Tag: Taxes

How the Trump vs. Harris Debate Could Impact the Stock Market

Posted on by slightbourne@noblecapitalmarkets.com
Key Points:
– Investors are watching tonight’s Trump-Harris debate closely for insights on future economic policies and potential market movements.
– Trump Media stock surged ahead of the debate, signaling possible volatility in political-adjacent companies.
– The debate could influence market sectors like tech, healthcare, and energy, depending on the candidates’ policy discussions.

As former President Donald Trump and Vice President Kamala Harris prepare to face off in tonight’s highly anticipated debate, investors and market watchers are gearing up for potential shifts in stock prices. With both candidates proposing different economic policies, the outcome of the debate could have significant consequences for the U.S. stock market. Investors are particularly interested in how the candidates will address pressing economic issues like inflation, interest rates, and taxation.

In a notable development, Trump Media stock saw a surge of over 10% ahead of the debate. The stock, which is tied to Trump’s social media company Truth Social, often acts as a gauge for Trump’s political fortunes. This sudden rise in value demonstrates how political events can trigger movements in individual stocks, particularly those closely tied to the candidates. For investors, this surge could signal increased market volatility, especially for companies that are either directly influenced by politics or considered riskier assets.

Beyond Trump Media, broader sectors of the stock market may be affected depending on how the debate unfolds. Technology stocks, which tend to react strongly to policy changes, could see immediate shifts. Major players like Amazon, Alphabet, and Meta have experienced volatility during election seasons, and tonight’s debate may reignite similar trends. Investors will be paying close attention to how both Trump and Harris propose to regulate Big Tech, particularly in areas like data privacy, AI regulation, and antitrust issues.

The healthcare and energy sectors could also experience fluctuations based on the candidates’ policy positions. Harris is expected to focus on expanding healthcare access and pushing for environmental reforms, while Trump is likely to emphasize deregulation and lower taxes. How these policies are presented could impact sectors like renewable energy, oil and gas, and healthcare providers.

From an investment standpoint, clarity in economic policy is crucial. Both Trump and Harris have been rolling out proposals in the lead-up to the debate, but tonight’s event offers a platform for more detailed discussions. Investors will be looking for any indication of how each candidate plans to handle inflation, interest rates, and fiscal stimulus—topics that directly affect market stability. As inflation continues to be a hot-button issue, any hints at future federal rate cuts or spending plans could sway market sentiment.

In particular, the debate takes place as the stock market has been navigating heightened volatility. The S&P 500 recently experienced its worst week of the year, and uncertainty around inflation and economic growth has left investors anxious. With polling showing Trump and Harris in a tight race, the outcome of the debate could introduce new dynamics into the market, particularly if one candidate clearly outshines the other in terms of their economic vision.

It’s important to note that while debates can influence market sentiment, they do not always lead to long-term market shifts. However, the candidates’ positions on fiscal policy, corporate taxes, and economic growth will be critical for long-term investors. If Trump signals a return to policies that focus on corporate tax cuts and deregulation, sectors like technology, energy, and financials could see positive momentum. On the other hand, if Harris pushes for increased regulation and green energy initiatives, renewable energy stocks may experience a rally.

Regardless of tonight’s outcome, investors should approach the market with caution in the days following the debate. Political uncertainty often leads to short-term market volatility, and traders may reposition themselves based on perceived shifts in the political landscape. However, the debate is only one factor influencing a complex global market, and long-term investors should weigh broader economic indicators before making any major decisions.

For those tracking the stock market, tonight’s debate offers more than just political theater—it’s an opportunity to gain insights into the future direction of the U.S. economy and its potential impact on market sectors. Investors should remain vigilant and keep a close eye on how both candidates articulate their economic policies, as these discussions will likely shape market expectations moving forward.

Will the IRS Accept Cash?

Posted on by phoffman@channelchek.com

I Tried to Pay My Taxes in Cash – Here’s What Happened

About two-thirds of all U.S. residents who file federal income taxes typically get a refund. Unfortunately, this year I am among the other third who owe the Internal Revenue Service money. So I tried something I’ve never done before and few people do: I wanted to pay my tax bill in cash – that is, with real paper currency.

In our nearly cashless society, this might sound like a hassle.

This article was republished with permission from The Conversation, a news site dedicated to sharing ideas from academic experts. It represents the research-based findings and thoughts of, Jay L. Zagorsky, Clinical Associate Professor, Boston University.

Why Pay Taxes in Cash?

For one thing, I’m an economist writing a book explaining the advantages of using cash, and I was simply curious what might happen.

But beyond my own book-related interest in paying taxes in cash, I had other reasons for wanting to do so. For years while teaching students about money, I noted the front of every piece of U.S. currency declares: “This note is legal tender for all debts public and private.”

The statement seemed ironic since I couldn’t figure out how to pay income taxes, one of people’s most significant public debts, with currency.

I also wondered how difficult it is for the unbanked to pay taxes. Federal Deposit Insurance Corp. data shows about 6 million households have no connection to the formal banking system.

The IRS does not publish data on the methods people use to pay their taxes, but several IRS employees I spoke with told me almost no one pays the IRS in cash.

Every U.S. bill declares that it can be used to pay any debt.

How to Pay in Cash

The IRS certainly doesn’t make it easy to do so.

