Author: Ramsay Capital Group

Deductions or credits not used fully one tax year that may be eligible to be carried over into future years include:

• When you have a net operating loss
• When your total expenses for a permitted deduction exceed the amount you’re allowed to deduct in a given year
• When a credit you qualify for exceeds the amount of tax you owe in a year
• Adoption tax credits
• Foreign tax credits
• Credits for energy efficiency

Track these (or have your software do it) so that you don’t forget them from one year to the next.

* 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 Credit Karma⁶

Footnotes and Sources

6. ^{Credit Karma, December 9, 2020}

A jump in yields sparked by a more aggressive sounding Federal Reserve sent the market lower to start the new year.

The Dow Jones Industrial Average fell 0.29%, while the Standard & Poor’s 500 declined 1.87%. The Nasdaq Composite index was hardest hit, dropping 4.53% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, slipped 0.55%.^1,2,3 

The Tech Wreck

The perception of a more hawkish Fed put a hard stop to the year’s positive start and pushed bond yields higher and stocks into a broad retreat.

Technology and other high-valuation shares were particularly hard hit by rising yields. Even the larger-capitalization technology companies with strong cash flows and profits were damaged. As yields trend higher, investors are questioning if these companies can lead the market in 2022. Fueling this decline was a four-day sell-off of technology companies by hedge funds that, in dollar terms, represented the highest level in more than ten years. Stocks continued to struggle into the final trading day, unsettled by a renewed climb in yields and an ambiguous employment report.⁴

The Fed’s Surprise

Minutes of December’s Federal Open Market Committee (FOMC) meeting were released last week and it revealed a more hawkish Fed than investors had been expecting. One surprise was that the first hike in interest rates could occur as early as March. Another, and perhaps more consequential, surprise was the idea of beginning a “balance sheet run-off” by the Fed following the first hike in the federal funds rate.⁵

A balance sheet run-off means that maturing bonds won’t be replaced with new bonds, the result of which is a smaller Fed balance sheet. Many investors view this step as removing liquidity from the system, a departure from market expectations that the balance sheet would remain flat during the Fed’s pivot to monetary normalization.

Footnotes and Sources

1. ^{The Wall Street Journal, January 7, 2022}
2. ^{The Wall Street Journal, January 7, 2022}
3. ^{The Wall Street Journal, January 7, 2022}
4. ^{CNBC, January 6, 2022}
5. ^{The Wall Street Journal, January 5, 2022}

The IRS started the Volunteer Income Tax Assistance (VITA) program to provide free tax advice, preparation, return filing help, and other assistance to military members and their families. This also includes specific tax advice for military members on topics such as combat zone tax benefits, special extensions, and other special rules. VITA has convenient locations on and off base and even has offices overseas.

These offerings are just one way the IRS is striving to make tax information available to all. It also offers other free assistance programs to taxpayers who qualify, including the elderly, through its Tax Counseling for the Elderly (TCE) program.

* 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 militaryonesource.mil⁶

Footnotes and Sources

6. ^{militaryonesource.mil, June 1, 2021}

Stocks closed out the year on a mostly positive note, adding to the year’s gains as concerns about the economic issues of Omicron infections receded.

The Dow Jones Industrial Average rose 1.08%, while the Standard & Poor’s 500 picked up 0.85%. The Nasdaq Composite index was flat (-0.05%) for the week. The MSCI EAFE index, which tracks developed overseas stock markets, posted an increase of 0.80%.^1,2,3

Stocks Notch Record Highs

The end of the year is historically a strong period for stocks–a seasonal pattern dubbed “The Santa Claus Rally.” This year’s final week of trading did not disappoint as stocks posted healthy gains to kick off the week, despite a global increase in Omicron infections. Investors were buoyed by data that showed fewer associated hospitalizations, which helped ease fears of the variant’s economic impact.

