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Tax Tips – Think About Credits and Deductions Now to Prepare for Filing

Here are a few facts about credits and deductions that can help you with year-round tax planning:

  • Taxable income is what’s left after someone subtracts any eligible deductions from their adjusted gross income, including the standard deduction. Some taxpayers may choose to itemize their deductions to lower their adjusted gross income.
  • The Tax Cuts and Jobs Act made changes to itemized deductions. In comparing these changes, many individuals who used to itemize may find it more beneficial to take the standard deduction.
  • As a general rule, if a taxpayer’s itemized deductions are larger than their standard deduction, they should itemize. Depending on the situation, some taxpayers may even be required to itemize.

Taxpayers may be able to subtract tax credits from the total amount of tax they owe. To claim a credit, taxpayers should keep records that show their eligibility for it. Some major tax credits include the child tax credit and the child and dependent care credit, the American opportunity credit or lifetime learning credit, and the earned income tax credit.

* 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.gov7

  1. IRS.gov, February 21, 2021

Weekly Market Insights: Markets Overcome Delta Variant Reports

Overcoming a COVID-related economic growth scare, stocks moved higher amid a week of strong corporate earnings reports.

The Dow Jones Industrial Average rose 1.08%, while the Standard & Poor’s 500 gained 1.96%. The Nasdaq Composite index soared 2.84% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, dipped 0.20%.1,2,3

 Delta Variant Head Fake

Stocks staged a broad retreat on Monday as traders worried about the adverse economic implications of growing Delta variant infections. Economically sensitive sectors, such as energy, financials, industrials, and materials, absorbed the brunt of Monday’s sell-off.

But the markets did a quick about face, posting four-consecutive days of gains and leaving the three major averages with fresh record highs.4

The sharp reversal may be attributable to a “buy on the dip” investor mentality, the absence of investment alternatives to stocks in this low interest rate environment, and massive financial liquidity. Stocks were also lifted by a healthy kick-off to the second quarter earnings season.

Strong Start

The earnings season moved into full swing last week, and the results exceeded the market’s high expectations.

Of the 120 companies in the S&P 500 index that have reported as of Friday, July 23, 89% of them beat the Street’s earnings-per-share estimates by, on average, 20.6%. Financials and Consumer Discretionary sectors provided the biggest earnings surprises (+28.9% and +24.5%, respectively), while Materials and Utilities delivered the smallest positive surprises (+5.3% and +2.5%, respectively).

These earnings beats are leading Wall Street analysts to raise earnings estimates for 3Q 2021 through 1Q 2022.5

Final Thought

The National Bureau of Economic Research said last week that the pandemic-induced recession ended in April 2020, officially lasting two months and making it the shortest recession in U.S. history.6

 

  1. The Wall Street Journal, July 23, 2021
  2. The Wall Street Journal, July 23, 2021
  3. The Wall Street Journal, July 23, 2021
  4. CNBC, July 23, 2021
  5. Earnings Scout, July 23, 2021
  6. The Wall Street Journal, July 19, 2021

Tax Tips – Who Can Deduct Car Expenses on Their Tax Returns?

Wondering if you can deduct expenses such as gas, depreciation, and lease payments on your tax returns? If you are a business owner or self-employed individual, you may be able to. If you use your car for both business and personal purposes, the expenses may be split and the deductions will be based on a portion of the mileage used for business.

There are two ways to calculate the car expenses you may be able to deduct. The first method is to calculate and deduct the actual expenses, including depreciation, lease payments, gas and oil, tires, repairs and tune-ups, insurance, and registration fees.

The second is to use the standard mileage rate, which is a rate calculated to represent gas and some of the above factors. In 2021, the standard mileage rate is 56 cents per mile. Taxpayers who want to use the standard mileage rate for a car they own must choose to use this method in the first year the car is available for use in their business.

* 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.gov7

  1. IRS.gov, February 1, 2021

Weekly Market Insights: Stocks Retreat, Inflation Advances

Despite a good start to earnings season and some solid economic data, worries of slower second-half economic growth led to a pullback in stock prices last week.

The Dow Jones Industrial Average fell 0.52%, while the Standard & Poor’s 500 lost 0.97%. The Nasdaq Composite index sank 1.87% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, was flat (-0.06%).1,2,3

Stocks Retreat

Stocks weakened amid an active week of news, including two important inflation reports, Congressional testimony from Fed Chair Jerome Powell, a string of economic reports, and the start of the second-quarter earnings season.

The earnings season began on a strong note as 95% of the first S&P 500 constituent companies to report checked in with “earnings above estimates” by an average of 22%. Despite these above-expectation earnings, stocks moved little on the results.4

Bond yields continued to trend lower amid Powell’s testimony that monetary policy would remain unchanged. A decline in consumer sentiment fed worries of economic slowdown, leading stock lower and cementing losses for the week.