Recently, a student of mine pointed out where the instructions for paying the government with paper money are buried, so I gave it a try. The five-step set of instructions hinted that paying cash directly is a time-consuming process and that I needed to start a month or two before taxes are due.

Following the instructions, I completed my taxes early and learned I owed a bit more than US$1,000. Then I called on the phone to schedule a face-to-face appointment with the IRS to see when and where I could pay.

The operator, who told me her name was “Ms. Johnson,” was cheerful and helpful – but tried her very best to dissuade me from paying in cash. She offered to walk me through the steps on the phone so that I could pay online and not have to come into my local IRS office.

Alternative Ways to Pay ‘In Cash’

For example, the IRS suggests cash payers can “Buy a prepaid credit card and pay online.”

This sounds easy but turns out to be costly. For example, Walmart, one of the largest U.S. retailers, offers a reloadable basic debit card. The card costs $1 to buy, $6 per month in fees and $3 to load with cash. Once the card is loaded with money, the businesses the IRS uses to accept debit card payments charge around $2.50 for each payment, with payments limited to two per year.

The IRS also has partnered with national chains like CVS, Walgreens, 7-Eleven and Family Dollar to accept cash on its behalf. Their service fees are less, either $1.50 or $2.50 per payment. However, the steps needed to navigate the online program before you can show up at a retailer seemed almost as difficult as filling in the tax forms.

More importantly, this program has a $500 per payment limit and a $1,000 maximum amount accepted per year. This made the method impractical for me and for most people who owe the IRS money. The latest IRS figures show people who owe income taxes on average pay over $6,000.

Or, I could use a credit or debit card, but these methods charged around 2.5% more for the convenience.

After I declined all of Ms. Johnson’s alternative payment offers, she told me I was lucky. There was an appointment available at the downtown Boston taxpayer assistance center in a few days. Her schedule showed many other centers around the country were booked until May, long after taxes were due.

The author had to go to an IRS assistance center to try to pay his taxes in cash. Alpha Photo (Flickr)

The author had to go to an IRS assistance center to try to pay his taxes in cash. Alpha Photo (Flickr)

An Arduous Process – But a Successful One

I had cash at home, but not enough. I went to the bank and made sure I got exact change in crisp new bills to make the transaction as easy as possible.

My goal was not to cause pain like the Virginia man who used 300,000 coins to pay his motor vehicle bill or the California man who pushed in wheelbarrows filled with $1 coins to pay his $13,000 property tax bill. Nor was I interested in recreating the famous but fictional British case of Board of Inland Revenue v. Haddock, in which Haddock tried paying his tax bill by writing a check on the side of a cow. Although it never happened, the case is still cited in legal circles.

I made it to the IRS building, went through airport-style screening and checked in on time. The receptionist was polite and again told me all the ways to pay without cash. After I declined, he asked me to take a seat in the waiting area filled with people clutching paperwork. As I walked away, the receptionist did a facepalm while shaking his head, which was not a positive sign.

After a 30-minute wait, another polite IRS worker came out and told me they could not accept cash that day because no courier was scheduled. Current IRS rules require that a courier take all cash immediately to the bank because they said “holding cash was not safe.” This is surprising given the federal office building was swarming with armed guards and required screening to enter.

I came back a week later when another cash payer was showing up. This time I had more success. It took 30 minutes, but after completing a multipart carbon form by hand, I got a receipt that said my taxes were paid.

A Simple Solution

Paying the IRS with cash is possible, but it turned out to be onerous and time-consuming.

I believe there is a simple solution. The Code of Federal Regulations, which governs the IRS and other agencies, allows authorized banks to accept tax payments. The law doesn’t specify payment only by check or other methods. This means if procedures existed, taxpayers could walk into major banks, hand the teller cash and have the bank inform the IRS of the amount paid.

For people without bank accounts, their only option for paying taxes shouldn’t require paying fees to credit card processors or retailers – especially since they are likely among the poorest taxpayers.

If the government wants everyone to pay their taxes, why doesn’t it make it as easy as possible?

Does it Make Sense to Invest New IRA Deposits in a Confusing Market?

Posted on by phoffman@channelchek.com
Image Credit: Marco Verch (Flickr)

With New Money Deposited Into Their IRA Accounts, Savers Are Faced With an Age-Old Question

With days until the IRS is expecting our tax filings, IRA season is in full swing. With this comes contributions to IRA accounts and individual investment decisions. This year economic uncertainty is a regular topic of conversation; the question has come up in both personal and professional conversations whether or not this money should be invested immediately or wait for a clearer sign of economic and market direction. I asked three financial professionals, each of whose opinion I respect. Did I get three different answers? You be the judge.

Robert R. Johnson, PhD, CFA, CAIA, is the former deputy CEO of the CFA Institute and was President of the College of Financial Services. Currently Dr. Johnson is a Professor of Finance, Heider College of Business at Creighton University. His credentials also include co-author of The Tools and Techniques of Investment Planning, Strategic Value Investing, Investment Banking for Dummies, and others. Overall, his response argues for not shying away from what traditionally has been better-performing investments over time.

He highlighted that investing for as long as possible should involve not waiting until a week before the tax date and making a maximum deposit. If your money is sitting in cash rather than invested, there is a cash performance drag as cash including money markets, more often than not, is a worse performer than equities.

