Author: Ramsay Capital Group

Veterans face unique tax considerations due to their status. This includes disabled veterans. Here are some things to consider for disabled veterans and their families:

• Disabled veterans may be eligible to claim a federal tax refund if they receive an increase in the percentage of disability from the Department of Veteran Affairs.
• They may also be able to claim this tax refund if they are granted Combat-Related Special Compensation.

A disabled veteran can file Form 1040X, Amended US Individual Income Tax Return, if they need to make changes to their return based on the above or other changing circumstances. The veteran may only have to file an amended return on the year that the change is made.

* 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, April 21, 2020

The Week on Wall Street

Stocks soared last week as investors anticipated that a split Congress would raise legislative hurdles to changing corporate taxes and adjusting regulatory oversight of big technology companies.

The Dow Jones Industrial Average jumped 6.87%, while the Standard & Poor’s 500 tacked on 7.32%. The Nasdaq Composite index surged 9.01% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, rose 7.65%.[1][2][3]

Bulls Take Charge

Coming off a poor close to October, stocks surged throughout election week, jumping higher in pre-election trading on bargain hunting and strong factory activity. The rally picked up steam as Americans went to the polls and shifted into overdrive Wednesday morning.

Investors were buoyed by Congressional results that indicate that the next president would have to work with a divided Congress. Though a divided Congress might result in a smaller potential stimulus package and continued gridlock, investors seemed to believe that was outweighed by a diminished risk of higher taxes, greater regulation, and policy initiatives that might be challenging to businesses.

Stocks took a pause to close out the week, even as a solid jobs report saw the unemployment rate fall a full percentage point to 6.9%.[4]

Yields Gyrate

Overlooked amid the powerful rally in stock prices was the swing in yields last week. Action in the bond market is important since 10-year Treasury yields are a benchmark for setting borrowing costs for businesses and they represent another view on the strength of the economic recovery.

The 10-year Treasury note rose as high as 0.942% during after-hours trading on election evening and dropped to 0.768% by the end of normal trading hours on Wednesday.[5]

[1] The Wall Street Journal, November 6, 2020

[2] The Wall Street Journal, November 6, 2020

[3] The Wall Street Journal, November 6, 2020

[4] The Wall Street Journal, November 6, 2020

[5] The Wall Street Journal, November 5, 2020

Unfortunately, criminals often use the IRS as a gateway for common phone scams. These scams can differ, but they generally include someone posing as an IRS agent asking for payment. These calls can be scary, especially if you don’t know what to believe.

Here are some signs of a phone scam so you can recognize them and report them to the IRS immediately:

• Generally, the IRS will first try to reach you by mail if you owe money. If you haven’t received any previous notice, the call might be fraudulent.
• The IRS will never ask about personal information over the phone, such as your Social Security Number.
• The IRS will also never request immediate payment using specific payment methods such as prepaid debit cards, gift cards, or wire transfers.
• The IRS won’t demand that these taxes be paid without giving you the opportunity to ask questions about the amount owed.
• The IRS won’t threaten to immediately bring in law enforcement groups to have you arrested for not paying.

If you receive these scam calls, hang up immediately and report the call to the IRS using the IRS Impersonation Scam Reporting form or by calling 800-366-4484.

* 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[10]

[10] IRS.gov, March 9, 2020

The Week on Wall Street

Stock prices dropped last week as hopes for a fiscal stimulus bill faded and investors focused on rising COVID-19 infections, here and abroad.

The Dow Jones Industrial Average slid 6.47%, while the Standard & Poor’s 500 tumbled 5.64%. The Nasdaq Composite index lost 5.51% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, slumped 5.02%.[1][2][3]

A Difficult Week for Stocks

Stocks opened the week lower as lawmakers failed to pass a fiscal stimulus bill and a pick up in the number of new COVID-19 cases in the U.S. and Europe. Hardest hit were companies most exposed to pandemic-related economic impacts, including energy, travel and leisure, and industrials.

Losses accelerated mid-week on reports of rising coronavirus-related hospitalizations, along with news that Germany and France were reinstating partial shutdown restrictions.[4]

Stocks attempted to recover on Thursday, but took another leg lower on Friday as earnings reports from the mega-cap technology companies failed to impress investors.

