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Tax Tips – Child and Dependent Care Credit

Working moms and dads can get a break with the Child and Dependent Care Credit. Child care is expensive, and this credit is designed to offset some of that cost. The credit covers children age 12 or younger, a spouse if they are unable to take care of themself, or any other person claimed as a dependent who can’t take care of themself. More details:

  • The total expenses that you may use to calculate the credit may not be more than $3,000 (for one individual) or $6,000 (for two or more individuals).
  • You must have paid for the care, so that you could work or look for work.
  • If you are married, you must file a joint tax return.
  • When filing, you’ll need to provide information on the caregiver, such as name, address, and Taxpayer Identification Number.

* 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] www.irs.gov/taxtopics/tc602

Special Update: Quarterly Report – WEEKLY UPDATE – APRIL 8, 2019

The Week on Wall Street
Stocks just posted their second straight weekly gain. Investors were encouraged by the latest jobs report and new signs of progress on a U.S.-China trade deal. The Dow Jones Industrial Average advanced 1.17% in five trading days; the S&P 500, 1.27%; the Nasdaq Composite, 1.72%. The MSCI EAFE index of international stocks improved 1.84%.[1][2][3][4]

The economy generated 196,000 net new jobs in March, according to the Department of Labor. Monthly job growth averaged 180,000 in the first quarter. Both President Trump and Chinese Vice Premier Liu He told the media last week that the U.S. and China were getting closer to a new trade accord.[5][6]

Meanwhile, a week into the second quarter, another earnings season is about to unfold. As we await results, we will take a brief look back at what happened in the first quarter.

Quarterly Update
Stocks staged an impressive comeback in Q1, recovering nearly all of the losses incurred in the last three months of 2018.

Bullish Sentiment Increased
Investors were able to set some of their recent concerns aside, at least temporarily. The Federal Reserve indicated that it would pause interest rate hikes, and while no U.S.-China trade deal was completed during the quarter, the ongoing trade dispute cooled. The economy seemed healthy: the jobless rate was under 4%, hourly pay was rising at more than 3% a year, and inflation was tame.[7]

Add in some upside from corporate earnings, and a recipe for gains emerged.

Stocks Had Their Best Quarter Since 2009
The Dow rose 11.15%; the S&P 500, 13.07%; the Nasdaq Composite, 16.49%. Additionally, this was the best first quarter seen on Wall Street since 1998.[8]

The Fed Held Interest Rates Steady
In March, the Federal Reserve left the benchmark interest rate alone and indicated that it would not make a rate hike this year. As recently as December, the Fed had forecast two hikes for 2019.[9]

What’s Ahead
The first-quarter earnings season kicks off this week with three big banks reporting results. The question is whether stocks in the S&P 500 will post earnings that beat analyst expectations to the degree they have in the past few quarters. Other questions: how will consumer confidence, wage growth, and job creation fare in Q2? Will there be a Brexit or a new U.S.-China trade pact this quarter, and if so, how will global markets react? If you have questions of your own as this quarter unfolds, remember that we are always here to talk.

[1] quotes.wsj.com/index/SPX

[2] quotes.wsj.com/index/DJIA

[3] quotes.wsj.com/index/COMP

[4] quotes.wsj.com/index/XX/990300/historical-prices

[5] www.cnn.com/2019/04/05/economy/march-jobs-report/index.html

[6] www.cnbc.com/2019/04/05/stock-market-us-china-trade-nonfarm-payrolls-in-focus.html

[7] www.usatoday.com/story/money/2019/03/29/dow-stocks-pace-best-quarter-decade-good-times-last/3311639002/

[8] www.usatoday.com/story/money/2019/03/29/dow-stocks-pace-best-quarter-decade-good-times-last/3311639002/

[9] www.usatoday.com/story/money/2019/03/29/dow-stocks-pace-best-quarter-decade-good-times-last/3311639002/

Tax Tips – Free Tax Services for Military; Military OneSource MilTax

Military OneSource MilTax is a free service for the military and their families. The service offers an entire suite of tax and financial services, which are exclusively designed for military life. Highlights of MilTax include:

  • Tax preparation e-filing that’s secure and free. It’s available from January through October and takes into consideration military tax deductions and credits
  • Access to tax consultants who understand the financial needs of the military and can answer any tax-related questions you have
  • Free, in-person tax prep is available through the Volunteer Income Tax Assistance offices

MilTax is a benefit earned through military service and considers special tax issues, such as combat pay and multiple moves. The tax help is available to service members, including those in the National Guard and reserves, immediate family members, and eligible survivors. To find out more, visit https://www.militaryonesource.mil/, or call (800) 342-9647.

