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Tax Tip: The IRS May Send You One of Two Notices If Your Filed Returns Don’t Match Their Records

Have you wondered what happens if the information on your tax return doesn’t match the IRS records? The IRS mails out two notices, CP2100 and CP2100A, to banks, credit unions, businesses, and payers that may have made a mistake on their return.

The IRS mails these notices out twice a year, in September/October and April of the following year. Payers may receive a notice if their return is missing a Taxpayer Identification number, has an incorrect name, or both. The notices also tell payers that they are responsible for backup withholding.

* 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

  1. IRS.gov, May 2, 2022

Weekly Market Insights: Mixed Week For Markets; Jobs On The Rise

Stocks turned in a mixed performance last week as investors struggled with headlines suggesting that the Fed was unlikely to soon ease up on its current monetary tightening policy.

The Dow Jones Industrial Average slipped 0.13%, while the Standard & Poor’s 500 rose 0.36%. The Nasdaq Composite index picked up 2.15% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, gained 0.23%.1,2,3

Showing Resilience

Ahead of Friday’s employment report, stocks were generally higher, highlighted by a Wednesday rally triggered by fresh earnings surprises and a better-than-expected economic report. The rally was especially notable because it occurred when multiple Fed officials said that the fight against inflation hadn’t ended, perhaps throwing cold water on the idea that the Fed might pivot due to weakening economic activity and the prospect of cooling inflation.

Aside from this single day of enthusiasm, markets were a bit jittery, especially as investors monitored Speaker of the House Pelosi’s visit to Taiwan. A robust employment report on Friday reinforced the idea that the Fed would likely stay the course on monetary tightening, resulting in a mixed market for the week.

Employment Report 

The U.S economy added 528,000 jobs in July, doubling the consensus expectation of 258,000. The unemployment rate ticked lower, falling from 3.6% to 3.5%. Coincident with this job creation was strong wage growth, as average hourly earnings rose 0.5% in July and 5.2% from a year ago. 4

Leisure and hospitality, professional and business services, and healthcare lead the way in reported job gains, as seen in most sectors of the economy. Even sectors such as construction, particularly vulnerable to rising interest rates, saw job gains. The labor force participation rate moved slightly lower, slipping to 62.1%–its lowest level this year. 5

Footnotes and Sources

  1. The Wall Street Journal, August 5, 2022
  2. The Wall Street Journal, August 5, 2022
  3. The Wall Street Journal, August 5, 2022
  4. CNBC, August 5, 2022
  5. CNBC, August 5, 2022

Tax Tip: Don’t Forget to Take Advantage of the Work Opportunity Tax Credit

The work opportunity tax credit is a federal tax credit for business owners that have hired individuals from target groups that would have otherwise faced significant barriers when looking for a job. Some target groups include summer youth employees, those receiving Supplemental Security Income, or qualified long-term unemployment recipients. There are ten targeted groups in total.

The work opportunity tax credit equals 40% of up to $6,000 wages paid or incurred with a maximum credit of $2,400. The WOTC may consider up to $24,000 in wages for certain qualified veteran targeted groups. There are some restrictions on the IRS’ site.

* 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

Footnotes and Sources

  1. IRS.gov, May 5, 2022

Weekly Market Insights: Markets Rally; Earnings Better Than Expected

Undaunted by another Fed rate hike and news of a contracting economy, the stock market rallied last week on better-than-expected corporate earnings.

The Dow Jones Industrial Average increased 2.97%, while the Standard & Poor’s 500 picked up 4.26%. The Nasdaq Composite index gained 4.70% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, rose 0.95%.1,2,3

Stocks Rally on Earnings

It was an inauspicious start to the week after a big-box retailer missed earnings and reduced forward guidance on Tuesday, sparking a broad market retreat.

