Posts made in December 2022

Well-organized recordkeeping makes it easier to prepare your tax return and provide evidence of tax deductions. According to the IRS, You must keep records, such as receipts, canceled checks, and other documents that support an item of income, a deduction, or a credit appearing on a return as long as they may become material in the administration of any provision of the Internal Revenue Code. Depending on the assessment, these periods of limitation can range from 3 years to no limit.

There are also periods of limitations for refund claims, which range from 2 years to 7 years. The IRS recommends keeping records of property records, healthcare insurance, and business income and expenses, among other categories.

* 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.gov⁶

Footnotes and Sources

6. ^{IRS.gov, August 8, 2022}

Hawkish comments by the Fed and weak economic data heightened investors’ recession concerns and sent stocks lower last week.

The Dow Jones Industrial Average lost 1.66%, while the Standard & Poor’s 500 retreated 2.08%. The Nasdaq Composite index declined 2.72% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, slipped 0.88%.^1,2,3

Stocks Under Pressure

Stocks began the week on a positive note, supported by a cooler-than-expected Consumer Price Index (CPI) report. Stocks reversed direction mid-week, however, following the Federal Open Market Committee (FOMC) meeting in which another 0.5% rate hike was announced.

The half-point increase was widely anticipated, but the increase in the terminal rate (i.e., the point at which the Fed stops raising rates) rattled investors. Continued hawkishness by Fed Chair Powell at the post-meeting press conference added to investors’ anxiety. The potential for higher rates for longer, along with disappointing economic data, particularly a sharp decline in retail sales, amplified fears of a recession and sent stocks lower for the remainder of the week.

Inflation and the Fed

The release of November’s CPI showed inflation cooling for the second consecutive month, as prices rose just 0.1% month-over-month and 7.1% from a year ago. Both were better than expected.⁴

The FOMC ended its last meeting of 2022 by raising interest rates another 0.5% and signaling that it would likely continue to hike rates into the new year. At a subsequent press conference, Fed Chair Powell commented that the next rate increase could be a quarter-percentage point. Most FOMC members appear to support raising the terminal rate (the point at which hikes end) to above 5%, up from its September projection of 4.6%.⁵

Footnotes and Sources

1. ^{The Wall Street Journal, December 16, 2022}
2. ^{The Wall Street Journal, December 16, 2022}
3. ^{The Wall Street Journal, December 16, 2022}
4. ^{CNBC, December 13, 2022}
5. ^{The Wall Street Journal, December 14, 2022}

Business travel deductions are available when employees travel away from their tax home or principal place of work for business reasons. The travel period must be substantially longer than an ordinary day’s work, and a need for sleep or rest to meet the demands of the work while away.

Some examples of deductible travel expenses include:

• Airline, bus, or train tickets or mileage rates to drive
• Fare for taxes or other types of transportation between an airport to a hotel and from a hotel to a work location
• Baggage fees
• Lodging
• Dry cleaning or laundry

If you are self-employed, you can deduct your travel expenses using Schedule C (Form 1040), Profit or Loss From Business (Sole Proprietorship).

* 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.gov⁶

Footnotes and Sources

6. ^{IRS.gov, August 8, 2022}

Recession fears and concerns that the Fed may consider a longer rate-hike cycle sent stocks lower for the week.

The Dow Jones Industrial Average dropped 2.77%, while the Standard & Poor’s 500 fell 3.37%. The Nasdaq Composite index lost 3.99% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, dipped 1.09%.^1,2,3

Stocks Slide

Stocks were under pressure much of the week due to resurgent recession fears and concerns that Fed rate hikes may go higher for longer than current expectations. There was some good news last week on the economic front and out of China, which started to loosen COVID restrictions. But it was a week where good news was considered bad news, as any signs of economic resilience stoked worries of a longer rate-hike cycle.

Higher continuing jobless claims signaled economic softness, triggering a Thursday rally. But stock prices were under pressure Friday following a disappointing Producer Price Index (PPI) number.

Producer Inflation Disappoints

The Labor Department reported that the PPI rose 0.3% in November and 7.4% from a year ago. Though wholesale prices inflation rose at the slowest 12-month pace since May 2021, they exceeded market expectations. Price pressures were felt most in the services sector, where costs rose 0.4% after a 0.1% increase the month before. Goods inflation eased to a rise of 0.1%, a sharp drop from its October gain of 0.6%.⁴

Though the PPI number dented the optimism around cooling inflation, November’s PPI report represented an improvement from its 11.7% peak in March.⁵

Footnotes and Sources

1. ^{The Wall Street Journal, December 9, 2022}
2. ^{The Wall Street Journal, December 9, 2022}
3. ^{The Wall Street Journal, December 9, 2022}
4. ^{CNBC, December 9, 2022}
5. ^{CNBC, December 9, 2022}

There are many tools to use to plan for retirement and an Individual Retirement Account is one of them. There are two kinds of IRAs, traditional IRAs and Roth IRAs. Here are some quick facts about both of them:

• A traditional IRA is a tax-advantaged personal savings plan where contributions may be tax deductible.
• Generally, the money in a traditional IRA isn’t taxed until it’s withdrawn.
• There are annual limits to contributions depending on the person’s age and the type of IRA.
• With a traditional IRA, taxpayers must start taking withdrawals from their IRA when they reach age 72
• A taxpayer can’t deduct contributions to a Roth IRA.
• Qualified distributions to a Roth IRA are tax-free.
• Roth IRAs don’t require withdrawals until after the death of the owner.