The finance professor pointed out the statistical truth that holding significant amounts of cash ensures that one will suffer significant opportunity losses. Johnson says, “when it comes to building wealth, one can either sleep well or eat well.” He explains, “investing conservatively allows one to sleep well, as there isn’t much volatility. But, it doesn’t allow you to eat well in the long run because your account won’t grow much.”

He backs this up with data compiled by Ibbotson Associates data on large capitalization stocks (think S&P 500), which returned 10.1% compounded annually from 1926-2022. Johnson points out that during the same years, government bonds returned 5.2% annually and T-bills returned 3.2% annually. He explained, “to put it in perspective, $1.00 in invested in the S&P 500 at the start of 1926 would have grown to $11,307.59 (with all dividends reinvested).” He then compared, “that same dollar invested in T-bills would have grown to $21.23.”

What to invest in is certainly an important decision, Dr. Johnson explained, “The surest way to build wealth over long time horizons is to invest in a diversified portfolio of common stocks. Someone with a long time horizon should not have exposure to money market instruments, yet many investors do because they fear the volatility of the stock market.”

Dennie Ceelen, CFP has been part of the Noble Capital Markets Private Client Group in Boca Raton, FL since 2002. He provides wealth management services to NOBLE Clients. He’s also a committee member of The Society of Financial Service Professionals.

When asked if one should invest or wait, he apologetically answered, “it depends.”

Mr. Ceelen explains that when it comes to investments, one size does not fit all. A nineteen-year-old with little or no table income and only an extra $1,000 to put away may be better off investing in education or a car to get them to work. This idea of no IRA deposit at all could even be true of a couple saving to buy their first home. If putting the maximum away for retirement, 40 years away, prevents the purchase of a home in the next year or two, it may not make sense to fund an IRA at all for them this tax year.

For those that are regularly funding an IRA he said, “if your timeline is 30-years until you retire, invest immediately.” Ceelen explained, the general rule of thumb is that the markets over time will go up, the market will be higher in 30 years,” is the expectation based on past experience.

While talking about those with far less than 30-years until retirement, he pulled out a simple spreadsheet that shows that markets don’t always go up. A screenshot of this spreadsheet of major index performance from the close of business the last day of 2021 until March 29, 2023 is provided below.

After 15-months of market downturn, history suggests the losses are temporary

Dennie Ceelen used the spreadsheet to show why he said “it depends.” He said, “if you are retiring in the next two years, make the contribution, take advantage of the tax break but let it sit in cash, or take advantage of the high rates on money markets/short term CD’s.”

“There is no reason to partake in this volatile market if you are that close to retirement,” he cautioned for those close to retirement. Making decisions like this is why many hire financial professionals.

David M. Wright, CLU, ChFC, president and owner of Wright Financial Group, with offices in Ohio and Florida is a 36-year veteran in the financial services industry. He hosts a local radio show called Retirement Income Source with David Wright, and is a frequent guest on TD Ameritrade Insights. One of Mr. Wright’s focuses is on providing workable retirement solutions for those in or close to retirement. His upcoming book, Bonfire of the Sanities: Reset Your Retirement Portfolio for Today’s Financial Lunacy, will be available later this year.

“How you invest your IRA for the 2022-23 tax season has been and always will be a function of your time horizon and propensity for risk,” Wright was quick to point out.  

Wright’s explanation as to whether the timing is right also included what he believes would be the more suitable investment. He offered, “for individuals who are more than 10-15 years away from needing to access their cash, choosing high quality, dividend-paying companies with good cash flow are probably the best bet right now, given the economic tightening that will certainly impact more highly leveraged companies that have to refinance their debt in the future.” He cautioned that those in the age category above,  “growth stocks, in particular those that pay very small dividends will probably be the most impacted by the Federal Reserve’s mandate to fight inflation by raising rates.”

For those even closer to retirement, five to ten years, he said that a dollar-cost averaging strategy to more slowly enter the market is more prudent,  “you are systematically buying into the market without worrying about the purchase price of the investment itself,” Wright said.   

“For those individuals that are within five years or less of retirement, pushing the pause button and purchasing short duration treasuries probably makes the most sense right now due to the higher yields offered courtesy of the Federal Reserve – with 3 month yields 4.8% at the moment,” David Wright explained for those with less time before needing the account for living expenses.

Wright added one more note of advice for the current tax season,  “with the mixed signals of financial news from bank failures to reducing inflation, it probably makes sense to be more cautious right now until the financial storms subside.”

Take Away

There are many right ways to do anything. Multiply that by the different stages of life, and then there are many more. If you are making a last-minute 2022 tax year IRA deposit, hopefully, there are words of wisdom among these three professionals that have been useful.

Overall it seems time in the market is expected to outperform time out of the market, with the caveat, over the short term, anything can happen.

Paul Hoffman

Managing Editor, Channelchek

New Tax Benefits Investors are Being Granted

Posted on by phoffman@channelchek.com
Image Credit: Thomas Galvez (Flickr)

The IRS (Actually Congress) Makes it Less Taxing to Invest

As we enter the new tax season, there is something important investors of all ages, incomes, and investment styles may have missed. Buried in the CONSOLIDATED APPROPRIATIONS ACT, which is the $1.7 trillion legislation passed just before the holidays, is a section called the SECURE 2.0 Act of 2022. If you missed it, and don’t wish to wade through the 4,100 pages of legislation, I’ve summarized seven key features below.

I’m not a tax attorney, CPA, or IRS employee, so although my reading comprehension is decent, use the below as a starting point, then get advice from professionals or sources, including IRS.gov, you’ve come to rely upon.

