Posts made in February 2020

Even if you don’t own a business, you may occasionally trade products or services with someone else instead of paying cash. If you barter, the value of the goods or services you trade is considered taxable income. Here are some things to keep in mind:

• Both parties in a trade must report the fair market value of the products or services they receive as income on their tax returns.

• Barter exchanges, organized marketplaces where members trade goods or services, are required to issue Form 1099-B, “Proceeds from Broker and Barter Exchange Transactions.” You must include the amount earned on your tax return.

• Bartering is taxable in the year the trade occurs. Depending on your individual situation, you may owe income taxes, self-employment taxes, employment taxes, or excise taxes on your bartering income.

If you have questions about how to handle income from bartering or other sources, contact a tax professional.

* 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] www.irs.gov/forms-pubs/about-form-1099-b

The Week on Wall Street
Traders paid close attention to coronavirus developments and earnings last week, while wondering how the former might eventually impact the latter. Concern over updated infection numbers moderated risk appetite.

A pair of key stock benchmarks posted similar weekly losses. In New York, the S&P 500 declined 1.25%; the MSCI EAFE index (of developed stock markets away from North America) lost 1.24%. The Dow Jones Industrial Average retreated 1.38% for the four-day trading week; the Nasdaq Composite, 1.59%.[1][2]

Minutes from the Federal Reserve’s January Meeting
Last month, members of the Federal Open Market Committee felt the near-term outlook for the economy had improved slightly since the last Fed meeting in December. The minutes did note that the COVID-19 coronavirus outbreak “warranted close watching.”

Some analysts have wondered, if the coronavirus threat heightens whether the Fed might cut short-term interest rates this year. The FOMC voted 11-0 in January to leave rates alone.[3]

Fewer Home Sales, But More Building Permits
Sales of existing homes weakened 1.3% in January, according to a new National Association of Realtors report. On the new home front, the Census Bureau said that the rate of permits for new residential construction neared a 13-year high last month.[4][5]

Final Thought
At Friday’s closing bell, gold was worth $1,646.60 on the New York Mercantile Exchange. Gold futures traded at a seven-year peak on Friday morning.[6]

[1] www.wsj.com/market-data
[2] quotes.wsj.com/index/XX/MSCI%20GLOBAL/990300/historical-prices
[3] www.reuters.com/article/us-usa-fed-minutes/fed-policymakers-cautiously-optimistic-on-u-s-economy-despite-new-risks-minutes-show-idUSKBN20D2K3
[4] finance.yahoo.com/news/stock-market-news-live-updates-february-21-2020-124037980.html
[5] www.marketwatch.com/story/housing-starts-dip-36-in-january-but-permits-hit-13-year-high-2020-02-19
[6] finance.yahoo.com/news/stock-market-news-live-updates-february-21-2020-124037980.html

When you sell a capital asset like an investment or a piece of property, the sale can result in a capital gain or loss. The IRS defines a capital asset as “most property you own for personal use or own as an investment.” Here are four facts you should know about capital gains:

1. A capital gain or loss is the difference between what you originally paid for the asset (your basis) and the amount you get when you sell an asset.

2. You must include all capital gains in your income, and you may be subject to the Net Investment Income Tax if your income is above certain amounts. Consult a qualified tax expert for help.

3. The IRS allows you to deduct capital losses on the sale of investment property. You cannot deduct losses on the sale of property that you hold for personal use.

4. If your total net capital loss is more than the limit you can deduct, you can carry it over to next year’s tax return.

* 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] www.irs.gov/taxtopics/tc409

The Week on Wall Street
Daily headlines about the coronavirus had little impact on stock market averages last week. Earnings and mergers had more influence.

All three Wall Street benchmarks improved. The Nasdaq Composite rose 2.21%, outpacing the S&P 500, up 1.58%, and the Dow Jones Industrial Average, up 1.02%. The MSCI EAFE index, which tracks developed overseas equity markets, added 0.17%.[1][2]

Jerome Powell Testifies on Capitol Hill
Commenting that the economy is in a “very good place,” Federal Reserve Chairman Jerome Powell told congressional legislators that he did not currently see a significant recession risk.

“There’s nothing about this expansion that is unstable or unsustainable,” Powell remarked during his semi-annual report to the House Financial Services Committee. He did reiterate that the central bank was “carefully” watching the coronavirus outbreak, and that it could “very likely” have residual economic impact on the U.S.[3]

Yearly Inflation Reaches 2.5%
Consumer prices have not advanced to this degree since the 12-month period ending in October 2018. Underneath this January headline inflation number, core inflation (minus food and energy prices, which are often volatile) was up 2.3% year-over-year.

These numbers are from the Consumer Price Index, maintained by the Bureau of Labor Statistics. The Federal Reserve monitors inflation using its core personal consumption expenditures (PCE) index, which remains below the central bank’s 2% yearly inflation target.[4]

Gains in Retail Sales, Sentiment
The Census Bureau said retail sales were up 0.3% in the first month of the year, matching the consensus forecast of analysts polled by MarketWatch. Additionally, the University of Michigan’s preliminary February consumer sentiment index monitoring consumer confidence factors went back above 100 last week (100.9).[5]

Final Thought
The S&P 500 has risen more than 1% since the coronavirus surfaced. During the SARS epidemic of 2003, the MERS outbreak of 2013, and the 2015-16 Zika virus breakout, the index declined.[6]

[1] www.wsj.com/market-data
[2] quotes.wsj.com/index/XX/MSCI%20GLOBAL/990300/historical-prices
[3] finance.yahoo.com/news/powell-testimony-february-2020-us-economic-expansion-not-unstable-or-unsustainable-165916522.html
[4] www.cnbc.com/2020/02/13/us-consumer-price-index-rose-0point1percent-in-january-vs-0point2percent-expected.html
[5] www.marketwatch.com/tools/calendars/economic
[6] www.cnbc.com/2020/02/13/us-futures-point-to-lower-open-on-wall-street.html

This tax season, the IRS expects an uptick in tax-related scams. In most cases, IRS “phishing” scams are bogus phone calls and emails that claim to come from the IRS. Fraudsters use fake refunds or threats of a tax bill or audit to convince recipients to give up their personal and financial information. They then use it to steal a victim’s money or identity. The IRS has the following tips:

• Fraudsters may know a lot about you when they call and may be able to spoof your caller ID to show that they are calling from an official number. Don’t be fooled.
• If you don’t answer the phone, they may leave an urgent callback request.
• If you receive a call that you think might be from the IRS, take down the agent’s information and call them back at the official IRS hotline: 1-800-829-1040.

