Posts made in August 2019

We never want to think of a natural disaster happening, but the truth is that floods, fires, hurricanes, and tornadoes can happen at any time, especially during the summer. No matter where you live, you should be aware of the possible natural disasters in your area and plan accordingly. Prepare for these natural disasters by considering the following tax tips:
• Update your emergency plan.

• Create electronic copies of all important documents.

• Document your valuables. Documenting these items ahead of time makes it easier to claim insurance and tax benefits if a disaster strikes.

• You can call the IRS at 866-562-5227 with any natural disaster-related questions. They can provide copies of previous tax returns, order transcripts showing most line items, and more.

• Net personal, casualty, and theft losses may be deductible if they’re attributable to a federally declared disaster.
The IRS also has a video all about preparing for disasters. In it, it includes more tax tips for planning ahead.

* 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] www.irs.gov/newsroom/all-taxpayers-should-plan-ahead-for-natural-disasters

The Week on Wall Street
Traders assumed that the week’s biggest news event would be Federal Reserve Chairman Jerome Powell’s speech at the annual Jackson Hole banking conference. Instead, China seized the headlines by announcing new tariffs on U.S. goods
Domestic stocks ended up lower for the week. The Nasdaq Composite fell 1.83%; the S&P 500, 1.44%; the Dow Jones Industrial Average, 0.99%. International stocks posted a weekly gain: the MSCI EAFE benchmark rose 0.96%.[1][2]

Beijing Plans New Tariffs
Friday morning, China’s finance ministry stated it would levy import taxes of 5-10% on an additional $75 billion of American imports. One set of tariffs is slated to start September 1, targeting U.S. crops, meats, and seafood. A second set, effective December 15, will put tariffs on U.S.-made cars and car parts. In total, these taxes are scheduled for more than 5,000 American products.

Friday evening, the White House announced two rounds of 5% increases on existing U.S. tariffs on Chinese goods, to be successively implemented on September 1 and October 1.[3][4]

Powell Reflects at Jackson Hole
Friday, Jerome Powell delivered an address on monetary policy at the Kansas City Fed’s annual Jackson Hole symposium. He noted that the global economy currently presented a “complex, turbulent picture,” and added that the Fed was “carefully watching developments” and would “act as appropriate.”

Investors wonder if the central bank will consider another rate cut at its September meeting. Comments from other Fed officials at Jackson Hole did not indicate a consensus on that matter.[5]

Leading Indicators Rise
The Conference Board, the business research group known for its monthly Consumer Confidence Index, also publishes a monthly Leading Economic Indicator (LEI) Index. The Conference Board LEI provides a forward-looking analysis of the health of the business cycle, looking at ten factors ranging from consumer expectations to stock prices to construction activity.

In July, the LEI rose 0.5%, following 0.1% descents in May and June. This sudden increase offers optimism at a time when investors are wondering about the momentum of the economy.[6]
Final Thought
Bond prices have risen around the world, leading to lower bond yields. In some instances, yields have turned negative. While the yield on the 10-year Treasury has also declined, it is still above 1.5%, notably exceeding the yields of similar-duration bonds in France, Germany, Spain, and the United Kingdom.[7]

[1] www.wsj.com/market-data

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

[3] www.cnn.com/2019/08/23/business/china-tariff-products-soybeans-oil/index.html

[4] www.marketwatch.com/story/trump-says-us-tariffs-will-increase-on-chinese-goods-2019-08-23

[5] www.marketwatch.com/story/powell-says-fed-carefully-watching-developments-and-will-act-as-appropriate-2019-08-23-10103027

[6] www.conference-board.org/data/bcicountry.cfm?cid=1

[7] www.cnbc.com/2019/08/20/investing-in-the-strange-negative-yield-world-its-very-hard-to-wrap-your-arms-around.html

Buying a new car is an exciting purchase. If you are buying your next vehicle from a private seller rather than a dealership or selling a used car to an individual, there are a few tax considerations you should know. The first is that if you are selling your car for less than you paid for it, you likely won’t have to pay sales tax on the sale. This is because the IRS considers selling a used car for less than you paid a capital loss. But in contrast, if you are selling your car for more than you paid (like if it’s a classic car you’ve restored and it’s increased in value), you may have to pay sales tax.