Investor Benefits

It’s not a stretch to expect that SECURE 2.0 will affect most Americans’ tax-advantaged investing accounts —  and most likely in a beneficial way. The bill, which builds on a retirement act passed in 2019, includes changes to 401(k)s and 403(b)s. Additionally, it now includes emergency needs provisions, ROTH changes, new rules for saving and withdrawing from retirement plans, and a 529 plan change that will be welcome for those trapped balances.

The vast majority of SECURE 2.0’s new rules begin this year, but some are not implemented until 2024 or even later.

Seven Key Areas to Help Taxpayers

#1 Automatic Enrollment and Plan Portability (Starts 2025)

This requires businesses adopting new 401(k) and 403(b) plans to automatically enroll eligible employees, starting at a contribution rate of at least 3%, beginning in 2025. It also permits retirement plan service providers to offer plan sponsors automatic portability services, transferring an employee’s retirement accounts to a new plan if they change jobs. This could benefit those that would be confused by the myriad of investments in a brokerage IRA as compared to a prepackaged 401(k) eligible retirement plan at the new employer.

#2 – Emergency Savings (Starts 2024)

Defined contribution retirement plans would be able to add an emergency savings account in the form of a designated Roth account eligible to accept participant contributions for non-highly compensated employees starting in 2024. Contributions would be limited to $2,500 annually (or lower, as set by the employer), and the first four withdrawals in a year would be tax and penalty-free. Depending on plan rules, contributions may be eligible for an employer match. In addition to giving participants penalty-free access to funds, an emergency savings fund could encourage plan participants to save for short-term and unexpected expenses.

#3 – Student Loan Debt (Starts 2024)

Employers will be able to “match” employee student loan payments beginning in 2024 with matching payments to a retirement account. This aids workers with increased retirement savings while they are paying off educational loans.

#4 – 529 Plans Rolled to Roth (Begins 2023)

After 15 years of aging, 529 plan assets can be rolled over to a Roth IRA for the beneficiary over five years. This is subject to the annual Roth contribution maximum with a lifetime cap of $35,000. The rollover is treated as a contribution towards the annual Roth IRA contribution limit.

#5 – Distributions Required by Law (Begins 2023)

When you’ve built up your IRA, 401(k), or 403(b) or other tax-advantaged money, you can’t shelter it from taxes forever. In the past, the IRS required you to pull an amount out, based on their calculation, each year upon reaching 72 years of age. This money is then fully taxable if it was sheltered from taxes when it was placed in the account. The Act now gives us an extra year to allow our investments to grow before beginning withdrawals. Starting in 2023, the age at which owners of retirement accounts must start taking required minimum distributions (RMDs) increased to 73.

The SECURE 2.0 Act then increases the age at which RMDs must start to 75 starting in 2033.

There had been a steep penalty for failure to withdraw your RMD. It has been dropped from 50% of the amount not taken to 25%. By any measure, 25% is still a severe penalty, but it is better than having forgetfulness cost you 50% of your money. Better yet, the penalty will be reduced to 10% for IRA owners if the account holder withdraws the RMD amount previously not taken and submits a corrected tax return in a timely manner. The rationale is that self-managed IRAs are more likely to be missed than assets in 401(k) plans.

Additionally, Roth accounts in employer retirement plans will be exempt from the RMD requirements starting in 2024.

#6 – Increased Catch-Up Contributions (Begins 2025)

Starting the first day of 2025, individuals ages 60 through 63 years old will be able to make catch-up contributions of up to $10,000 annually to a workplace plan; this amount will then be indexed to inflation. The catch-up amount for people aged 50 and older has not changed for 2023 ($7,500.) There is, however, a “but.” If you earned more than $145,000 in the prior calendar year, all catch-up contributions at age 50 or older will need to be made to a Roth account in after-tax dollars. Individuals earning $145,000 or less, adjusted for inflation going forward, will be exempt from this Roth requirement.

IRAs currently have a $1,000 catch-up contribution limit for people aged 50 and over. Starting in 2024, that limit will be indexed to inflation, meaning it could adjust every year based on federally determined cost-of-living changes.

#7 – Employer Matching for Roth Accounts (Begins 2024)

Employers will be able (although not required) to provide employees the option of receiving vested matching contributions to Roth accounts. Until now, any employer match in a sponsored plan was made on a pre-tax basis. Contributions to a Roth retirement plan are made after tax, after which earnings can grow tax-free.

In 2024, Roth RMDs from an employer-sponsored plan is no longer required. This money can stay invested and even grow tax-free for as long as the account owner deems it prudent.

 

Take Away

The SECURE 2.0 Act provides over 90 changes that impact taxes, at the same time, could mean increased business for the firms involved in administering qualified plans. The law builds on earlier changes that increased the age at which retirees must take RMDs.

There are many small provisions in the new law; the highlights include helping younger workers save while they continue to pay off student debt, also making it easier to move accounts from one employer to another and to enable people to save for emergencies within retirement accounts.

Older Americans could feel a more immediate benefit from the increased age at which retirees must begin taking RMDs from IRA and 401(k) accounts and the increase in the size of catch-up contributions for older workers’ plans.  