The S&P 500 set multiple fresh record highs, with Wednesday’s new high representing the 70th such high in 2021, while the Dow Industrials recorded its first new record since November. Stocks drifted on low trading volume in the final two trading days of the year, capping a good week, a solid month, and a strong year for investors.⁴

Robust Holiday Sales

The market got off to a good start last week in part due to a strong holiday sales report. A major credit card issuer reported that consumer holiday spending rose 8.5% from last year’s levels, driven by an 11.0% gain in online sales. It was the biggest annual increase in 17 years. The spending by consumers exceeded pre-pandemic sales by 10.7%. The retail categories that experienced the highest sales increases were apparel (+47.3%) and jewelry (+32.0%).⁵

It was a particularly robust number in view of investor concerns about supply chain disruptions, port congestion, labor shortages, and wavering consumer confidence.

Footnotes and Sources

1. ^{The Wall Street Journal, December 31, 2021}
2. ^{The Wall Street Journal, December 31, 2021}
3. ^{The Wall Street Journal, December 31, 2021}
4. ^{CNBC, December 29, 2021}
5. ^{CNBC, December 27, 2021}

In an effort to protect heritage sites and other history, the IRS implemented its rehabilitation tax credit, which offers an incentive to renovate and restore old or historic buildings. Here are some of the highlights to help you determine whether your building is eligible:

• The credit may pay for 20% of the qualifying costs of rehabilitating a historic building.
• This 20% needs to be spread out over five years.
• The credit doesn’t apply to the purchase of the building.
• Taxpayers use Form 3468, Investment Credit, to claim the rehabilitation tax credit.

Although this credit might not move the needle a significant amount in a lot of situations, it’s still a step in the right direction in trying to preserve our country’s history.

* 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, January 22, 2021}

Stock prices retreated last week as global central banks joined the Federal Reserve in taking steps to tighten monetary policy.

The Dow Jones Industrial Average fell 1.68%, while the Standard & Poor’s 500 dropped 1.94%. The Nasdaq Composite index tumbled 2.95% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, managed a gain of 0.47%.^1,2,3

From Uncertain to Unsettled

Stocks weakened ahead of Wednesday’s Federal Open Market Committee (FOMC) meeting as investors weighed how aggressive the Fed might be in reversing its easy-money policies. Investor sentiment was further dented by disappointing economic data. Retail sales fell short of expectations and a year-over-year jump of 9.6% in producer prices reflected price pressures that may translate into higher future consumer prices. It was the highest percentage increase since records started in 2010.⁴

The market initially responded well to the FOMC announcement on Wednesday afternoon, but became unsettled into Thursday and Friday over a tighter monetary policy and Omicron concerns.

A New Fed Narrative

After the FOMC meeting, the Fed announced a plan to quicken the tapering of its monthly bond purchases. It plans to double the rate from $15 billion a month (announced in November) to $30 billion a month, effectively putting an end to asset purchases by March 2022. The Fed also signaled that as many as three rate hikes may be coming in 2022.⁵

The Fed cited elevated inflation and an improved labor market as justification for the pivot from its pandemic-related, easy-money policies. Reflecting the persistence of higher-than-anticipated inflation, the Fed raised its previous inflation estimates for this year and 2022.⁶

Final Note

Our weekly market commentary will not be published next week. We want to take this opportunity to wish you and your family a wonderful holiday season and a very happy and prosperous new year!

1. ^{The Wall Street Journal, December 17, 2021}
2. ^{The Wall Street Journal, December 17, 2021}
3. ^{The Wall Street Journal, December 17, 2021}
4. ^{The Wall Street Journal, December 14, 2021}
5. ^{The Wall Street Journal, December 15, 2021}
6. ^{The Wall Street Journal, December 15, 2021}

Tax credits help with the cost of higher education by reducing the amount of income tax you may need to pay. The two tax credits available are the American Opportunity Tax Credit and the Lifetime Learning Credit.

Some education savings plans offer tax benefits if the individual qualifies. Also, you may be able to deduct higher-education costs – such as tuition, student loan interest, and qualified education expenses – from your tax return.

If you’ve always dreamed about going back to school, whether to further your career or just to learn something new, knowing your potential tax benefits may save you money.

* 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

6. ^{IRS.gov, June 16, 2021}

A more benign reassessment of the possible economic risk posed by Omicron sent stocks sharply higher last week.