If you’re buying a car from a private seller, you’ll have to pay sales tax. But this sales tax doesn’t go to the seller, it goes to the DMV. This sales tax is incorporated in your car’s registration.

* 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 CarGurus[8]

[8] www.cargurus.com/Cars/articles/how_do_taxes_work_on_private_car_sales

The Week on Wall Street
U.S. stock indices saw significant ups and downs last week, with traders looking for economic cues from Treasury yields and also developments in the tariff fight between the U.S. and China.
The S&P 500 lost 1.03% on the week; the Dow Jones Industrial Average and Nasdaq Composite respectively declined 1.53% and 0.79%. Overseas shares also retreated: the MSCI EAFE index lost 2.34%.[1][2]

Attention on the Bond Market
Wednesday, the yield of the 2-year Treasury bond briefly exceeded that of the 10-year Treasury bond. When this circumstance occurs, it signals that institutional investors are less confident about the near-term economy. That view is not uniform. Asked whether the U.S. was on the verge of an economic slowdown, former Federal Reserve Chair Janet Yellen told Fox Business “the answer is most likely no,” noting that the economy “has enough strength” to avoid one.

The demand for bonds has definitely pushed prices for 10-year and 30-year Treasuries higher, and their yields are now lower (bond yields usually fall as bond prices rise). The 30-year Treasury yield hit a historic low last week.[3][4]

Some China Tariffs Postponed
Last week, the Office of the U.S. Trade Representative announced that about half the Chinese imports slated to be taxed with 10% tariffs starting September 1 would be exempt from such taxes until December 15.

The White House said that the reprieve was made with the upcoming holiday shopping season in mind, so that tariffs might have less impact on both retailers and consumers.[5]

Final Thought
Lower interest rates on bonds are now influencing mortgages. According to mortgage reseller Freddie Mac, the average interest rate on a conventional 30-year home loan was just 3.6% last week. That compares to 3.81% roughly a month ago (July 18).[6]

[1] www.wsj.com/market-data

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

[3] www.cnbc.com/2019/08/15/us-bonds-30-year-treasury-yield-falls-below-2percent-for-first-time-ever.html

[4] www.foxbusiness.com/economy/janet-yellen-to-wall-street-a-recession-is-unlikely

[5] www.reuters.com/article/us-usa-trade-china-tariffs/trump-delays-tariffs-on-chinese-cellphones-laptops-toys-markets-jump-idUSKCN1V31CX

[6] www.freddiemac.com/pmms/archive.html

If you or someone you know is getting married this year, they should include tax planning on their wedding preparation checklist. Here are some tax tips to remember before you tie the knot:
• Check your withholding, and if you’re going to change your filing status (for example, going from single to married filing jointly or married filing separately), you’ll need to complete a new W-4 and Employee Withholding Allowance Certificate.

• If you’re changing your name after you get married, you need to report your new name to the Social Security Administration. The name on your tax return must match the name on file at the SSA.

• If you’re moving, make sure to fill out a Form 8822, Change of Address
This wedding season, love is in the air. Knowing these tax tips will help you or someone you know successfully include the IRS in all the fun.

* 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] www.irs.gov/newsroom/taxpayers-should-include-tax-plans-in-their-wedding-plans

The Week on Wall Street
Stocks spent much of last week rebounding from a Monday drop that reflected nervousness about the U.S.-China trade fight. By Thursday’s closing bell, the S&P 500 had regained all its Monday losses – but it descended again on Friday.
The three big U.S. equity benchmarks finished the week lower: the S&P declined 0.46%; the Dow Jones Industrial Average, 0.75%; the Nasdaq Composite, 0.56%. A broad index of foreign shares, the MSCI EAFE, lost 0.95%.[1][2]

China Devalues Its Currency
Last Monday, stocks fell 3% in reaction to the overnight weakening of the Chinese yuan. A weaker yuan makes Chinese exports cheaper for buyers who pay for them in dollars.

Critics quickly accused China of manipulating its currency to strike back at the U.S. The federal government plans to impose tariffs on nearly all Chinese products next month, likely making those goods more expensive to American consumers; a weaker yuan could counter the effect of those import taxes.[3][4]

Earnings Season Update
Ninety percent of S&P 500 firms have now reported second-quarter results. Their collective sales and profits have surprised to the upside.

