Blog

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}

If you hire an independent contractor for your business, you are generally not responsible for withholding income taxes, Social Security, or Medicare taxes from their compensation. However, by law, business taxpayers who pay nonemployee compensation of $600 or more must report these payments to the IRS.

You can report these payments using Form 1099-NEC, Nonemployee Compensation. Generally, Form 1099-NEC is due by January 31. The compensation you report is subject to backup withholding if your business has not provided a Taxpayer Identification Number to the payer or the TIN doesn’t match. It’s important to be aware of this rule regarding nonemployee compensation because employees and contractors are taxed differently, but you need to note if your payments exceed the $600 limit.

* 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

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

Did you know that an independent organization within the IRS is fighting for your rights as a taxpayer? The Taxpayer Advocate Service (TAS) protects taxpayers’ rights by ensuring that all taxpayers are treated fairly and know and understand their rights under the Taxpayer Bill of Rights. Here are some things to know about TAS:

• TAS can help taxpayers resolve problems they haven’t been able to settle with the IRS on their own.
• The service is free.
• TAS helps all taxpayers and their representatives, including individuals, businesses, and exempt organizations.
• If taxpayers qualify for TAS help, an advocate will be with them at every turn and do everything possible to assist throughout the process.
• TAS also handles large-scale problems that affect many taxpayers.

* 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

7. ^{IRS.gov, July 19, 2022}

A cooling inflation number ignited a powerful rally on Thursday, sending stocks to strong gains for the week.

The Dow Jones Industrial Average gained 4.15%, while the Standard & Poor’s 500 added 5.90%. The Nasdaq Composite index rose 8.10% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, picked up 5.72%.^1,2,3

Stocks Surge

A lower-than-expected inflation report triggered the biggest one-day stock market gain in more than two years as the news raised investors’ hopes that the Fed might consider easing the pace of future rate hikes. The day’s gains were pronounced in the hard-hit technology sector, as the tech-heavy Nasdaq added 7.35%.⁴

Stocks initially rallied to start the week, but gave up some of the gains on Wednesday following a muddy and indecisive outcome to the midterms. Friday saw stocks build on their gains to close out an exceptional week.

Inflation Moderates

Consumer prices rose slower in October, increasing 0.4% for the month and 7.7% from 12 months ago. Both numbers were below market expectations of 0.6% and 7.9%. The core CPI (excludes energy and food sectors) rose a more modest 0.3% on a monthly basis and 6.3% from a year ago.⁵

The deceleration in prices was mainly attributable to price declines in used cars (-2.4%), apparel (-0.7%), and medical care services (-0.6%). Despite the progress, inflation remains well above the Fed’s 2% target rate. A look behind the numbers shows that October’s 7.7% CPI was fueled by the largest monthly jump in shelter costs since 1990 (+0.8%). Shelter costs account for one-third of the CPI. Energy was up 1.8%, while food costs rose 0.6% for the month.⁶

Footnotes and Sources

1. ^{The Wall Street Journal, November 11, 2022}
2. ^{The Wall Street Journal, November 11, 2022}
3. ^{The Wall Street Journal, November 11, 2022}
4. ^{CNBC, November 10, 2022}
5. ^{CNBC, November 10, 2022}
6. ^{CNBC, November 10, 2022}

People with disabilities can use an Achieving a Better Life Experience (ABLE) account to help pay qualified disability-related expenses. Here are some things to know about ABLE accounts:

• This tax-advantaged savings account doesn’t affect their eligibility for government assistance programs.
• The 2022 annual contribution limit is $16,000.
• ABLE account-designated beneficiaries may be eligible to claim the saver’s credit for a percentage of their contributions.
• Eligible beneficiaries must be 18 years old at the close of the taxable year, are not dependent or full-time students, and meet the income requirements.
• Families may roll over funds from a 529 plan to another family member’s ABLE account.
• Disability-related expenses include housing, education, transportation, health, prevention and wellness, employment training and support, assistive technology, and personal support services.

* 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

7. ^{IRS.gov, July 20, 2022}

Hawkish comments by Fed Chair Jerome Powell, following the announcement of another 75 basis points interest rate hike last week, cast a pall over financial markets, sending yields higher and stocks lower.