SECURE 2.0 provides increased opportunities to save for retirement. Everyone’s financial situation is different. As always, consult a tax professional to understand how these changes best apply to your situation. We encourage you to consult Channelchek and other trusted sources of investment information as you weigh decisions related to the investments themselves.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://www.finance.senate.gov/imo/media/doc/Secure%202.0_Section%20by%20Section%20Summary%2012-19-22%20FINAL.pdf

https://www.adp.com/spark/articles/2023/01/secure-20-act-of-2022-what-it-means-for-your-business.aspx#:~:text=Referred%20to%20as%20SECURE%202.0,improve%20retirement%20outcomes%20for%20employees.

Investor Opportunities that May Occur Early in 2023

Posted on by phoffman@channelchek.com
Image Source: Jernej Furman

Will Stocks Snap Back After Tax-Loss Selling?

Offsetting portfolio capital gains by taking losses is permitted by the IRS. Within the tax guidelines, this generally occurs during the last month of the year as individuals and financial advisors strive to minimize money owed to the IRS. The stocks sold, naturally, are underperformers.  This activity has a tendency to set the stage for a late December rally or a January rebound. This is especially true of the sectors or asset classes that were most sold. This is because portfolio managers often wish to keep a similar allocation, which translates to them then waiting 30 days or more before buying something that may be viewed as substantially similar.

With the major indexes like the S&P 500, Nasdaq 100, and Small Cap S&P 600 all down double digits this year, there are stocks that are doing far worse than index averages – just as there are stocks doing far better. Of course, if you own an ETF, you have to treat it like it is one stock and cannot offset a good underlying individual company sold with an underperforming company. In this way, holders of individual company shares can benefit more because they will have more options. And may even find it easier to qualify for the additional $3,000 tax benefit the IRS allows. 

Source: Koyfin

Why Might January Reverse December’s Slide

What happens after the 30-day period? Some investors try to get in, or back in, early with the notion that the most beaten-down stocks from 30 days earlier, could quickly bounce back hard for a time. This would all begin to occur following what could be perceived as the tax loss selling dip, (aged 30 days). The so-called Santa Rally is somewhat attributed to this, but that rally has not occurred during December 2022. The chart above shows a very weak December. So the buying may be postponed until early next year.

Without substantial buying this December, the first month or two of 2023 may bring buying as investors replace holdings for allocation purposes, plus any additional purchases used to bring the beaten-down sectors’ portfolio weightings up to whatever fits the investors’ strategy.  

DoubleLine founder Jeffrey Gundlach told CNBC on Wednesday that risk assets will likely rally in January once retail investors finish tax-loss selling. Strategists at Evercore wrote on Nov. 30 that they were “buyers of stocks whose 2022 tax loss selling pressure will soon abate.”

Take Away

The main drivers of market moves next year are likely economic concerns such as inflation, recession, and monetary policy. But the potential for the most beaten down sectors this year, those that underperformed in December, may represent opportunity. The opportunity may not be long-lived, but for those involved in the markets, it is worth understanding why it may be occurring.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://www.cnbc.com/pro/follow-the-pros/

https://www.reuters.com/markets/us/tax-loss-selling-battered-us-stocks-could-spur-january-snap-back-2022-12-08/

https://www.investopedia.com/terms/t/tax-loss-carryforward.asp#:~:text=What%20Is%20a%20Tax%20Loss,reduce%20any%20future%20tax%20payments.

Choices Presented to Voters on Ballots are Presented to Investors as Opportunities

Posted on by phoffman@channelchek.com
Image Credit: Joe Shlabotnik (Flickr)

The Consequences of this Year’s Voting Should Create Opportunity for Investors

Once inconceivable in most voting districts throughout the U.S., ballots across the country this year will ask voters to decide on gambling measures, drug laws, and extra taxes based on defined demographics. While this is of interest to investors as it shows how trends are forming or continuing and can point to more potential for growth. Of the 130 ballot measures being decided upon on Tuesday, many will alter spending patterns and bolster industries.

What’s Being Decided Upon

Each year a number of states, including Maryland and Arkansas, are asking voters to decide upon legalizing recreational marijuana. Fully five states could move toward ending the use of involuntary prison labor. Nebraska and Nevada are asking voters if they should increase the minimum wage statewide. Gambling, firearms, and immigration are also the subject of state-level referendums.

A proposition in California would legalize online sports betting in that large potential market. Gaming companies, including DraftKings (DKNG) and FanDuel (DUEL) have poured nearly $160 million into the measure. It is not expected to pass, if it does, the news may cause a rally in these and other online gambling companies. Over $375 million has been spent by supporters and those against this measure.

Also being decided by California’s voters is a proposition that would raise taxes on personal incomes of $2 million or more. The revenue would be set aside to fund the state’s electric-vehicle production and help prevent wildfires. This is a very contentious measure that pit many from the same political party against each other.

In general environmental groups and companies perceived to benefit from a quicker evolving EV infrastructure support the “yes” campaign. Governor Newsom, and the California Teachers Association, a powerful state union, have joined business groups to oppose the measure, saying it would benefit a select number of large corporations as they transition to electric vehicles.

Recreational weed in Maryland? The pollsters seem to think it stands a good chance of passing. There are four other states (Arkansas, Missouri, North Dakota and South Dakota) where recreational cannabis is also on the ballot, those outcomes won’t be known until after the votes are counted.

