Posts made in June 2021

Did you know that if you are receiving Social Security Benefits, you may have to pay federal income tax on a portion of these benefits? The amount you have to pay will depend on your specific income and filing status.

To find out if your Social Security benefits are taxable and you are single, take one-half of the Social Security money you received throughout the year and add it to your other income, which includes pensions, wages, interest, dividends, and capital gains. If the total comes to more than $25,000, then part of your benefits may be taxable.

If you are married filing jointly, take half of the Social Security money you received throughout the year, plus half of your spouse’s Social Security benefits, and add both of those amounts to your combined household income. If the total is more than $32,000, then part of your benefits may be taxable.

On their website, the IRS then lays out the percentage of benefits that are taxable based on the above calculation. These percentages vary between 50% to 85% and depend on your filing status and income levels. For example, if you are filing single with $25,000 – $34,000 income, 50% of your Social Security benefits may be taxable.

The Interactive Tax Assistant on IRS.gov can help you determine if your Social Security benefits are taxable and if so, by how much.

* 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.gov7

7. IRS.gov, February 26, 2021

New messaging from the Federal Reserve on interest rates and inflation last week led to a broad retreat in stock prices.
The Dow Jones Industrial Average dropped 3.45% while the Standard & Poor’s 500 lost 1.91%. The Nasdaq Composite index slipped 0.28% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, fell 0.64%.1,2,3

Unsettled Markets
The Federal Reserve’s announcement on Wednesday that interest rate hikes may likely occur sooner than expected and that it had underestimated the pace of inflation unsettled investors. The hardest hit groups were cyclical stocks, like energy, materials, and industrials, as well as financials and consumer staples.4
Losses accelerated into the week’s close on comments by St. Louis Fed President James Bullard that the first rate hike could be as soon as 2022.
The bond yield curve flattened, as short-term interest rates rose in anticipation of rising rates and longer-term rates declined, reflecting a view of an eventual economic slowdown.

The Fed’s Surprise
Last week’s FOMC meeting announcement took investors by surprise as the Fed indicated that two rate hikes in 2023 were likely. It was as recent as March that the Fed had signaled that rates would remain unchanged until 2024.4
The Fed also raised its inflation expectations to 3.4%, up from its March projection of 2.4%, though it continues to believe that price increases will be transitory in nature.5
The Fed provided no indication of when and by how much it might begin tapering its monthly bond purchase program.6

1. The Wall Street Journal, June 18, 2021
2. The Wall Street Journal, June 18, 2021
3. The Wall Street Journal, June 18, 2021
4. CNBC, June 16, 2021
5. The Wall Street Journal, June 16, 2021
6. The Wall Street Journal, June 16, 2021

As summer approaches, many of us have kids or grandkids who are coming home for the summer and working part-time. Whether they’re bussing tables, counseling summer camp, or mowing lawns, these tips will help them (and you) understand the tax implications of summer jobs:

• Withholding: If your child is working for an employer, they will generally withhold taxes from their paycheck. If they are self-employed, however, they may be responsible for paying these taxes directly to the IRS.
• Self-Employment: Speaking of self-employment, it’s a good idea to keep records of income and expenses related to self-employed work. Expenses associated with self-employment may be deductible.
• New Employee Paperwork: Talk to your child or grandchild about the paperwork that they may need to fill out when starting a new job. This will likely include a W-4 form, which is a form that businesses use to calculate how much federal income should be withheld from their paycheck.
• Tip Income: All tip income is taxable and if they make more than $20 in cash tips a month, they need to report it to their employer. In addition, they must report all yearly tips on their tax return.
• Payroll Taxes: Even if your kids or grandkids earn too little to owe income tax, they may still have to either pay Social Security and Medicare taxes themselves or have them withheld from their paycheck.

Summer jobs are a great way to learn about responsibility and taxes, as well as earn a little extra income before returning to the school year.

