Posts made in June 2020

The tax preparer you choose to help you file taxes can have different representation or “practice” rights. These rights may affect how they can represent you before the IRS. As you manage your tax details within your financial life, remember these tips.

How Will You Be Represented?

• Unlimited: This category enables your tax preparer to represent you before the IRS on any tax item. The credentialed tax professional can be an Enrolled Agent, Certified Public Account (CPA), or attorney.
• Limited: This category means that only the person who prepared and signed your tax return can represent you before the IRS. However, they cannot represent you on appeals or collection matters. Your tax preparer can represent you in front of revenue agents, customer service representatives, and similar IRS employees.

As you manage your taxes each year, be sure to familiarize yourself with the tax preparer’s representation rights.

* 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] IRS.Treasury.gov, June 19, 2020

The Week on Wall Street
Stocks moved higher last week on news of more Federal Reserve market support and diminished concerns that new COVID-19 cases might lead to another economic shutdown.

The Dow Jones Industrial Average rose 1.04%, while the Standard & Poor’s 500 gained 1.86%. The Nasdaq Composite Index jumped 3.73% for the week. The MSCI EAFE Index, which tracks developed overseas stock markets, increased 1.88%.[1][2][3]

Investor Sentiment
News on Monday that the Fed would be expanding its bond-buying program to include the debt of individual companies sparked a sharp jump in stocks. The momentum gained through the week as investors focused on positive economic signals, especially with retail sales. A midweek report of an effective COVID-19 treatment for critically ill patients boosted investor optimism.

Market sentiment also was helped by talk of more fiscal stimulus and a report that China would be moving ahead with agricultural purchases to comply with phase one of the trade deal, easing concerns over growing friction in the U.S.-China relationship.

Mixed Economic Data
Last week’s economic data illustrated the uneven nature of the nation’s nascent economic recovery.

Retail sales, which were up by 17.7% in May, reflected a strong, encouraging rebound in the U.S. consumer. Consumer spending was particularly strong in clothing, furniture, sporting goods, and autos.[4][5]

But industrial production (up by only 1.4%) and new housing starts (ahead by just 4.3%) showed tepid rebounds, indicating that recovery has yet to reach all corners of the American economy. Jobless claims posted their best number since mid-March (1.5 million), but remained high by historical standards.[6][7][8]

Final Thoughts
Last week saw the flare-up of border tensions in two geopolitical hotspots: North Korea and the disputed border region between China and India. The hope, of course, is that escalation can be avoided through diplomacy, but any heightening in tensions may become a concern for global markets.

[1] The Wall Street Journal, June 19, 2020
[2] The Wall Street Journal, June 19, 2020
[3] The Wall Street Journal, June 19, 2020
[4] The Wall Street Journal, June 16, 2020
[5] The Wall Street Journal, June 16, 2020
[6] MarketWatch, June 16, 2020
[7] CNBC, June 17, 2020
[8] The Wall Street Journal, June 18, 2020

Sometimes taxpayers owe more money in taxes than they can afford to pay to the IRS. When this happens, you have the option to file an Offer in Compromise, which allows you to pay less than you owe. If you opt to pursue this route, here are some specific details you should know.

Affording the full debt amount. If you can afford to pay your full debt, you will, most likely, not qualify for an Offer in Compromise. Instead, you should pursue other options, such as setting up a payment plan with the IRS.

Filing all required tax materials. In order to apply for an Offer in Compromise, you must have filed all necessary tax paperwork with the IRS.

Making an initial payment toward your debt. The IRS may require you to pay an amount toward your owed taxes when you apply for Offer in Compromise. Any payments will apply to your debt.

You can find out if you qualify by using the IRS Offer in Compromise Pre-Qualifier Tool.

* 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] IRS.gov, June 12, 2020

The Week on Wall Street
Investor sentiment turned negative last week, amid an increasing number of COVID-19 cases in states where reopening has been underway as well as a subdued economic forecast from the Federal Reserve.

The Dow Jones Industrial Average dropped 5.55%, while the Standard & Poor’s 500 lost 4.78%. The Nasdaq Composite Index slipped 2.30% for the week. The MSCI EAFE Index, which tracks developed stock markets overseas, fell 3.10%.[1][2][3]

Reality Bites
The optimism that drove stock prices higher these past several weeks slipped away on reports of a jump in COVID-19 cases, which sparked worries of a second wave slowing the economic recovery. A sober forecast for the economy by the Federal Reserve further dampened investor sentiment.

The week started upbeat with “reopening” stocks, e.g., financials, transportation, retailers, travel and leisure, and industrials, leading the way higher. But the momentum was soon lost as stocks turned mixed on Tuesday and Wednesday and then moved decidedly downward, with the S&P 500 losing 5.9% on Thursday.[4]

Amid a volatile week, big technology companies resumed their market leadership, with the NASDAQ Composite closing above 10,000 for the first time. Stocks pared their losses on Friday, but it wasn’t enough.[5]

Fed Forecasts Economic Growth and Interest Rates
On Wednesday, the Federal Reserve said that it would keep the federal funds rate near zero and maintain its monthly purchases of Treasury bonds and mortgage-backed securities.