But sentiment improved following mega-cap technology company earnings that proved better than expected. Enthusiasm gathered steam in the wake of the Fed’s 0.75% rate hike, boosted by Fed Chair Powell’s comments following Wednesday’s Federal Open Market Committee meeting. Powell indicated that it might become appropriate to slow the pace of future hikes, and he didn’t believe the economy had entered into recession. Stocks on Thursday shrugged off news of a second-consecutive quarter of negative economic growth to build on Wednesday’s gains as fresh earnings continued to comfort, if not impress, investors.4

Economy Contracts 

The U.S. economy shrank at an annualized rate of 0.9% in the second quarter as consumers pulled back on spending and businesses worked to reduce inventories. It was the second-consecutive quarter of negative economic growth, meeting the technical definition of a recession. Unlike past recessions, hiring has been strong all year, with the unemployment rate near historic lows.5

The economic slowdown was attributable primarily to decreases in inventories, a deceleration in the housing market, and lower government spending. Consumer spending increased a tepid one percent, well below the inflation rate during the same period.6

Footnotes and Sources

  1. The Wall Street Journal, July 29, 2022
  2. The Wall Street Journal, July 29, 2022
  3. The Wall Street Journal, July 29, 2022
  4. The Wall Street Journal, July 27, 2022
  5. CNBC, July 28, 2022
  6. CNBC, July 28, 2022

 

Tax Tip: Not All Third-Party Payroll Service Providers Are Equal

Many business owners do the necessary due diligence when hiring a company to handle payroll and payroll tax. But not all choices are the same. A business needs to pick this service wisely because it could fall out of the IRS guidelines if they don’t.

To avoid missed deposits for employment taxes and other important bills, here are some choices to help ensure business owners have a trusted payroll service:

  • Use a certified professional employer organization.
  • Use a reporting agent.
  • Enroll in the Electronic Federal Tax Payment System (EFTPS) to ensure your payroll service providers use EFTPS to max tax deposits. This free platform gives employers quick access to their payment history for deposits under their EIN.

* 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

Footnotes and Sources

  1. IRS.gov, May 11, 2022

Weekly Market Insights: Markets React to Dim Forecast, 2Q Reports

Stocks rallied last week as investor spirits lifted thanks to a better-than-expected start to the second-quarter earnings season.

The Dow Jones Industrial Average gained 1.95%, while the Standard & Poor’s 500 added 2.55%. The Nasdaq Composite index jumped 3.33% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, advanced 3.54%. 1, 2, 3

Earnings Propel Stocks

Earnings season kicked off last week, with major banks reporting second-quarter results. While their results were mixed, they appeared to indicate that consumers and businesses remained reasonably healthy–a perspective that helped erase some negative sentiment overhanging the market.

As the week progressed, stocks gained momentum as earnings results poured in from different sectors of the economy, showing that businesses were navigating higher inflation and slowing growth better than investors feared. Technology and other gloomier sectors were among the market’s best performers for the week. A few disappointing corporate reports and a weak economic report sent stocks lower to close out a solid week.

Cracks in the Foundation 

Data released last week indicated more trouble in the housing market. The latest monthly homebuilder sentiment survey showed the single largest monthly drop in its 37-year history, except for April 2020. The sentiment report preceded a drop in June housing starts and issued building permits. Housing starts declined for the second month, falling 2.0% and surprising economists who had expected an increase.4,5

Housing weakness made itself known through a 5.4% month-over-month decline in June’s existing home sales, representing the slowest pace since June 2020. Increasing prices and higher mortgage rates demonstrated drags on buyer demand.6

Footnotes and Sources

  1. The Wall Street Journal, July 22, 2022
  2. The Wall Street Journal, July 22, 2022
  3. The Wall Street Journal, July 22, 2022
  4. CNBC, July 18, 2022
  5. The Wall Street Journal, July 19, 2022

Tax Tip: The Small Business Health Care Tax Credit

In an effort to extend health care benefits to more people, the IRS introduced the small business healthcare tax credit. This credit may benefit employers that have fewer than 25 full-time equivalent employees, offer a qualified health plan through a Small Business Health Options Program Marketplace, and pay at least 50% of the cost of the employee-only health care coverage. There may also be some average wage requirements.

The maximum credit covers:

  • 50% of premiums paid for small business employers
  • 35% of premiums paid for small tax-exempt employers

The credit may also be available for two consecutive taxable years.