To date, 19 states and the District of Columbia have legalized the adult recreational use of marijuana. Colorado could become the second state behind Oregon to legalize the personal use of psilocybin, the active ingredient in psychedelic mushrooms and other plant-based hallucinogens.

Massachusetts voters get to decide if they raise their income taxes by 4% if they have personal incomes of $1 million or more. This would leave the total rate for that bracket to 9%. Should this pass and bring in additional funds, they are earmarked for education and transportation.

Voters in five states will weigh whether to explicitly outlaw involuntary servitude as part of the punishment for a crime. Alabama, Louisiana, Oregon, Tennessee, and Vermont will all consider these questions on the topic; there is a growing movement to change the 13th Amendment so it no longer allows slavery as a form of criminal punishment. This could potentially benefit the industry in these states.

On immigration, Ohio voters are considering whether to ban all local governments from allowing noncitizens to vote. San Francisco and New York have passed laws allowing noncitizens to vote for local offices and ballot measures. These face legal challenges.

Elsewhere, ballot measures will ask voters whether to extend certain benefits to immigrants in the country illegally, including the ability to obtain a driver’s license in Massachusetts and pay in-state college tuition in Arizona.

Take Away

They say elections have consequences. As various states elect to adopt or deny changes in the running of their state, investors may be able to position themselves to benefit from trends, changes, and additional funds being made available.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://www.wlwt.com/article/election-results-2022-ohio-kentucky-indiana-senate-governor/41781051

https://www.wsj.com/articles/midterm-elections-2022-results-ballot-measures-referenda-11667864143

https://www.wcvb.com/article/voter-information-massachusetts-election-2022-midterm/41890411

https://www.cnbc.com/2022/11/04/draftkings-shares-tumble-after-monthly-users-fall-short-of-estimates.html

Household Income That’s Subject to Taxes Declines Next Year

Posted on by phoffman@channelchek.com
Image Credit: JD Hancock (Flickr)

These Are the New Federal Tax Brackets and Standard Deductions For 2023

Now for the inflation good news. Thankfully, as it relates to federal income taxes, the IRS makes annual adjustments to certain tax provisions. Simply put, the higher the inflation, the more tax credit benefit, which includes tax credits and taxable wages adjusted downward. So, in addition to receiving much higher COLA increases on Social Security payments and earning an interest rate in excess of 9% on U.S. Savings Bonds, those making an income in 2023 are likely to see more take-home pay.

The IRS Numbers Are In

The IRS announced the 2023 inflation adjustments to the standard deduction and other tax provisions for the 2023 tax year. The adjustments affect 60 provisions in the tax code, and leave a few key provisions unchanged.

Highlights of Changes in Revenue Procedure 2021-38

The tax year 2023 adjustments described below generally apply to tax returns filed in 2024.  A higher level of details about these annual adjustments can be found in IRS Revenue Procedure 2022-38PDF.

The standard deduction for married couples filing jointly for tax year 2023 rises to $27,700 up $1,800 from the prior year. For single taxpayers and married individuals filing separately, the standard deduction rises to $13,850 for 2023, up $900, and for heads of households, the standard deduction will be $20,800 for tax year 2023, up $1,400 from the amount for tax year 2022.

 Marginal Rates: For tax year 2023, the top tax rate remains 37% for individual single taxpayers with incomes greater than $578,125 ($693,750 for married couples filing jointly).

The other rates are:

  • 35% for incomes over $231,250 ($462,500 for married couples filing jointly);
  • 32% for incomes over $182,100 ($364,200 for married couples filing jointly);
  • 24% for incomes over $95,375 ($190,750 for married couples filing jointly);
  • 22% for incomes over $44,725 ($89,450 for married couples filing jointly);
  • 12% for incomes over $11,000 ($22,000 for married couples filing jointly).

The lowest rate is 10% for incomes of single individuals with incomes of $11,000 or less ($22,000 for married couples filing jointly).

 The Alternative Minimum Tax exemption amount for tax year 2023 is $81,300 and begins to phase out at $578,150 ($126,500 for married couples filing jointly for whom the exemption begins to phase out at $1,156,300). The 2022 exemption amount was $75,900 and began to phase out at $539,900 ($118,100 for married couples filing jointly for whom the exemption began to phase out at $1,079,800).

 The tax year 2023 maximum Earned Income Tax Credit amount is $7,430 for qualifying taxpayers who have three or more qualifying children, up from $6,935 for tax year 2022. The revenue procedure contains a table providing maximum EITC amount for other categories, income thresholds and phase-outs.

 For 2023, the monthly limitation for the qualified transportation fringe benefit and the monthly limitation for qualified parking increases to $300, up $20 from the limit for 2022.

 For the taxable years beginning in 2023, the dollar limitation for employee salary reductions for contributions to health flexible spending arrangements increases to $3,050. For cafeteria plans that permit the carryover of unused amounts, the maximum carryover amount is $610, an increase of $40 from taxable years beginning in 2022.

 For tax year 2023, participants who have self-only coverage in a Medical Savings Account, the plan must have an annual deductible that is not less than $2,650, up $200 from tax year 2022; but not more than $3,950, an increase of $250 from tax year 2022. For self-only coverage, the maximum out-of-pocket expense amount is $5,300, up $350 from 2022. For tax year 2023, for family coverage, the annual deductible is not less than $5,300, up from $4,950 for 2022; however, the deductible cannot be more than $7,900, up $500 from the limit for tax year 2022. For family coverage, the out-of-pocket expense limit is $9,650 for tax year 2023, an increase of $600 from tax year 2022.

