of the year brought no adjustment for the federal funds rate. The vote to leave short-term rates unchanged was unanimous.

After the meeting, Fed chair Jerome Powell told the media, “as long as incoming information about the economy remains broadly consistent with [our] outlook, the current stance of monetary policy will likely remain appropriate.”[4]

Retail Sales Disappoint
Economists, surveyed by Bloomberg, expected a retail sales gain of 0.5% for November, but according to the Department of Commerce, the advance was only 0.2%. In a bright spot for analysts who wanted to see a strong start to the holiday shopping season, sales at online retailers rose 0.8% last month. [5]

[1] www.wsj.com/market-data
[2] quotes.wsj.com/index/XX/MSCI%20GLOBAL/990300/historical-prices
[3] www.marketwatch.com/story/trump-announces-phase-one-china-trade-deal-and-scraps-dec-15-tariffs-2019-12-13
[4] www.bloomberg.com/news/articles/2019-12-11/fed-leaves-rates-unchanged-and-forecasts-show-no-change-in-2020
[5] www.bloomberg.com/news/articles/2019-12-13/u-s-retail-sales-miss-forecasts-for-pickup-as-restaurants-drop

Tax Tips – What to Know About Flexible Spending Accounts at the End of the Year

Flexible spending accounts (FSAs) are savings accounts reserved for out-of-pocket health care costs. They are offered through an employee benefit plan and allow you to use pretax dollars to pay for medical costs that insurance might not cover.

FSAs can save you money because they are funded with pretax dollars, but they are “use it or lose it,” meaning that if you don’t use the funds by the end of the year, they don’t roll over into the next. There is some flexibility, and employers may extend the deadline to use funds until March 15, but participants might want to aim for the end-of-year deadline to be safe. That means, come December, you should have a plan of how to maximize your FSA funds.

Not sure how to spend your remaining FSA dollars? FSA Store has thousands of items that are eligible, including first aid items, travel essentials, pain relief items, and much more.

* 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 TurboTax[7]

[7] turbotax.intuit.com/tax-tips/health-care/flexible-spending-accounts-a-once-a-year-tax-break/L8hwzKu7r