Remember, the IRS will never:

• Call you without mailing an official notice first.
• Demand that you immediately pay your taxes over the phone.
• Take a debit or credit card number over the phone.
• Threaten to call law enforcement or immigration services to arrest you for failure to pay.

* 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/tax-scams-consumer-alerts

The Week on Wall Street
Stocks advanced four days out of five during the past market week, erasing the losses of the week before.

The Nasdaq Composite surged 4.04%, the S&P 500 3.17%, and the Dow Jones Industrial Average 3.00%. Foreign stocks also rallied: the MSCI EAFE index added 2.21%.[1][2]

China Plans to Halve Some Tariffs
Thursday, investors woke up to the news that China would be lowering import taxes on about $75 billion of U.S. products. Later this week, a set of 10% tariffs is slated to drop to 5%, and a group of 5% tariffs is scheduled to fall to 2.5%.

This reduction is part of the phase-one trade deal that China agreed to last month, a pact which may be a step toward a trade truce with the U.S.[3]

January’s Net Job Gain: 225,000
The Department of Labor’s latest employment report exceeded expectations. Economists surveyed by Bloomberg projected 165,000 net new hires last month. The main jobless rate ticked north to 3.6%; the U-6 rate including the underemployed rose 0.2% to 6.9%.

This upside surprise points to ongoing strength in the economy. Stocks declined Friday after the report’s release, however, as traders viewing the data saw less reason for a Federal Reserve rate cut in the near future.[4]

A Manufacturing Positive
The U.S. factory sector grew last month, for the first time since July. The Institute for Supply Management’s purchasing managers index for the manufacturing sector, which traders view as a fundamental economic indicator, came in at 50.9 in January; any reading above 50 indicates sector expansion.[5]

What’s Ahead
Investors should note that U.S. stock and bond markets will be closed on Monday, February 17 for Presidents Day.

[1] www.wsj.com/market-data
[2] quotes.wsj.com/index/XX/MSCI%20GLOBAL/990300/historical-prices
[3] www.cnn.com/2020/02/06/economy/china-tariffs-coronavirus/index.html
[4] finance.yahoo.com/news/jobs-report-january-2020-labor-market-bls-002348568.html
[5] ycharts.com/indicators/us_pmi

All income you receive is taxable unless the rules explicitly state that it isn’t. According to the IRS, taxable income includes earned income, like wages, as well as any income earned by bartering or the exchange of property or services. Rental income is taxable, as are other forms of unearned income, like interest and dividends or Social Security.

Some income is not taxable unless certain conditions are met. For example, life insurance proceeds are usually not taxable to the beneficiary unless you redeem a life insurance policy for cash. Any amount you receive above the cost of the policy is taxable. State and local income tax refunds may be taxable and should be reported on your federal taxes.

There are also some forms of income that are usually not taxable:

• Gifts and inheritances.
• Child support payments.
• Welfare benefits.
• Damage awards for physical injury or sickness.
• Cash rebates from a dealer or manufacturer for an item you buy.
• Reimbursements for qualified adoption expenses.

* 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] www.irs.gov/businesses/small-businesses-self-employed/what-is-taxable-and-nontaxable-income

The Week on Wall Street
Stock benchmarks declined for a second straight week as coronavirus news tempered risk appetite.
The S&P 500 fell 2.14% on the week. The Nasdaq Composite dipped 1.76%, and the Dow Jones Industrial Average, 2.55%. Away from North America, developed markets slumped 2.24%, according to MSCI’s EAFE index.[1][2]

The Fed Makes a Minor Move
The Federal Reserve left short-term interest rates alone at its January meeting, but it did make what Fed chairman Jerome Powell called a “small technical adjustment” in view of its continuing purchases of Treasuries. Wednesday, it slightly increased the interest rate paid to banks that park excess capital reserves at the Fed.

The move may give the Fed a bit more control over short-term rates this quarter and assist the operations of U.S. financial markets.[3]

Encouraging New Consumer Data
Rising to 131.6 in January, the Conference Board’s Consumer Confidence Index reached its highest level since August. Consumer spending increased 0.3% in December, according to a new Department of Commerce report.[4][5]

Economy Expanded at a 2.1% Pace in Fourth Quarter
The Bureau of Economic Analysis released this estimate Thursday. That number matches the gross domestic product of the third quarter and affirms that the U.S. avoided a fall slowdown.[6]

[1] www.wsj.com/market-data
[2] quotes.wsj.com/index/XX/MSCI%20GLOBAL/990300/historical-prices
[3] www.marketwatch.com/story/fed-holds-benchmark-interest-rate-steady-sees-economy-growing-at-moderate-pace-2020-01-29
[4] www.investing.com/economic-calendar/cb-consumer-confidence-48
[5] www.investing.com/economic-calendar/personal-spending-235
[6] www.marketwatch.com/story/economy-grows-21-in-the-4th-quarter-as-gdp-gets-big-boost-from-falling-trade-deficit-2020-01-30