Posts made in September 2020

The earned income tax credit may be able to help taxpayers put more money in their pocket. There are a few groups of people that should consider looking into the credit more. These groups may include:

• Native Americans – If a Native American taxpayer receives income as an employee or from owning a business, they may be eligible for the earned income tax credit.
• Grandparents – Grandparents who are raising grandchildren may be able to benefit from the earned income tax credit. They should make sure that the child meets the qualified child requirements. There are also a few other considerations and special rules for this segment.
• Taxpayers in Rural Areas – If you live in a rural area, you may be eligible for the credit.

The IRS has prepared the EITC Assistant to help taxpayers determine if they qualify for the EITC.

* 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, February 3, 2020

The Week on Wall Street
Stocks slipped as the technology sector remained under pressure and a mid-week announcement by the Federal Reserve failed to inspire investors.

The Dow Jones Industrial Average declined 0.03%, while the Standard & Poor’s 500 fell 0.64%. The Nasdaq Composite index dropped 0.56% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, rose 0.75%.[1][2][3]

Technology Pulls Stocks Lower
As has been the case in recent weeks, technology stocks led the market higher, then lower in an otherwise turbulent week of trading.

Merger and acquisition activity announced at the start of the week generated a rush back into technology stocks, sparking a rebound from the previous week’s drop. Stocks continued to advance until Wednesday, when investors began to digest comments from the Fed’s Federal Open Market Committee meeting. The Fed delivered a message that coupled assurances of continued low rates with concerns about the health of the economic recovery.[4]

The Fed Stays the Course
In the last Federal Open Market Committee (FOMC) meeting before the November election, the Fed signaled that interest rates would not be increased “until labor market conditions have reached levels consistent with the committee’s assessments of maximum employment and inflation has risen to 2% and is on track to moderately exceed 2% for some time.”[5]

Most Fed officials do not see this happening until 2023.

While the Fed maintained its view on the importance of fiscal stimulus to help American workers and businesses, it did improve its outlook for unemployment in its latest economic outlook. The Fed now expects unemployment would average around 7-8% in the final three months of the year, down from its June prediction of around 9-10%.[6]

[1] The Wall Street Journal, September 18, 2020
[2] The Wall Street Journal, September 18, 2020
[3] The Wall Street Journal, September 18, 2020
[4] The Wall Street Journal, September 16, 2020
[5] The Wall Street Journal, September 16, 2020
[6] The Wall Street Journal, September 16, 2020

One of the most frequently asked questions by taxpayers is, “How long should I keep my tax records?”

On its website, the Internal Revenue Service (IRS) offers some guidelines.

Note: The IRS suggests taxpayers keep copies of your filed tax returns. They help in preparing future tax returns and making computations if you file an amended return.

1. Keep records for 3 years if situations (4), (5), and (6) below do not apply to you.

2. Keep records for 3 years from the date you filed your original return or 2 years from the date you paid the tax, whichever is later, if you file a claim for credit or refund after you file your return.

3. Keep records for 7 years if you file a claim for a loss from worthless securities or bad debt deduction.

4. Keep records for 6 years if you do not report income that you should report, and it is more than 25% of the gross income shown on your return.

5. Keep records indefinitely if you do not file a return.

6. Keep records indefinitely if you file a fraudulent return.

7. Keep employment tax records for at least 4 years after the date that the tax becomes due or is paid, whichever is later.

Tip adapted from IRS.gov[7]
[7] IRS.gov, September 10, 2020

The Week on Wall Street
Stocks traveled a volatile path last week as investors appeared concerned about the upcoming elections, an uncertain economy, and more delays with additional fiscal stimulus.

The Dow Jones Industrial Average slid 1.66%, while the Standard & Poor’s 500 slumped 2.51%. The Nasdaq Composite index plummeted 4.06% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, rose 1.44%.[1][2][3]

Stocks Continue To Slip
In a holiday-shortened week of trading, stocks resumed their slide from the prior week, with the technology-heavy Nasdaq slipping into correction territory in a three-day span ended on Tuesday, September 8th. (A correction is defined as a decline of at least 10% from a recent high.)[4]

After staging a strong rebound on Wednesday, stocks once again headed lower as the Senate failed to pass another coronavirus stimulus bill. Mega-cap technology companies remained under pressure throughout the week. Energy stocks added to investors woes, plunging on data showing an unexpected build-up in inventories.[5]

The market ended the week on a mixed note, as technology companies lost additional ground.

Final Thought
On Friday the nation commemorated the tragic events of September 11, 2001.

We join all Americans in remembering the lives we lost that day and the profound impact on the victims’ families. We are reminded that it was the unity, kindness, and warmth that we collectively rediscovered in the wake of 9/11 that saw us through that difficult period.

[1] The Wall Street Journal, September 11, 2020
[2] The Wall Street Journal, September 11, 2020
[3] The Wall Street Journal, September 11, 2020
[4] CNBC, September 8, 2020
[5] CNBC, September 9, 2020

Treasury bills, notes, and bonds may be exempt from state and local taxes, but they are fully taxable on the federal level.