 For tax year 2023, the foreign earned income exclusion is $120,000 up from $112,000 for tax year 2022.

 Estates of decedents who die during 2023 have a basic exclusion amount of $12,920,000, up from a total of $12,060,000 for estates of decedents who died in 2022.

 The annual exclusion for gifts increases to $17,000 for calendar year 2023, up from $16,000 for calendar year 2021.

 The maximum credit allowed for adoptions for tax year 2023 is the amount of qualified adoption expenses up to $15,950, up from $14,890 for 2022.

Brand New for 2023

The Inflation Reduction Act extended some energy-related tax breaks and indexed for inflation the energy-efficient commercial buildings deduction beginning with the tax year 2023. For 2023, the applicable dollar value used to determine the maximum allowance of the deduction is $0.54 increased by $0.02 for each percentage point by which the total annual energy and power costs for the building are certified to be reduced by a percentage greater than 25 percent (but not above $1.07). The applicable dollar value used to determine the increased deduction amount for certain property is $2.68 increased (but not above $5.36) by $0.11 for each percentage point by which the total annual energy and power costs for the building are certified to be reduced by a percentage greater than 25 percent.

Items Unaffected by Inflation Indexing

By statute, these items that were indexed for inflation in the past are currently not adjusted.

The personal exemption for tax year 2023 remains at 0, as it was for 2022, this elimination of the personal exemption was a provision in the Tax Cuts and Jobs Act.

 For 2023, as in 2022, 2021, 2020, 2019 and 2018, there is no limitation on itemized deductions, as that limitation was eliminated by the Tax Cuts and Jobs Act.

 The modified adjusted gross income amount used by joint filers to determine the reduction in the Lifetime Learning Credit provided in § 25A(d)(2) is not adjusted for inflation for taxable years beginning after December 31, 2020. The Lifetime Learning Credit is phased out for taxpayers with modified adjusted gross income in excess of $80,000 ($160,000 for joint returns).

What Else is Impacted

The maximum contribution amount for a 401(k) or similar workplace retirement plan is governed by yet another formula that uses September inflation data. It is estimated that the contribution limit will increase to $22,500 in 2023 from $20,500 this year and the catch-contribution amount for those age 50 or more will rise from $6,500 to at least $7,500.

The child tax credit under current law is $2,000 per child is not adjusted for inflation. But the additional child tax credit, which is refundable and available even to taxpayers that have no tax liability, is adjusted for inflation. It is expected to increase from $1,500 to $1,600 in 2023.

For those that look forward to capping out payments to Social Security, there is bad news. This has also increased. According to the 2022 Social Security Trustees Report, the wage base tax rate is projected to increase 5.5% from $147,000 to $155,100 in 2023.

Costs are rising, but so are deductions. It’s improbable that the reduced taxes will offset skyrocketing inflation, but at least there is one financial category that is helped by the increases.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2023

Paper Hands and the IRS

Posted on by cpatches
Image Credit: Phillip Ingham (Flickr)

Selling at a Loss Near Year-End Could be Financially Worthwhile

Calling someone “paper hands” is common in online trading communities such as r/wallstreetbets. It borders on a bullying tactic to encourage others on the platform to remain in stocks that have weakened. The main reason is that many in the community own and have taken a “diamond hands” position. Investors should consider that the tax code may reward those investors that are looking out for themselves first and the chat board community second. 

The first three-quarters of overall market performance in 2022 can only be described as ugly. Each portfolio is likely to have its share of losses. Many investors can make a little lemonade out of the abundance of lemons that may be in their portfolios. But first, they need to take steps to harvest these lemons.

Tax Loss Harvesting

While there are many reasons that taking a loss is uncomfortable, the reason one invests in the first place is for financial gain. Playing the cards you’re handed at all times is considered prudent investing. Taking and using them to help reduce one’s tax bill can make financial sense. The tax consequence decision to sell below-cost investments and use the losses to offset gains from other investments or ordinary income is referred to as tax loss harvesting.

An example of how tax loss harvesting could help an investor financially is this. An investor will sell one or more of their negative on-the-year investments and recognize a loss. The investor then uses these capital losses to offset capital gains and/or W2 or 1099 income. If losses exceed gains by $3,000 or the losses taken up to $3,000, can be used to offset ordinary income in the current year. Amounts above $3,000 can be carried forward and used in future tax years.

There is one more step, investing in something else. The investor can either maintain their sector allocation or invest in something completely different. Buying back the same issuer name is an IRS no-no. The investors’ exposure to the overall market remains intact, but there is a $3,000 reduction in earned income or capital gains.

Wash Sale Rule

There is a link below this article to the IRS website; before executing a tax strategy, it is recommended you visit the site, and if not clear, consult your tax advisor.

One way investors have gotten themselves in trouble with the IRS is by selling a security at a loss and then reacquiring the same or substantially similar investment. If you sell a security and claim a tax loss on that sale, the Internal Revenue Service’s guidelines, commonly referred to as the “wash sale,” rule will require you don’t reinvest in the same issuer.  

The wash sale rule outlines that investors cannot buy a “substantially identical” security 30 days before or after the sale of the funds chosen when conducting tax loss harvesting. This doesn’t mean the investor has to buy an investment in a completely different industry. For example, if an investor sold a silver mining company stock to harvest a tax loss — but still wants mining exposure — they could potentially buy a new or different stock within the industry.