* 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.gov5

Footnotes and Sources

  1. IRS.gov, July 30, 2021

 

Weekly Market Insights: Stocks Rally Despite Mixed Data

In a holiday-shortened trading week, stocks rallied despite mixed economic data and vacillating energy prices and bond yields.

The Dow Jones Industrial Average increased 0.77%, while the Standard & Poor’s 500 rose 1.94%. The Nasdaq Composite index picked up 4.56% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, edged 0.46% higher.1,2,3

Stocks Move Higher

In advance of Friday’s much-anticipated employment report, stocks enjoyed successive daily gains despite ongoing concerns about a recession. Recession fears were supported by an inversion in the yield curve and updated second-quarter Gross Domestic Product projections indicating the economy is ready to contract.

Technology shares were the week’s big winners as investors appear to have turned to companies with earnings growth potential during a weakening economic environment. Stocks bounced along the flatline following the strong jobs report on Friday to close out a positive week.

Employment’s Mixed Signal

One of the holes in the “imminent-recession” narrative has been the labor market’s strength. Historically, recessions have been preceded by or concurrently with a weakening jobs market.

Friday’s employment report reflected a job market that continues to belie Wall Street’s recession fears. Employers added 372,000 jobs in June, a number that was above economists’ estimates of 250,000. Wage gains were robust (+5.1% year-over-year), though still below the inflation rate. The unemployment rate was unchanged at 3.6%.4

Footnotes and Sources

  1. The Wall Street Journal, July 8, 2022
  2. The Wall Street Journal, July 8, 2022
  3. The Wall Street Journal, July 8, 2022
  4. CNBC, July 8, 2022

Tax Tip: Get Educated on Education Credits

Two education credits are available to American taxpayers: the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC). The IRS has lots of information about these two credits on their site, but here are some helpful highlights:

  • The AOTC is allowed for expenses for course-related books, supplies, and equipment not necessarily paid to the educational institution but needed for attendance.
  • There is a four-year limit on claiming the AOTC but no limit on the number of years you can claim the LLC.
  • To claim either credit, use Form 8863.
  • The AOTC is worth up to $2,500.
  • To claim the full credit, your modified adjusted gross income must be $80,000 or less.

* 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

  1. IRS.gov, March 20, 2020 

Weekly Market Insights: Stocks Rally, Despite Recession Concerns

Prospects of cooling inflation powered a rally in stock prices last week despite growing recession concerns.

The Dow Jones Industrial Average gained 5.39%, while the Standard & Poor’s 500 climbed 6.45%. The Nasdaq Composite index rose 7.49% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, edged 0.78% higher.1,2,3

Stocks Bounce

Declining energy and food prices and falling bond yields signaled a potentially improving inflation outlook, buoying investor sentiment. The rally in stocks was most powerful on the first and final trading days of a holiday-shortened week. Stocks turned a bit choppy mid-week as investors digested Fed Chair Jerome Powell’s Senate appearance but resumed their momentum on Thursday and rallied Friday as rate-hike expectations eased.

Though the weekly gain was a welcome respite from the market’s downward trend, declining bond yields and falling food and energy prices can also be interpreted as signs of slowing economic growth, which may represent a headwind for corporate earnings in the months ahead.

Powell Testifies

Fed Chair Jerome Powell told members of the Senate Finance Committee that the Fed is committed to lowering inflation and moving quickly to do so. He conceded that a recession could result from the Fed’s inflation-fighting efforts and acknowledged that some of the forces driving inflation (e.g., supply chain, war) are out of the Fed’s control.4

Perhaps the most exciting part of his testimony was what he didn’t say, which was a definitive statement on future hikes. Instead, Powell told lawmakers that he “anticipate[s] that ongoing rate increases will be appropriate.” Before his testimony, the Fed published a new research paper that found a greater than 50% chance of recession in the next four quarters.5

Footnotes and Sources

  1. The Wall Street Journal, June 24, 2022
  2. The Wall Street Journal, June 24, 2022
  3. The Wall Street Journal, June 24, 2022
  4. The Wall Street Journal, June 22, 2022
  5. The Wall Street Journal, June 22, 2022