Positive Economic News

There were several strong economic reports during the week, but investors paid little attention. Among the highlights were durable goods orders, which rose for the fifth consecutive month, a sharp drop in initial jobless claims that were the lowest since March 14th, and a 33.1% annualized jump in economic growth during the third quarter.[5][6][7]

Investors also ignored a strong start to earnings season, which has seen 85% of reporting companies in the S&P 500 index beating earnings estimates by an average margin of 19%.[8]

[1] The Wall Street Journal, October 30, 2020

[2] The Wall Street Journal, October 30, 2020

[3] The Wall Street Journal, October 30, 2020

[4] CNBC, October 27, 2020

[5] The Wall Street Journal, October 27, 2020

[6] CNBC, October 29, 2020

[7] The Wall Street Journal, October 29, 2020

[8] CNBC, October 29, 2020

The adoption credit is designed for families who adopted or started the adoption process. These taxpayers may be able to claim up to $14,080 of credit for each eligible child. To determine eligibility, taxpayers should fill out Form 8839, Qualified Adoption Expenses. This can help you determine how much credit you may be eligible for.

This credit may cover qualified expenses, including reasonable and necessary adoption fees, court costs and legal fees, adoption-related travel expenses, and other expenses directly related to the adoption. There are also income limits that could affect the amount of the credit.

The SECURE Act added an allowance for a $5,000 IRA withdrawal (without the usual 10% penalty) that can be used toward expenses related to childbirth or an adoption. This withdrawal counts as taxable income, though, and must be taken within a year of the child’s birth or arrival.

* 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 and CNBC.com[8][9]

[8] IRS.gov, March 10, 2020

[9] CNBC.com, October 22, 2020

The Week on Wall Street

The failure to reach an agreement on a new fiscal stimulus bill soured investor sentiment and sent stocks modestly lower for the week.

The Dow Jones Industrial Average fell 0.95%, while the Standard & Poor’s 500 lost 0.53%. The Nasdaq Composite index slipped 1.06% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, declined 0.44%.[1][2][3]

Markets Disappointed with Stimulus Impasse

Stock prices ebbed and flowed all week, pulled by the gravity of fiscal stimulus talks in Washington, D.C. As investors saw improving prospects for a new fiscal stimulus bill, stocks rose. As prospects dimmed, stocks turned lower.

Hopes for striking a deal were raised late in the week as comments from a key negotiator suggested that a deal might be getting closer to fruition. The week ended, however, without an agreement, cementing a disappointing week of performance.

Market sentiment was further weighed down by the continued rise in COVID-19 cases in the U.S. and Europe, though anxieties were tempered by the belief that a full economic lockdown was unlikely.

New Jobless Claims Fall

Markets have been focused on weekly initial jobless claims as an important input into the state of economic recovery. After weeks of 800,000+ new jobless claims, last week’s report reflected an improving labor market, as new jobless claims rose by 787,000, below consensus estimates of 875,000, while continuing jobless claims fell by more than one million.[4]

The report wasn’t entirely positive, however, as more than 500,000 individuals were added to the emergency assistance program that extends unemployment benefits to those who have run out of state unemployment benefits.[5]

[1] The Wall Street Journal, October 23, 2020

[2] The Wall Street Journal, October 23, 2020

[3] The Wall Street Journal, October 23, 2020

[4] CNBC.com, October 22, 2020

[5] CNBC.com, October 22, 2020

School may look a little different this year, but eligible teachers can still deduct certain unreimbursed expenses on their tax return next year.

The taxpayer must be a kindergarten through grade 12 teacher, instructor, counselor, principal, or aide. They must also work at least 900 hours a school year in a school that provides elementary or secondary education as determined under state law.

Educators can deduct up to $250 of trade or business expenses that were not reimbursed. As teachers prepare for the school year, they should remember to keep receipts after making any purchase to support claiming this deduction.

Examples of expenses the educator can deduct include:

• Professional development course fees
• Books
• Supplies
• Computer equipment, including related software and services
• Other equipment and materials used in the classroom

* 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, March 11, 2020

The Week on Wall Street
Stocks treaded water last week amid fading prospects for a stimulus bill, fears of a second wave of COVID-19 cases, and increasing political and regulatory pressures on Big Tech companies.