Hot Inflation

The Consumer Price Index (CPI) jumped 5.4% in June, representing the biggest monthly gain since August 2008. The core CPI, which excludes food and energy, increased 4.5%, which was the fastest pace since September 1991.5

The CPI report was followed by the Producer Price Index, which surged 7.3% from a year earlier, outpacing May’s jump of 6.6%. Higher wholesale prices were primarily attributed to increased commodity prices and labor costs.6

Fed Chair Powell, in Congressional testimony subsequent to these reports, reiterated his position that the accelerated inflation of recent months will be temporary.

  1. The Wall Street Journal, July 16, 2021
  2. The Wall Street Journal, July 16, 2021
  3. The Wall Street Journal, July 16, 2021
  4. Earnings Scout, July 15, 2021
  5. CNBC, July 13, 2021
  6. Reuters, July 14, 2021

Tax Tips: Your Plans This Summer May Be Eligible for Itemized Deductions

If you have big plans this summer to sell or buy a home, donate some old items, or hit the casino, some of these activities may be able to be itemized as deductions. Here are some examples:

If you are refinancing your home this summer, you may be able to deduct a part of your mortgage interest. There are some limits to these deductions, though. According to the IRS, the deduction is limited to interest paid on a loan secured by the taxpayer’s main home or second home. When you refinance, you must use the loan to buy, build, or substantially improve your main home or second home.

If you are buying a new home this summer, you can deduct mortgage insurance if you pay on a total of $750,000 in qualifying debt for a first and second home or $375,000 when married filing separately.

The summer is a great time to go through your things and donate old clothes, furniture, or home goods you no longer need. Even better, these donations may qualify for a tax deduction if you itemize the deductions and show proof of the donations.

In addition to donating items, you may also be able to deduct mileage on your personal vehicle for services done for a qualified charity.

Lastly, if you enjoy hitting the casino, you may be able to itemize and deduct gambling losses up to the amount of gambling winnings.

* 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.gov6

 

  1. IRS.gov, November 9, 2020

Weekly Market Insights: Stocks Edge Higher in Short Week

Stocks managed small gains as investors wrestled with concerns over economic growth prospects and a rise in COVID-19 infections.

The Dow Jones Industrial Average picked up 0.24%, while the Standard & Poor’s 500 gained 0.40%. The Nasdaq Composite index added 0.43%. The MSCI EAFE index, which tracks developed overseas stock markets, slipped 0.78%.1,2,3

A Choppy Week

In a truncated week of trading, stock market action was turbulent and indecisive. A mixed start saw cyclical stocks sell off amid concerns of slowing economic growth, while growth stocks advanced in response to falling yields.

After strengthening mid-week with the release of the FOMC meeting minutes, stocks skidded when reopening fears resurfaced Thursday on a new wave of global COVID-19 infections and Japan’s emergency declaration that reintroduced lockdown protocols. This led to a broad-based sell-off, with financials, home builders, and technology hit hard. A drop in bond yields added to the deteriorating sentiment.

Bond yields rebounded on Friday, setting the stage for a strong comeback for stocks, with the three major indices closing at new all-time highs.4

Attention Turns to Bonds

Since reaching a 2021 high of 1.74% in March, the 10-year Treasury yield has been in a slow, steady decline, closing at 1.37% on Friday.5

One explanation may be that reopening sentiment has turned more cautious as the Delta variant of COVID-19 spreads globally. Another view is that overseas investors are buying Treasuries, effectively lowering yields.

Perhaps it’s abating inflation concerns, or simply excess liquidity finding its way into bonds. Whatever the message, the yield narrative has changed from just a few months ago when it was believed that the 10-year treasury was heading to two percent.5

 

  1. The Wall Street Journal, July 9, 2021
  2. The Wall Street Journal, July 9, 2021
  3. The Wall Street Journal, July 9, 2021
  4. CNBC, July 9, 2021
  5. U.S Department of Treasury, July 9, 2021

Tax Tips – When Was the Last Time You Checked Your Withholding Status?

Most people check their withholding status at the end of the year or as filing season arrives, but the middle of the year is just as good of a time as any to double-check your withholding status and make sure it’s accurate. The IRS has a handy tool called the Tax Withholding Estimator, which can help you avoid having too much or too little tax withheld from your wages.

The tool can also help you determine if you need to fill out a new W-4 to submit to your employer, complete a new W-4P, or make additional payments to the IRS. It does this by estimating your annual income, how many children you are claiming for the child tax credit and earned income tax credit, and other items that may affect your taxes for the year.

Before using the Tax Withholding Estimator, gather all necessary documents. This includes your W-2 from your employer, any 1099 forms you have from banks and other payers, and any other forms you need. Gathering as much information as possible will help because the estimator will only be as accurate as the information you enter.

* 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.gov7

7. IRS.gov, February 1, 2021

Weekly Market Insights: Strong Employment Reports

Strong employment reports and rising consumer confidence sent the stock market broadly higher last week.