* 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.gov7

Stocks ended the week mixed as investors appeared to shrug off a hotter-than-expected inflation report.
The Dow Jones Industrial Average slipped 0.80%, while the Standard & Poor’s 500 advanced 0.41%. The Nasdaq Composite index led, tacking on 1.85%. The MSCI EAFE index, which tracks developed overseas stock markets, rose 0.31%.1,2,3

Another Quiet Week
The market traded in a narrow range for much of last week as investors anxiously awaited the release of the Consumer Price Index (CPI) on Thursday.
May’s CPI saw an increase in inflation that exceeded most expectations. Paradoxically, markets advanced on the news, sending the S&P 500 to a new record close and the technology-heavy NASDAQ Composite higher. Perhaps equally unexpected was the decline in the 10-year Treasury yield, which slipped to 1.45%, touching its lowest level in three months.4
On Friday, stocks were unable to materially build on the previous day’s advance, though the S&P 500 managed to add onto its record Thursday close.
Inflation Trends
Consumer prices headed higher in May, rising 0.6% from April and by 5.0% from a year ago. It was the largest jump in the CPI since August 2008. Core inflation, which excludes food and energy prices, rose 3.8% — the sharpest increase in nearly three decades.5
Automobile prices were one of the primary contributors to May’s number. Used car and truck prices jumped 7.3% month-over-month and by 29.7% from a year ago. New cars experienced their highest monthly increase since October 2009 as a result of an inventory shortage stemming from tightness in the semiconductor supply.6

1. The Wall Street Journal, June 11, 2021
2. The Wall Street Journal, June 11, 2021
3. The Wall Street Journal, June 11, 2021
4. The Wall Street Journal, June 11, 2021
5. CNBC, June 10, 2021
6. CNBC, June 10, 2021

Natural disasters such as hurricanes, earthquakes, or fires can happen at
any time which is why it’s important to be prepared before disaster strikes.
Here are a few tips to help you prepare in case anything happens:
• Update your family’s emergency plans: Updating your emergency
plans can include knowing where to go, where all important
documents and possessions are located, and what you need to be
prepared for. Check up on the emergency plans for your home or
business frequently because things can change.
• Create digital copies of important documents: Most financial
organizations like banks and insurance companies provide digital
copies of bank statements, tax returns, and insurance policies
anyway, and having all these digital copies saved and organized is a
good practice to get into. If you only have paper copies of important
documents, scan them and save them to your computer in case you
can’t access them in an emergency.
• Document valuables: It’s a good idea to document valuables to
make it easier to claim insurance and tax benefits after a natural
disaster. A disaster loss workbook will help you compile a list of
belongings and photographs that can make this process even easier
for both the IRS and your insurance provider.
The best time to prepare for an emergency is always when you don’t need
to, not after the fact. These tips will help you have everything you need
ready in the case of a natural disaster or other emergencies.
* 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.gov9

9. IRS.gov, September 23, 2020

A strong, but not too strong, employment report sparked a rally on the final day of trading, propelling stocks to a modest gain for the week.

The Dow Jones Industrial Average climbed by 0.66%, while the Standard & Poor’s 500 added 0.61%. The Nasdaq Composite index increased by 0.48%. The MSCI EAFE index, which tracks developed overseas stock markets, edged up 0.10%. 1,2,3

Rotation Continues
Markets have traded sideways since mid-April, though beneath the surface has been ongoing sector
rotation. Last week continued that trend.

While stocks ended on a strong note, the performance of industry sectors varied widely. Energy,
real estate, utilities, and a number of reopening stocks performed well, while consumer discretionary, communication services, healthcare, and technology stocks lagged.

The Fed announced on Wednesday that it will soon begin selling the corporate bonds and exchange-traded funds it had accumulated during the pandemic, an action that some observers interpreted as a harbinger of an approaching change in its easy-money policies. But the below- consensus May job figure on Friday buoyed investors who believe the Fed will not change course soon. 4,5

Labor Market Recovery
It was a good week for the labor market. Initial jobless claims fell to pre- pandemic levels
(385,000), ADP (Automated Data Processing) reported a big jump in private-sector hiring (978,000),
and the monthly employment report saw nonfarm payrolls increase by 559,000 in May – a healthy
increase even though it fell short of some expectations. The unemployment rate declined to 5.8%
from April’s 6.1% level. 5,6,7

Friday’s report showed that total employment numbers still remain about seven million jobs below
their pre-pandemic levels. It also showed an acceleration in wage gains, which rose 2%
year-over-year following the 0.4% gain in April. 8

1. The Wall Street Journal, June 4, 2021
2. The Wall Street Journal, June 4, 2021
3. The Wall Street Journal, June 4, 2021
4. The Wall Street Journal, June 2, 2021
5. CNBC, June 3, 2021
6. CNBC, June 3, 2021
7. CNBC, June 4, 2021
8. CNBC, June 4, 2021