The Dow Jones Industrial Average added just 0.07% while the Standard & Poor’s 500 eked out a gain of 0.19%. The Nasdaq Composite index picked up 0.79% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, slid 2.08%.[1][2][3]

Rocky Week
The stock market began the week by posting strong gains on hopes of a fiscal stimulus bill. Also, investors were optimistic that earnings season would reflect an improving picture of corporate performance.

But stocks stumbled midweek on a mixed bag of early earnings results, and an increase in COVID-19 cases in the U.S. and Europe. Disappointing news on some key COVID-19 treatment trials also weighed on the market, as did a jump in new jobless claims and a continued stalemate on a fiscal stimulus package.

Stocks attempted to rally on Friday, emboldened by strong retail sales, but lost momentum as trading came to a close.

Earnings Season Kicks Off
Earnings season began on an upbeat note as major banks mostly beat on revenue and profit expectations. Banks attributed the strength to rising consumer deposits, a drop in the amount of money set aside for failing loans, and strong results from their investment banking and trading units.[4]

Airlines fared less well. Investors were disappointed with the quarterly reports even though the average daily cash burn at these companies generally improved. Airline management uniformly accompanied their earnings announcements with warnings of continued near-term weakness due to COVID-19.[5]

[1] The Wall Street Journal, October 16, 2020
[2] The Wall Street Journal, October 16, 2020
[3] The Wall Street Journal, October 16, 2020
[4] CNBC.com, October 13, 2020
[5] CNBC.com, October 14, 2020

According to the Taxpayer Bill of Rights, the IRS won’t share any information that a taxpayer gives with outside parties unless allowed by the taxpayer themselves or the law. This right to confidentiality is one of the 10 rights found in the Taxpayer Bill of Rights.

Also included in the confidentiality clause:

• The IRS can’t contact third parties, including employers, friends, or banks, for information without giving the taxpayer reasonable notice first.
• The same confidentiality you have with an attorney also applies to tax professionals working with the IRS on your behalf.

Confidential communications include conversations, messages, and documents that are considered private or restricted between a taxpayer and their attorney or the IRS.

* 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, October 9, 2020

The Week on Wall Street
Stocks staged a powerful rally last week, riding a wave of optimism over the prospect of the passage of a new fiscal stimulus bill.

The Dow Jones Industrial Average rose 3.27%, while the Standard & Poor’s 500 increased 3.84%. The Nasdaq Composite index gained 4.56% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, advanced 2.23%.[1][2][3]

Stimulus Stalemate?
The anticipation of lawmakers passing a new round of economic stimulus was a decisive driver of market action all week.

A mid-week tweet by President Trump announcing that he was ending stimulus negotiations sent stocks lower. Losses were exacerbated by sharp declines in some mega-cap technology companies as details emerged from a House Judiciary subcommittee report on its investigation into their competitive practices.[4]

Stocks quickly reversed direction, climbing after the President tweeted that he would sign a limited stimulus bill, but lawmakers appeared to reject a piecemeal approach.

Stocks consolidated on Friday, helped by continuing stimulus talks and new election polls that suggested that the risk of a contested outcome appeared to be fading.

Small Cap Rally
The outperformance of large cap stocks relative to small cap stocks has been both wide and persistent during the last ten years. Last week’s action in small cap stocks, as represented by the Russell 2000 Index, indicates that smaller companies may finally be making up some ground.[5]

Last week, the Russell 2000 Index rose 6.33%, outperforming the S&P 500 by 2.4%.[6]

While this outperformance may be fleeting, a potential broadening of the stock market rally may be considered a healthy development.

Final Thoughts
This week begins the third-quarter earnings season, with companies from a variety of industry sectors reporting (see below). Early earnings reports start predominantly with the major banks, whose earnings results may provide insight into the general health of American consumers.

As is often the case, company guidance about the future earnings may be of greater interest to investors than past results.

[1] The Wall Street Journal, October 9, 2020
[2] The Wall Street Journal, October 9, 2020
[3] The Wall Street Journal, October 9, 2020
[4] CNBC.com, October 6, 2020
[5] The Wall Street Journal, October 8, 2020
[6] The Wall Street Journal, October 9, 2020