The Dow Jones Industrial Average rose 1.02%, while the Standard & Poor’s 500 picked up 1.67%. The Nasdaq Composite index gained 1.94%. The MSCI EAFE index, which tracks developed overseas stock markets, lost 1.42%.1,2,3

Stocks Rally

Rising conviction in the economic recovery and waning inflation worries drove stock prices higher, with the S&P 500 and Nasdaq Composite racing to record closes to begin the week.

Amid the week-long march higher, market leadership changed hands throughout the five-trading days. The leadership baton alternated between the technology and high-growth companies, which responded to lower bond yields, and cyclical stocks, which rallied on higher oil prices and successful bank stress tests.

Economic news buoyed investor sentiment as consumer confidence rose and an improving labor market—weekly initial jobless claims came in at a pandemic-era low (364,000), while employers added 850,000 new jobs in June—sent the S&P 500 and Nasdaq Composite to new record highs to close out the week.4,5

A Confident Consumer

Market sentiment was lifted by a rise in The Conference Board’s Consumer Confidence Index, which reached its highest level since the onset of the pandemic in March 2020. This was the fourth-straight month of increases in consumer-confidence levels.6

The consumer outlook for income, business, and labor market conditions over the short-term improved markedly. Interestingly, consumer confidence and buying intentions appear largely unaffected by the possibility of rising inflation. In fact, the survey showed a rise in the number of consumers expecting to purchase homes, automobiles, or home appliances. Vacation intentions also rose.6

  1. The Wall Street Journal, July 2, 2021
  2. The Wall Street Journal, July 2, 2021
  3. The Wall Street Journal, July 2, 2021
  4. The Wall Street Journal, July 2, 2021
  5. CNBC, July 2, 2021
  6. The Conference Board, June 29, 2021

Tax Season May be Over, but the Taxpayer Bill of Rights Applies Year-Round

Even though filing season might be over for the majority of taxpayers, the IRS is available year-round for any questions you might have. They also have a Taxpayer Bill of Rights, which promises the level of service and information you will receive when working with the IRS.

Here are the 10 fundamental rights you have as a taxpayer when interacting with the IRS:

  • The right to be informed: As a taxpayer, you have the right to know what is required to comply with tax laws.
  • The right to quality service: You will receive prompt, courteous, and professional assistance.
  • The right to pay no more than the correct amount of tax: You only pay what is legally due, including interest and penalties.
  • The right to challenge the IRS’ position and be heard: You have the right to object to IRS actions and provide further justification with documentation.
  • The right to appeal an IRS decision in an independent forum: Taxpayers are entitled to a fair and impartial administrative appeal of most IRS decisions, including certain penalties.
  • The right to finality: You have the right to know how much time you have to challenge an IRS position and how soon the IRS must audit your taxes.
  • The right to privacy: All IRS inquiries, examinations, and enforcement won’t be more intrusive than necessary.
  • The right to confidentiality: Taxpayers have the right to expect that their tax information will remain confidential.
  • The right to retain representation: Taxpayers have the right to retain an authorized representative of their choice to represent them in their interactions with the IRS.
  • The right to a fair and just tax system: Taxpayers have the right to expect fairness from the tax system. This includes considering all facts and circumstances that might affect their liabilities, ability to pay or provide information in a timely fashion.

* 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.gov8

  1. IRS.gov, January 21, 2021

Weekly Market Insights: Stocks Reach All-Time Highs – June 28, 2021

Stocks reached new all-time highs last week as markets staged a strong rebound from the previous week’s declines.

The Dow Jones Industrial Average rose 3.44%, while the Standard & Poor’s 500 picked up 2.74%. The Nasdaq Composite index increased 2.35%. The MSCI EAFE index, which tracks developed overseas stock markets, gained 0.97%.1,2,3

Stocks Climb

Stocks rallied on the first day of trading last week and gained further momentum on Thursday and Friday. Despite some discouraging data on housing and initial jobless claims, stocks managed to set new highs, as investors cheered an agreement between President Biden and a group of senators that appeared to pave the way for the passage of a $1 trillion infrastructure bill.4

Positive results from the Federal Reserve’s stress tests of banks, which raised the prospect of banks raising their dividend payouts and share buybacks, and a key inflation measure coming in at market expectations provided impetus for further gains. The S&P 500 had its best week since February and ended the five-trading days at a record high.5

Housing Headwinds

Historically low mortgage rates, the COVID-19 pandemic, and a flush consumer have contributed to a very strong housing market in recent months. Last week’s housing data for May, however, showed that housing may be running into headwinds. The rising cost of materials and labor led to a 5.9% decline in new single home sales in May even as the median price hit an all-time high.6

Meanwhile, sales of existing homes fell 0.9%, the fourth-straight month of declines, owing to a very low inventory. High demand, coupled with a depressed supply, led to a 23.6% increase in the median price of an existing home.7

 

  1. The Wall Street Journal, June 25, 2021
  2. The Wall Street Journal, June 25, 2021
  3. The Wall Street Journal, June 25, 2021
  4. CNBC, June 23, 2021
  5. CNBC, June 23, 2021
  6. Fox Business, June 23, 2021
  7. CNBC, June 22, 2021