The Fed also issued its forecasts for 2020-2022, indicating that it saw its benchmark federal funds rate remaining at zero, with inflation at 0.8% for 2020, increasing to 1.6% in 2021, then to 1.7% in 2022. Fed officials also expect the economy to shrink by 6.5% this year, with Gross Domestic Product growing 5% and 3.5% in 2021 and 2022, respectively. Their forecast for unemployment predicts a steady decline over the next 2½ years, from 9.3% by the end of 2020 to 5.5% in 2022.[6]

[1] The Wall Street Journal, June 12, 2020
[2] The Wall Street Journal, June 12, 2020
[3] The Wall Street Journal, June 12, 2020
[4] The Wall Street Journal, June 11, 2020
[5] CNBC, June 12, 2020
[6] CNBC, June 10, 2020

Are you a teacher? Are you looking to put money directly back in your pocket after the semester? You’re in luck! Educators may be able to deduct unreimbursed expenses on their tax returns. Here are some things to know about this deduction:

• Educators can deduct up to $250 of trade or business expenses that were not reimbursed. As teachers prepare for the next school year, they should remember to keep receipts after making any purchase to support claiming this deduction.
• Qualified expenses should be in the amounts the taxpayer paid for the expenses in the same tax year.
• Professional development course fees, books, supplies, or computer equipment are all valid deductions.
• To be considered eligible, you must be a teacher, instructor, counselor, principal, or aide.

*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] IRS.gov, June 5, 2020

The Week on Wall Street
A positive jobs report sent stocks soaring last Friday, capping a solid week as evidence of a global economic recovery outweighed concerns over civil unrest and tensions with China.

The Dow Jones Industrial Average jumped 6.81%, while the Standard & Poor’s 500 advanced 4.91%. The tech-heavy Nasdaq Composite Index lagged, climbing 3.42%. The MSCI EAFE Index, which tracks developed stock markets overseas, gained 5.52%.[1][2][3]

Stocks March Higher
Despite multiple headwinds, stocks rode a wave of optimism over economic recovery and were encouraged by signs that a feared spike in COVID-19 had not occurred.

Firming oil prices and positive global manufacturing data helped boost stocks during the week. The market continued to be led by industry sectors that were most battered in the March decline, as price advances slowed in growth-oriented stocks, primarily technology names.

After a pause on Thursday, stocks surged on Friday when a jobs report surprisingly showed 2.5 million new jobs in May, with the unemployment rate falling to 13.3%. Wall Street expected a jobs decline of over 8 million and an unemployment rate of 19.5%.[4][5]

A Wall of Worry
While the markets continued to move higher last week, many investors are concerned that the recovery may be hindered by simmering tensions with China and the civil unrest that erupted last week.

China has been a longstanding source of market worry, but the civil unrest introduces a new challenge. For now, the market appears to have shrugged off these concerns.

Final Thought
This past Wednesday marked the best 50-day gain for the S&P 500 in the index’s history. During a period that approximates the lifespan of a mosquito, stock market sentiment has swung from near-absolute despair in late March to positively bullish.[6]

Often, the most impactful lessons in life tend to be those most recently learned. If the last three months have offered investors any lesson, it may be that trying to time the market is a challenging proposition.

[1] The Wall Street Journal, June 5, 2020
[2] The Wall Street Journal, June 5, 2020
[3] The Wall Street Journal, June 5, 2020
[4] CNBC, June 5, 2020
[5] CNBC, June 5, 2020
[6] The Wall Street Journal, June 4, 2020

Do you rent a spare room in your house or provide car rides for a fee? If so, you may be a part of the sharing or “gig” economy. If you made any income from such platforms, you have some key financial details to address when filing your taxes.

Is the income taxable?
Yes. No matter whether you made money full or part time, the IRS taxes the income you make.

Can you take deductions?
Some business-expenses deductions may apply for taxpayers who qualify. A deduction for a business expense could be an item, such as claiming the standard mileage rate if you use your car for business.

Do taxes apply if you rent a home you also live in?
You will generally have to account for specific tax rules if you rent a home that you live in at any point throughout the year. You can identify the status of taxable rental income using the IRS tax assistant tool.

* 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] IRS.gov, February 25, 2020

The Week on Wall Street
The shortened week, which began with a powerful two-day rally of trading, was enough to drive the markets into another week of solid gains.

The Dow Jones Industrial Average rose 3.75%, while the Standard & Poor’s 500 advanced 3.01%. The Nasdaq Composite Index climbed 1.77% for the week. The MSCI EAFE Index, which tracks developed stock markets overseas, gained 6.18%.[1][2][3]

Rising Optimism
Returning from Memorial Day weekend, stocks surged on rising optimism over economic re-opening, declines in new infections, and progress in the development of a vaccine.

Stocks continued their march higher, lifted by signs that the White House and Congress may be working together to put together another stimulus package. But the momentum lost steam, in part due to news of China’s vote to override Hong Kong’s autonomy. Comments by President Trump on the last day of trading eased concerns.[4][5]

Rotation in Leadership
The recovery from the March lows has been powered by large-cap growth stocks, especially the mega-cap technology names. However, this week saw new sectors leading the market higher, notably the financials and industrials, while the technology and health care sectors lagged.

This leadership rotation is being referred to by some market commentators as the “re-opening trade.” If these sectors are to remain leaders, it may hinge on a steady economic recovery and escaping a second wave of COVID-19 infections.

[1] The Wall Street Journal, May 29, 2020
[2] The Wall Street Journal, May 29, 2020
[3] The Wall Street Journal, May 29, 2020
[4] CNBC.com, May 28, 2020
[5] FoxBusiness.com, May 29, 2020