* 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 Military OneSource[11]

[11] www.militaryonesource.mil/financial-legal/tax-services/miltax-free-tax-services/miltax-free-tax-services-from-military-onesource

Gains Conclude a Great Quarter – WEEKLY UPDATE – APRIL 1, 2019

The Week on Wall Street
Stocks ended last week higher as volatility slowed, completing their best quarter since 2009. A Friday tweet from Treasury Secretary Steven Mnuchin encouraged investors, referring to “constructive” discussions in the ongoing U.S.-China trade negotiations.[1]

The S&P 500 gained 1.27% for the week. The Dow Industrials and Nasdaq Composite both exceeded that advance: the Dow rose 1.60%; the Nasdaq, 1.42%.[2][3][4]  

Foreign shares went the other way. The MSCI EAFE index following international stocks retreated 0.91%.[5] 

2019 Could Be a Big Year for IPOs
One of the ride-share pioneers, Lyft, closed on its initial public offering (IPO) on Friday, and a glance at the IPO calendar shows that as many as 226 companies could soon go public, with Uber and Airbnb possibly among them.[6]

This IPO wave may be a signal of a market top, or it may point to a comeback for risk appetite, which could be healthy for the overall market.

Should some big-name IPOs stumble, it may deter others from moving ahead, which may influence the market psychology. Conversely, an enthusiastic reception may help support further market advances.

Good News for the Housing Market
The Fed’s dovish tone has also influenced home loan rates. Freddie Mac’s latest Primary Mortgage Market Survey shows an average interest rate of just 4.06% on a 30-year, fixed rate mortgage, compared with 4.28% a week earlier and 4.95% in December.[7] 

This news is especially significant given the recent pickup in existing home sales. They jumped 11.8% in February, the biggest monthly gain in more than three years.[8]

Tax Tip
The federal income tax filing deadline is Monday, April 15, 2019. However, residents of Maine and Massachusetts have until Wednesday, April 17 to file their 2018 tax return. April 15 is Patriots’ Day, and April 16 is Emancipation Day.[9]

[1] www.marketwatch.com/story/stocks-end-higher-sp-records-strongest-quarter-in-a-decade-2019-03-29

[2] quotes.wsj.com/index/SPX

[3] quotes.wsj.com/index/DJIA

[4] quotes.wsj.com/index/COMP

[5] quotes.wsj.com/index/XX/990300/historical-prices

[6] www.cnbc.com/2019/02/04/a-giant-ipo-wave-is-coming-as-unicorns-whet-investor-appetite.html

[7] www.startribune.com/us-mortgage-rates-post-biggest-drop-in-decade-to-4-06-pct/507781302/

[8] www.nar.realtor/newsroom/existing-home-sales-surge-11-8-percent-in-february

[9] www.efile.com/tax-day-deadlines/

Tax Tips – Mileage Rates Increased for 2019*

Each year, the IRS issues standard mileage rates used to calculate the deductible costs of operating vehicles for business, charitable, medical, or moving purposes.

As of January 1, 2019, the rates for vehicles used for the above purposes are:

  • 58 cents per mile driven for business use
  • 20 cents per mile driven for medical or moving purposes
  • 14 cents per mile driven in service of charitable organizations

The IRS determines the standard mileage rate for business use based on an annual study of fixed and variable costs of operating a vehicle. The rate for medical and moving purposes is based on the variable costs.

Taxpayers have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

* 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] www.irs.gov/newsroom/irs-issues-standard-mileage-rates-for-2019

Treasury Yields Prompt Concerns – WEEKLY UPDATE – MARCH 25, 2019

The Week on Wall Street
Friday, the yield of the 3-month Treasury bill exceeded the yield of the 10-year Treasury note for the first time in 12 years. For some analysts, this “inverted yield curve” may imply a short-term lessening of confidence. (Treasury yields move inversely to Treasury prices.)[1]

As a result, the S&P 500 ended the week 0.94% lower. The Nasdaq Composite fell 0.80%, and the Dow Industrials lost 1.19%.[2][3][4] 

In contrast, the MSCI EAFE index following international stocks rose, gaining 0.52% for the week.[5]

Fed Sees No Hikes in 2019
On Wednesday, the Federal Reserve held interest rates steady, but lowered its estimate of 2019 economic growth to 2.1%.