The Dow Jones Industrial Average picked up 4.02%, while the Standard & Poor’s 500 advanced 3.82%. The Nasdaq Composite index gained 3.61% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, rose 2.74%.^1,2,3

Assessing Omicron

Though much is still unknown about the Omicron variant, reports of potentially milder health effects and the efficacy of booster shots ignited optimism that its economic impact would be less severe than originally feared.

Stocks rallied higher each of the first three days, with strong gains in many of the reopening stocks, such as airlines, travel and leisure, financials, and energy. The performance of high-valuation growth companies was a bit more erratic as they rose and fell sharply throughout much of the week. Weakening Thursday, stocks turned higher on Friday despite a hot inflation number, pushing the S&P 500 to a new record high.⁴

Inflation Factor

November’s Consumer Price Index (CPI) came in at a nearly 40-year high, rising 0.8% from the previous month and 6.8% from a year ago. It is the 6th-consecutive month that inflation has exceeded 5%. Core inflation (excluding the more volatile food and energy prices) came in lower, but still posted its sharpest jump since 1991.⁵

Economists have attributed this elevated inflation rate to strong consumer demand, a shortage of goods due to supply chain constraints, and strong wage growth. How long this high level of inflation persists is unknown, but the Fed has begun considering policy steps to manage it.

1. ^{The Wall Street Journal, December 10, 2021}
2. ^{The Wall Street Journal, December 10, 2021}
3. ^{The Wall Street Journal, December 10, 2021}
4. ^{CNBC, December 10, 2021}
5. ^{The Wall Street Journal, December 10, 2021}

Did you know that if you owe the Internal Revenue Service $52,000 or more, the IRS can revoke your passport? That’s right, the IRS has the power to revoke the passport of any taxpayer owing $52,000 or more, including penalties and interest.

Notably, if you’re currently paying off the debt or are contesting a tax bill in court, you should not be affected. However, anyone under an IRS tax lien could find their ability to travel hampered.

If you have any questions about tax debts or other complex tax issues, contact a qualified attorney or tax specialist.

* 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

6. ^{IRS.gov, May 25, 2021}

Stocks took investors on a wild ride last week as the Omicron variant and Fed comments upended market expectations.

The Dow Jones Industrial Average fell 0.91%, while the Standard & Poor’s 500 stumbled 1.22%. The Nasdaq Composite index dropped 2.62% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, lost 0.62%.^1,2,3

A Tumultuous Week

Stock prices were volatile all week, swinging wildly after staging a modest recovery to begin the week. Omicron fears were not the only issue weighing on investors. Markets were also rattled by Fed Chair Powell’s Congressional testimony stating conditions warranted considering an acceleration of its bond purchase taper schedule. Last week’s roller-coaster action was epitomized on Wednesday when stocks rallied intraday by 520 points on the Dow Industrials, only to close the session lower by 460 points.⁴

Stocks staged a powerful rebound on Thursday on news that a second Omicron infection exhibited mild symptoms. Also helping the rebound was news that an agreement was reached in the House of Representatives to temporarily fund the government and word from President Biden that an economic lockdown was not in the plan to fight COVID this winter. Emblematic of the volatile week, stocks fell on Friday following a weak jobs report.

Powell Surprises Markets

Markets easily digested the Fed’s early-November announcement that it would pull the trigger on its bond purchase tapering program, but were caught off-guard by Powell’s comments during Congressional testimony last Tuesday. Powell indicated that the Fed would discuss the option of accelerating its tapering plans at its next meeting.⁵

Powell cited the risk of higher inflation and substantial improvement in the labor market as warranting ending bond purchases a few months sooner than planned. Powell sought to move away from describing inflation as transitory, acknowledging that rising energy prices, higher rents, and strong wage gains could keep inflation elevated, though he maintained inflation would decline sometime in 2022.⁵

1. ^{The Wall Street Journal, December 3, 2021}
2. ^{The Wall Street Journal, December 3, 2021}
3. ^{The Wall Street Journal, December 3, 2021}
4. ^{The Wall Street Journal, December 1, 2021}
5. ^{Reuters.com, November 30, 2021}