The Dow Jones Industrial Average slipped 1.40%, while the Standard & Poor’s 500 declined 3.35%. The Nasdaq Composite index lost 5.65% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, fell 1.04%.^1,2,3

Powell Disappoints

The official statement released following the Federal Open Market Committee (FOMC) meeting appeared to suggest a potential for future easing of interest rates. Investors cheered the news, sending stocks higher. But the optimism was crushed 30 minutes later on hawkish comments by Fed Chair Powell during his post-meeting press conference.

Losses accelerated into Thursday, led by technology names, which were under pressure due to rising bond yields. The yield on the two-year Treasury note rose to its highest level since 2007. The sentiment took damage from workforce reduction/freeze news from multiple technology companies; some considered it a sign of a pending recession. Stocks managed to erase some of the week’s losses on Friday following a strong employment report and a drop in the U.S. dollar.⁴

From Dove to Hawk in 30 Minutes

In the statement accompanying the 75 basis point rate increase, the FOMC said that future increases would consider the cumulative monetary tightening to date and the lag in impact such tightening involves.⁵

But in his post-meeting press conference, Fed Chair Powell struck a more hawkish tone. He said that current inflation data did not support any slowdown in rate increases and that the terminal rate (the point at which rates will no longer rise) may be higher than initially expected.⁶

Footnotes and Sources

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

Did you know that the IRS has an app that makes it easy to check some things off your tax to-do list? Using the app, you can:

• Check your refund status. Your refund status is available within 24 hours after the IRS receives your e-filed return (or four weeks after receiving a paper return).
• Access IRS Free File. Free File is a tax prep software for taxpayers whose 2021 total adjusted gross income was $73,000 or less.
• Find payment options, including IRS Direct Pay which allows you to pay tax bills directly from your bank account.
• Get tax help.
• Stay up to date with updates from 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.gov⁶

Footnotes and Sources

6. ^{IRS.gov, July 25, 2022}

Stocks overcame poor earnings results from some of America’s largest companies to post gains last week as investors cheered positive earnings surprises, easing inflation and a rebound in economic growth.

The Dow Jones Industrial Average rose 5.72%, while the Standard & Poor’s 500 advanced 3.95%. The Nasdaq Composite index added 2.24% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, gained 4.89%.1,2,3

A “Spook-tacular” Week

Some mega-cap technology companies were under pressure last week on weak earnings and tepid fourth-quarter guidance. They reported multiple headwinds, including declining advertising revenues, loose expense control, and a slowdown in cloud growth.

Meanwhile, positive earnings surprises from “old economy” companies powered markets higher. This market bifurcation was evident in the divergence in the performance of the Dow Industrials and the Nasdaq. The S&P 500 posted a substantial gain despite its disproportionate weighting of mega-cap stocks, which helped illustrate the power of the rally. Momentum accelerated into Friday, aided by an easing in inflation and a solid third-quarter Gross Domestic Product (GDP) report.

Economic Growth Exceeds Expectations

After two straight quarters of negative economic growth, the initial estimate of the third quarter’s GDP came in at a solid 2.6%, exceeding economists’ 2.3% estimate. The surprising economic performance was largely attributable to an increase in exports, which narrowed the trade deficit, a development that may not repeat going forward.⁴

Particularly encouraging was the personal consumption expenditure price index, a report used by the Fed to track inflation. It increased 4.2%, well below the 7.3% jump from a quarter ago.⁵

Footnotes and Sources

1. ^{The Wall Street Journal, October 28, 2022}
2. ^{The Wall Street Journal, October 28, 2022}
3. ^{The Wall Street Journal, October 28, 2022}
4. ^{CNBC, October 27, 2022}
5. ^{CNBC, October 27, 2022}

Federal and state excise taxes are for specific goods, services, and activities, such as fuel, tobacco, alcohol, airline tickets, and more.

If your business is subject to excise tax, you must file a Form 720, Quarterly Excise Tax Return, to report the tax. You must also file this form every quarter. The due dates as of 2022 are April 30 for Q1, July 31 for Q2, October 31 for Q3, and January 31 for Q4.

You can electronically file Form 720. Each industry may have its forms (ex: Form 2290, Heavy Highway Vehicle Use Tax).

* 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

5. ^{IRS.gov, August 1, 2022}