Last December, the central bank forecast two rate hikes in 2019. It now expects to leave rates unchanged this year, with one quarter-point hike projected for 2020.

This pivot may acknowledge a slight change in economic conditions. The Fed’s latest policy statement noted that the “growth of economic activity has slowed from its solid rate in the fourth quarter.”[6]

Oil Hovers Near $60
At Friday’s closing bell, a barrel of West Texas Intermediate (WTI) crude oil was valued at $58.85 on the New York Mercantile Exchange (NYMEX). Its value briefly climbed to $60 earlier in the week.

Month-over-month, the price of WTI crude has risen nearly 5%. Historically, higher oil prices can have a significant impact on retail gasoline prices.[7]

What’s Next
A U.S. delegation is scheduled to accompany Treasury Secretary Steven Mnuchin to China this week for further trade negotiations. Finally, Brexit will not occur this Friday, as the European Union has extended the United Kingdom’s deadline in response to Prime Minister Theresa May’s request.[8][9]

[1] www.bloomberg.com/news/articles/2019-03-22/u-s-treasury-yield-curve-inverts-for-first-time-since-2007

[2] quotes.wsj.com/index/SPX

[3] quotes.wsj.com/index/NASDAQ

[4] quotes.wsj.com/index/DJIA

[5] quotes.wsj.com/index/XX/990300/historical-prices

[6] www.cbsnews.com/news/fed-rate-hikes-none-in-2019-federal-reserve-projects-no-rate-hikes-slower-growth-this-year

[7] money.cnn.com/data/commodities

[8] www.cnbc.com/2019/03/20/trump-says-china-tariffs-could-stay-in-place-amid-trade-deal-talks.html

[9] www.nytimes.com/2019/03/21/world/europe/brexit-extension-eu-uk.html

Tax Tips – Pensions and Annuities – What’s Taxed?*

Depending on the types of retirement benefits you receive, they could be taxable. Here are some basics:

Fully Taxable Payments
The pension or annuity payments that you receive are fully taxable if you don’t have an investment in the contract because:

  • You didn’t contribute anything to your pension or annuity
  • Your employer didn’t withhold contributions from your salary
  • You have received all your contributions tax-free in prior years

Partially Taxable Payments
If you made after-tax contributions to your pension or annuity, your pension payments are partially taxable. You don’t pay taxes on the portion of the payment that’s a return of the after-tax amount you paid.

Additional 10% Tax on Early Distributions
Receiving pension or annuity payments before age 59½ may subject you to an additional 10% tax on early distributions. The additional tax doesn’t apply to the portion of a distribution that is tax-free or distributions made:

  • As a part of a series of substantially equal periodic payments beginning after your separation from service
  • Because you’re totally and permanently disabled
  • On or after the death of the plan participant or contract holder
  • After your separation from service and in or after the year you reached age 55

* 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] www.irs.gov/taxtopics/tc410

Dow, S&P, Nasdaq All Rise – WEEKLY UPDATE – MARCH 18, 2019

The Week on Wall Street
The big story last week was the sudden grounding of Boeing 737 Max 8 and 9 passenger jets in dozens of countries. The financial effects of this ban could potentially impact the airline industry and segments of the economy for months.[1]

While the news created a headwind for the Dow Industrials, stocks managed to post solid gains for the week. The Nasdaq Composite rose 3.12%; the S&P 500, 2.46%; the Dow, 2.25%.[2][3][4] 

Bullish sentiment was also evident overseas. Looking at the MSCI EAFE index, international stocks advanced 1.93%.[5] 

Trade Meeting Delayed
Wall Street expected President Trump and Chinese President Xi to discuss trade issues this month. Thursday, Bloomberg reported that their talk had been postponed, with no firm date ahead.[6]  

Muted Inflation
The latest Consumer Price Index showed just a 1.5% rise in overall consumer costs in the year ending in February.