* 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.gov⁶

Footnotes and Sources

6. ^{IRS.gov, July 11, 2022}

Stocks ended higher last week as investors navigated the crosscurrents of a potential easing in future rate hikes and continued strength in the labor market.

The Dow Jones Industrial Average edged 0.24% higher, while the Standard & Poor’s 500 gained 1.13%. The Nasdaq Composite index improved by 2.09% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, rose 1.68%.^1,2,3

A Choppy Week

The week started lower on concerns about protests in China over its zero-Covid policy and comments by two Fed presidents that the Fed may continue its aggressive rate hike policy. Stocks then surged on Wednesday following remarks by Fed Chair Powell, confirming the central bank’s intention to slow the pace of interest rate increases, which may begin as early as this month.

Stocks buckled in early trading on Friday’s monthly employment report, which showed a higher-than-expected increase in new job growth and an above-expectations jump in wage growth. But stocks cut their losses by the end of the session to lock in a positive week.

Labor May Be Key

In a presentation to the Brookings Institution, Powell said that it might be time to begin moderating the pace of rate hikes. He cited several areas of progress in the inflation fight, including a deceleration in interest rate sensitive parts of the economy, such as housing and supply chain improvement. He also noted the price declines seen in goods and rents.⁴

But Powell suggested the labor market would need to cool down before the Fed could feel confident about making sustainable progress toward its two percent inflation target. November’s employment report showed robust job and wage growth, which indicated any cooling remained in the future.⁵

Footnotes and Sources

1. ^{The Wall Street Journal, December 2, 2022}
2. ^{The Wall Street Journal, December 2, 2022}
3. ^{The Wall Street Journal, December 2, 2022}
4. ^{The Wall Street Journal, November 30, 2022}
5. ^{The Wall Street Journal, November 30, 2022}

Backup withholding is when a taxpayer must withhold at the current rate of 24%, which is taken from any future payments, to ensure that the IRS receives the tax due on this income. This can happen for many reasons, including if you fail to provide a correct taxpayer identification number (TIN) or if you fail to report or underreport interest and dividend income.

Many types of payments are subject to backup withholding, and you can view the complete list on the IRS’ website, but some include:

• Interest payments
• Dividends
• Rents, profits, or other gains
• Commissions, fees, or other payments for work you do as an independent contractor
• Royalty payments
• Gambling winnings

* 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.gov⁶

Footnotes and Sources

6. ^{IRS.gov, July 14, 2022}

Growing optimism that the Fed may be ready to ease future interest rate hikes sent stocks higher in a quiet trading week.

The Dow Jones Industrial Average gained 1.78%, while the Standard & Poor’s 500 added 1.53%. The Nasdaq Composite index improved 0.72% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, advanced 2.33%.^1,2,3

Stocks Rally

In light holiday-week trading, stocks rallied as investors grew more hopeful of a slowdown in a future rate hike. The release of the minutes from the early November meeting of the Federal Open Market Committee (FOMC) fed investors’ optimism. Fed officials suggested such easing may be coming soon.

Investor sentiment was also lifted by unexpectedly strong retailer earnings, upside surprises in new economic data, and a better-than-expected consumer sentiment reading. Investors looked past the continuing Covid-related challenges that have stymied China’s economic recovery and its attendant implications for global growth.

Easing in the Offing?

The Fed meeting minutes, released before the Thanksgiving holiday, showed that most Fed officials felt a slowing in interest rate increases would be appropriate. The minutes also suggested that such a deceleration in rate hikes may begin with December’s meeting with a 50 basis point hike rather than a fifth consecutive boost of 75 basis points.⁴

The primary reasons for slowing the pace of rate hikes were the growing risk that the Fed may increase rates beyond what was required to reduce inflation to its two percent target and signs that inflation pressures were easing.⁵

Footnotes and Sources

1. ^{The Wall Street Journal, November 25, 2022}
2. ^{The Wall Street Journal, November 25, 2022}
3. ^{The Wall Street Journal, November 25, 2022}
4. ^{The Wall Street Journal, November 23, 2022}
5. ^{The Wall Street Journal, November 23, 2022}