Municipal bonds, on the other hand, are exempt from federal income tax. Municipal bonds also may be exempt of state and local income taxes for investors who live in the area where the bond was issued. However, if a bondholder purchases a municipal bond mutual fund that invests in bonds issued by other states, the bondholder may have to pay income taxes.

* 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. Mutual funds are sold only by prospectus. Please consider the charges, risks, expenses and investment objectives carefully before investing. A prospectus containing this and other information about the investment company can be obtained from your financial professional. Read it carefully before you invest or send money.

Tip adapted from IRS.gov[9]
[9] IRS.gov, September 4, 2020

The Week on Wall Street
A late week sell-off sent stocks broadly lower as investors took some profits after stocks reached all-time highs earlier in the week.

The Dow Jones Industrial Average slid 1.82%, while the Standard & Poor’s 500 slumped 2.31%. The Nasdaq Composite index dropped 3.27% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, fell 0.62%.[1][2][3]

Gravity Reasserts Itself
Stocks hit a wall late last week as the technology companies, which had led the market higher, slipped in Thursday and Friday trading, dragging down the overall market.

The week began on an upbeat note as August momentum continued into the start of September. While participation in the rally on Tuesday and Wednesday was fairly broad, technology stocks continued to be the focus of market strength. But that sentiment changed quickly on Thursday.

With little warning and no obvious catalyst, it remains unclear whether the technology selloff last week was the result of market technicals or a fundamental change in investor outlook. The coming weeks may provide some clarity in this regard.

Labor Market Recovery Sputters Forward
Last week saw a series of employment-related reports that evidenced a continued labor market recovery.

The Automated Data Processing (ADP) employment survey showed that private payrolls increased by 428,000 in August, falling short of consensus expectations of over 1.1 million.News turned more positive as new jobless claims checked in at 881,000-an improvement from the over one million new claims the prior week. Americans receiving unemployment declined by 1.24 million to 13.3 million-half the peak number in May.[4][5][6]

Finally, the monthly jobs report indicated that nearly 1.4 million nonfarm jobs were added last month, with the unemployment rate declining to 8.4%. The progress was predominantly attributable to government hiring, primarily of new Census workers, though the retail, leisure, and hospitality sectors saw gains in new hiring.[7]

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

Here are some Child Tax Credit numbers to know from the website, IRS.gov. The numbers were updated in March 2020.

• 2,000: The maximum amount of the child tax credit per qualifying child.
• $1,400: The maximum amount of the child tax credit per qualifying child that can be refunded even if the taxpayer owes no tax.
• $500: The maximum amount of the credit for other dependents for each qualifying dependent who isn’t eligible to be claimed for the child tax credit. This can include dependents over the age of 16 and dependents who don’t have the required Social Security Number.
• $400,000: The amount of adjusted gross income for taxpayers who are married taxpayers filing a joint return before the credit is reduced.
• $200,000: The amount of adjusted gross income for all other taxpayers before the credit is reduced.

* 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] IRS.gov, February 28, 2020

The Week on Wall Street
Stocks advanced relentlessly last week on positive COVID-19 developments, encouraging economic data, and a supportive policy shift in the Fed’s approach to its target inflation rate.

The Dow Jones Industrial Average increased by 2.59%, while the Standard & Poor’s 500 jumped 3.26%. The Nasdaq Composite index leaped 3.39% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, rose 1.19%.[1][2][3]

Stocks Power Higher
Investors pushed stock prices higher all week as hopeful news came with each new day, from the announcement of a potential treatment for COVID-19 to news that U.S. and China negotiators had met by videoconference. Despite another high new jobless claims number, other economic data released during the week indicated a continuing economic recovery, further supporting investor enthusiasm for stocks.[4]

The Fed’s announcement of a shift in its inflation policy, which suggested that rates are likely to remain low for a long time, helped push the market higher. The momentum carried over into Friday, leaving the S&P 500 and NASDAQ Composite at new record highs and the Dow Jones in positive year-to-date territory.[5]

Changes in the Dow Industrials
It was announced last week that the Dow Jones Industrial Average will be undergoing some changes. Starting Monday, August 31, Salesforce.com, Amgen, and Honeywell International will be added to the 30 stocks in the Dow Industrials and Exxon Mobil, Pfizer, and Raytheon Technologies will be removed.[6]

In part, these changes were prompted by Dow-component Apple, which plans a four-to-one stock split on Monday, August 31. The Dow Jones Industrial Average is a price-weighted index, and Apple’s split reduces the impact of technology on the index. The new changes are an attempt to mitigate that issue.[7]

Please remember that companies mentioned here are for informational purposes only. It should not be considered a solicitation for the purchase or sale of the securities. Investing involves risks, and investment decisions should be based on your own goals, time horizon, and tolerance for risk. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost.

[1] The Wall Street Journal, August 28, 2020
[2] The Wall Street Journal, August 28, 2020
[3] The Wall Street Journal, August 28, 2020
[4] CNBC.com, August 27, 2020
[5] CNBC.com, August 27, 2020
[6] The Wall Street Journal, August 24, 2020
[7] CNBC, August 20, 2020