Take Away

Taking an investment loss means a hard dollar recognition of the loss and recognition that you judged wrong. But, investing is always about maximizing financial gain. Investors that are correct 25% of the time often beat those that are correct 60% of the time. So needing to be correct could actually hurt performance. Understanding the other financial moves investors can make to maximize their overall finances can incrementally benefit their personal balance sheet.

While belonging to a consortium of investors that are stronger when sticking together is comforting, one must recognize that when it comes to investing, most will do what is best for themselves first. There is no guilt in protecting or maximizing your own finances legally.

Channelchek is a niche community of small and microcap investors. We believe in leveling the playing field by providing the exact same research and analysis to individuals at no cost that the most revered hedge funds in the country download from expensive services they subscribe to. Sign-up to receive this equity research each morning.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://www.irs.gov/taxtopics/tc409

https://www.nasdaq.com/articles/the-advisors-guide-to-tax-loss-harvesting

How Much More Will Your Paycheck be When Tax Brackets Adjust for Inflation?

Posted on by cpatches
Image Credit: Chris Potter (Flickr)

Increased Take Home Pay in 2023 Thanks to the IRS (and Inflation)

If two negatives make a positive, what do you get when you cross inflation with the IRS?

In addition to receiving much higher COLA increases on Social Security payments, and earning an interest rate in excess of 9% on US Savings Bonds, those making an income in 2023 are likely to see more take-home pay. This should happen whether or not they get a raise. An IRS calculation devised to prevent bracket creep is to thank for this. While high inflation is destructive, at least there are a few things that are put in place that will automatically adjust and help ease the pain.

The adjustment to tax brackets typically has had a minimal impact on workers paychecks. But the tax formulas that are law and the persistent inflation through 2022 point to significant impact on workers 2023 tax bill. Next year when income tax thresholds and the standard deductions are raised, if all else is unchanged, there will be more money in the income earners’ pockets, and less going to the government.

How Much More?

According to an accounting professor at Northern Illinois University named Jim Young, a single taxpayer with $100,000 in adjusted gross income in 2023 could experience a tax savings of about $500, or $42 each month.

Contribution maximums are also expected to be raised where tax-advantaged savings for retirement could also help reduce tax burdens in the coming years. Estate and gift tax thresholds would also automatically be increased by as much as $2 million more for a couple.

The IRS makes the adjustments based on formulas and inflation data spelled out in the tax code. This is different than the headline CPI-U which is most often reported.  

The inflation measure used for the tax and contribution adjustments is the Chained Consumer Price Index (C-CPI-U), which takes into account the substitutions customers make when costs rise. The average of the chained CPI from September 2021 through August 2022 is used to calculate the 2023 adjustments, which the IRS will announce next month. These ultimately affect tax returns for the 2023 tax year filed in early 2024.

Price increases eroding purchasing power are running at the most rampant pace in forty years. Based on the current average of the C-CPI-U, here are estimates on what to expect, according to the American Enterprise Institute:

Tax levels and other tax bracket thresholds and breakpoints will increase by around 7% over 2022. The 2022 increase over 2021 was around 3%, which was the largest percentage increase in four years. For the tax year 2023, income earners will see the breakpoints moved by the most in 35 years.

The top federal income tax threshold in 2023 is expected to rise by nearly $50,000 next year for married couples, and that 37% rate will apply to income above $693,750. For individuals, the top tax bracket will start at $578,125.

The standard deduction for married couples is expected to be $27,700 for 2023, up from $25,900 this year, and $13,850 for individuals, up from $12,950. This is the amount that those who do not itemize deductions can reduce their W-2 federal income by before being subject to income tax.

The federal estate tax exclusion amount, what a person can protect from estate taxes, is $12.06 million this year. That’s expected to rise to $12.92 million by 2023, meaning a married couple can shield nearly $26 million from estate taxes.

The annual tax-free gift limit is expected to rise from $16,000 this year to $17,000 by 2023.

The maximum contribution amount for an individual retirement account is expected to jump to $6,500 for 2023, up from $6,000, where it has been since 2019. The maximum contribution allowed for a flexible health account is expected to increase to $3,050 in 2023, up from $2,850 this year.

The maximum contribution amount for a 401(k) or similar workplace retirement plan is governed by yet another formula that uses September inflation data. It is estimated that the contribution limit will increase to $22,500 in 2023 from $20,500 this year and the catch-contribution amount for those age 50 or more will rise from $6,500 to at least $7,500.

The child tax credit under current law is $2,000 per child is not adjusted for inflation. But the additional child tax credit, which is refundable and available even to taxpayers that have no tax liability, is adjusted for inflation. It is expected to increase from $1,500 to $1,600 in 2023.

For those that look forward to capping out payments to Social Security, there is bad news. This has also increased. According to the 2022 Social Security Trustees Report, the wage base tax rate is projected to increase 5.5% from $147,000 to $155,100 in 2023.

Costs are rising, but so are deductions. It’s improbable that the reduced taxes will offset skyrocketing inflation, but at least there is one financial category that is helped by the increases.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2022

https://www.wsj.com/articles/one-upside-to-high-inflation-lower-tax-bills-11663174727?mod=livecoverage_web

https://www.spamchronicles.com/high-inflation-brings-changes-to-your-tax-bill/