This number does not suggest an overheating economy. During a 60 Minutes interview last week, Federal Reserve Chairman Jerome Powell said the central bank did “not feel any hurry” to make a rate move.[7] 

Tax Tip
If you turned 70½ last year, April 1 is your final deadline to receive your initial Required Minimum Distribution (RMD) from a traditional IRA, SEP-IRA, SIMPLE IRA, or employer-sponsored retirement plan. If you take your initial RMD from these retirement accounts this year, you must receive your second RMD from them by December 31, 2019.[8] 

[1] www.cnbc.com/2019/03/13/boeing-shares-fall-after-report-says-us-expected-to-ground-737-max-fleet.html

[2] quotes.wsj.com/index/SPX

[3] quotes.wsj.com/index/DJIA

[4] quotes.wsj.com/index/NASDAQ

[5] quotes.wsj.com/index/XX/990300/historical-prices

[6] www.bloomberg.com/news/articles/2019-03-14/china-u-s-said-to-push-back-trump-xi-meeting-to-at-least-april

[7] www.reuters.com/article/us-usa-economy-inflation-idUSKBN1QT1MF

[8] www.irs.gov/newsroom/tax-time-guide-seniors-who-turned-70-and-a-half-last-year-must-start-receiving-retirement-plan-payments-by-april-1

Tax Tips – Reconstructing Your Records After a Natural Disaster

Fire, hurricanes, and earthquakes – sometimes disaster strikes before we can get prepared. Making an emergency preparedness kit with food, supplies, radio, prescriptions, and important documents is your best bet before a disaster happens. Getting your records together and providing an accurate account of losses after a disaster will help with general tax purposes and will also be required for obtaining federal assistance, grants, loans, or insurance reimbursements. Here are a few tips:

  • Take photos and/or video as soon as possible after the disaster.
  • Contact title, escrow, or banks to get copies of needed documents. Your real estate broker may have these records as well.
  • Research comparable homes in your neighborhood for value.
  • Review insurance policies; they can contain a base value for replacement.
  • If you made improvements to your home, contact the contractor for verification of costs.
  • You can check the county assessor’s office for old records.

Reconstructing your records will help you to get re-established should your home be affected by a disaster.

Tip adapted from IRS.gov[9]

[9] www.irs.gov/newsroom/reconstructing-records-after-a-natural-disaster-or-casualty-loss-irs-provides-tips-to-help-taxpayers

Stocks Dip on Growth Concerns – WEEKLY UPDATE – MARCH 11, 2019

The Week on Wall Street
As in February, investors spent most of the first full trading week of March hoping for new details in U.S.-China trade negotiations. While they waited, stock benchmarks drifted downward. From Monday’s open to Friday’s close, the S&P 500 lost 2.55%, while the Dow Industrials took a 2.66% fall, and the Nasdaq Composite weakened 3.12%. The MSCI EAFE index tracking developed markets outside the U.S. and Canada fell 1.09%.[1][2][3][4]

Why did stocks lose momentum? In a hint that global economic growth might be slowing, the European Central Bank abruptly reduced its 2019 Gross Domestic Product forecast for the eurozone from 1.7% to 1.1%. A disappointing reading on U.S. hiring also raised questions.[5] 

Perplexing Jobs Data
According to the Department of Labor, the economy generated only 20,000 net new jobs in February. This was the smallest monthly gain since September 2017. Nevertheless, the unemployment rate fell to 3.8%, while underemployment declined sharply to 7.3%. (These decreases could reflect furloughed federal employees returning to work.) The average wage rose 3.4% in 12 months, the largest year-over-year increase in a decade.

Harsh winter weather may have impeded hiring last month, and February’s payroll growth could be revised in the Department of Labor’s next report.[6]   

Earnings Season Recap
The fourth-quarter reporting season is all but over. FactSet notes that the S&P 500 has seen earnings growth of 13.4% in Q4, marking the fifth straight quarter with a double-digit rise.[7] 

Final Thought
Stocks lost ground last week, breaking a long string of weekly advances. The extended rally partly reflected optimism that the U.S.-China trade dispute would soon be resolved, but a deal may or may not happen. The week offered a reminder that Wall Street sees both ups and downs. Day-to-day market fluctuations should not cause you to alter your long-term approach.

[1] quotes.wsj.com/index/SPX

[2] quotes.wsj.com/index/DJIA

[3] quotes.wsj.com/index/NASDAQ

[4] quotes.wsj.com/index/XX/990300/historical-prices

[5] www.cnbc.com/2019/03/07/stock-market-us-china-trade-jobless-claims-in-focus.html

[6] www.usatoday.com/story/money/2019/03/08/jobs-report-just-20-000-added-february-economists-expected-181-000/3098383002/

[7] insight.factset.com/earnings-insight-q418-by-the-numbers-infographic