Stock market analytics firm FactSet says that overall earnings have beaten estimates by 5.7%. Seventy-five percent of firms have reported actual earnings per share surpassing estimates, which is better than the five-year average.[5]

Final Thought
We are seeing a significant bond rally this summer, even with interest rates at very low levels. (When bond prices rise, bond yields tend to fall.) At the moment, about a quarter of the global bond market is invested in government notes with negative interest rates. The 10-year Treasury stands in contrast. Friday, it was yielding 1.74%.[6][7]
[1] www.wsj.com/market-data
[2] quotes.wsj.com/index/XX/990300/historical-prices

[3] www.bloomberg.com/news/articles/2019-08-04/asia-stocks-set-to-drop-with-trade-back-in-focus-markets-wrap

[4] www.bloomberg.com/news/articles/2019-08-05/china-hits-back-at-trump-with-weaker-yuan-halt-on-crop-imports

[5] insight.factset.com/earnings-season-update-august-9-2019

[6] www.cnbc.com/2019/08/07/how-bonds-with-negative-yields-work-and-why-this-growing-phenomenon-is-so-bad-for-the-economy.html

[7] www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield

Roth and Traditional IRAs are popular retirement savings accounts and have some similarities and differences. Here are a few:

Income Limits
Anyone who has earned income and is younger than 70½ can contribute to a Traditional IRA. Roth IRAs have income eligibility limits for contributions. Single filers can’t earn more than $137,000, and married couples can’t earn more than $203,000.

Tax Incentives
Traditional IRA contributions are generally tax deductible when you make the contributions, and withdrawals in retirement are taxed at the current income tax rate. Contributions to a Roth IRA aren’t tax deductible, but earnings and withdrawals are generally tax free.

Withdrawal Rules
Traditional IRAs require you to start taking minimum distributions at age 70 ½. Roth IRAs don’t have any required minimum distributions.

Deciding which retirement savings account is right for you is a personal decision and will depend on your income tax bracket (both now and when you retire), your income, and other criteria. A skilled financial advisor can help you decide which option, if any, is right for you.

* 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.

Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax. The Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change.

Tip adapted from IRS.gov[8]
[8] www.irs.gov/retirement-plans/traditional-and-roth-iras

The Week on Wall Street
Last week, the Federal Reserve cut interest rates for the first time in more than a decade, in line with Wall Street’s expectations. Ironically, stocks had their worst week of 2019.

The S&P 500 finished the week 3.10% lower. The Dow Jones Industrial Average and the Nasdaq Composite also posted weekly losses; the blue chips fell 2.60%, while the premier tech benchmark slumped 3.92%. International stocks tracked by MSCI’s EAFE index dipped 1.06%.[1][2][3]
Fed Cuts Benchmark Interest Rate
On Wednesday, the central bank reduced the federal funds rate by 0.25%. The latest Fed policy statement noted that “global developments” and “muted inflation” influenced the decision.

Addressing the media, Fed Chairman Jerome Powell described the cut as a “mid-cycle adjustment.” After that comment, Wednesday’s trading session turned volatile on the interpretation that the cut was a “one and done” move, instead of what might be the first in a series.[4]

More Tariffs Planned
Shares also fell Thursday, after a White House tweet indicated that the U.S. would put a 10% tariff on another $300 billion of goods coming from China, effective September 1.

Practically speaking, this would mean a tariff on nearly all Chinese products arriving in America. So far, the announcement has not affected plans for trade delegates from both nations to continue negotiations in September.[5]

The Latest Hiring Data
Payrolls expanded with 164,000 net new jobs in July, according to the Department of Labor. The headline jobless rate stayed at 3.7%; it has now been under 4% for 17 months. The U-6 jobless rate, which counts both underemployed and unemployed Americans, dipped to 7.0%, a level unseen since December 2000.

Monthly job growth has averaged 140,000 over the past three months, compared to 187,000 in 2018.[6]

[1] www.apnews.com/e15c18b9dbc44efab400d2214e2cb6f9
[2] www.wsj.com/market-data

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

[4] www.forbes.com/sites/jjkinahan/2019/07/31/feds-quarter-point-rate-cut-weak-global-growth-trade-tensions-muted-inflation-cited

[5] www.cnn.com/2019/08/01/investing/asian-market-latest-trade-war/index.html

[6] www.cnn.com/2019/08/02/economy/july-jobs-report/index.html