Lakeland Ledger articles

The IRS announced that the starting date for when it would accept and process 2021 tax-year returns was Monday, January 24, 2022. This announcement marks the official beginning of tax season. No one likes filing their taxes, but here are some tips that can make filing easier, speed up your refund, and possibly save you some money.

Tips for Making Filing Easier

 

Make sure you have received Form W-2 and other earnings information, such as Form 1099, from employers and payers. The dates for furnishing such information to recipients vary by form, but they are generally not required before February 1, 2022. You may need to allow additional time for mail delivery.

If you received advance payments of the child tax credit, the IRS should send you a letter with information about those payments. You will need this information to file your taxes. Taxpayers who didn’t receive the full 2021 economic impact payment may be able to claim the Recovery Rebate Credit on their 2021 tax return. Most taxpayers will also receive a letter from the IRS detailing their 2021 Economic Impact Payment.

The IRS strongly recommends electronic filing and direct deposit for the fastest, most accurate processing of tax returns, payments, and refunds. Check irs.gov for the latest tax information, including how to reconcile advance payments of the child tax credit or claim a recovery rebate credit for missing stimulus payments.

 

Key Filing Dates

Here are several important dates to keep in mind:

  • January 14. IRS Free File opened. Free File allows you to file your federal income tax return for free if your adjusted gross income (AGI) is $73,000 or less.
  • January 24. IRS began accepting and processing individual tax returns.
  • April 18. Deadline for filing 2021 tax returns (or requesting an extension) for most taxpayers.
  • April 19. Deadline for filing 2021 tax returns (or requesting an extension) for taxpayers who live in Maine or Massachusetts.
  • October 17. Deadline to file for those who requested an extension on their 2021 tax returns.

The IRS encourages taxpayers seeking a tax refund to file their tax returns as soon as possible. The IRS anticipates most tax refunds being issued within 21 days of the IRS receiving a tax return if the return is filed electronically, any tax refund is delivered through direct deposit, and there are no issues with the tax return. To avoid delays in processing, the IRS encourages people to avoid paper tax returns whenever possible.

Matthew A Treskovich | CFA, CPA/PFS, CITP, CMA, CFP®, AEP®, MBA, CLU, ChFC
Chief Investment Officer

Last year was a year of turmoil for most of us. The pandemic and the election were just a few of the events that impacted our nation in 2020. Fortunately, 2021 has started on a brighter note, with the arrival of vaccines that promise to bring life closer to normal. If you are looking for a fresh start this year, your personal finances are a great place to begin.

Examine Your Budget

The first step in refreshing your finances is to examine how much you spend, and how much you save. Identify your income and expenses, and then compare them to make sure you are spending less than you earn. Hopefully, you were able to stay the course during the pandemic. If not, you may need to cut back on some spending, or look for way to lower your monthly bills.

Once you have a workable budget in place, it’s important to stick with it. The temptation to stray from a budget is natural. Here are a few tips to make sticking with your budget easier:

  • Make budgeting a part of your daily routine
  • Build occasional rewards into your budget
  • Evaluate your budget on a regular basis and make changes if needed
  • Use budgeting software or an app to help keep track of your finances

Pay Down Your Debt

Reducing debt is part of any healthy financial plan. Paying down “unproductive debt” as quickly as possible is usually a good idea. Student loan debt, high-interest-rate auto loans, and credit card balances are all examples of “unproductive debt”. Start by tracking all of your balances and being mindful of interest rates and hidden fees. Next, optimize your repayments by paying off any high-interest debt first and/or taking advantage of debt consolidation/refinancing programs.

If the financial impact of the pandemic has made it difficult for you to pay down your debt, you may want to contact your lenders to see if they offer financial assistance. Many lenders may be willing to work with you by waiving interest and certain fees or allowing you to delay, adjust, or even skip some payments.

Think About Your Financial Goals

While the pandemic may have sidelined or stalled some of your financial goals, now is a good time to regain your focus. Take a look at the financial goals you set for yourself last year. Perhaps you wanted to increase your emergency fund or save money for a down payment on a home. Maybe you wanted to invest more money towards your retirement. Were you able to accomplish your goals despite any setbacks brought about by the pandemic? Do you have any new goals you would like to achieve in 2021? Finally, if your personal or financial circumstances changed, will you need to reprioritize your goals?

Make Sure Your Investment Portfolio is Still on Track

Despite the pandemic, the U.S. stock market ended 2020 at an all-time high. But that doesn’t necessarily mean your investment portfolio is still targeting your financial goals. When evaluating your investment portfolio, you’ll want to ask yourself the following questions:

  • Do I still have the same time horizon for investing as I did last year or prior to the pandemic?
  • Has my tolerance for risk changed?
  • Do I currently have an increased need for liquidity?
  • Does any investment now represent too large (or too small) a part of my portfolio?

Market volatility and current events aren’t usually a good reason to change your long term investment strategy. If your goals have changed, or your finances have changed, a portfolio review can help you keep your investments aligned with your financial plan.

Matthew A Treskovich | CPA/PFS, CITP, CMA, CFP®, AEP®, MBA, CLU, ChFC
Chief Investment Officer

Election day is a few months away, and it’s natural to wonder what the possible outcomes might mean for your portfolio. Fortunately for investors, there are many previous elections we can study to give us insight into how the market might react.

Policy Matters, Politics Doesn’t

The most important thing to keep in mind is that policy matters to long term investment returns, but politics doesn’t. Everything that will happen between today and election day is just politics. As the election gets closer, both sides will undoubtedly ramp up their rhetoric. Political vitriol can cause market volatility, but it doesn’t change the fundamentals of the economy. No matter what the outcome of the election is, we will be well into 2021 before policy changes are made. History also shows us that policy changes rarely work out as planned, and often have unexpected effects. For long term investors, there is no reason to rush to make portfolio changes just because it is an election year.

To understand the future, study the past.

The way the markets react to elections and changes of power in Washington is remarkably consistent over time. Historically, when Republicans control Congress and the White House, the markets tend to go up and the economy tends to grow. When Democrats control Congress and the White House, the economy tends to grow and the markets tend to go up. When there is divided government in Washington, the markets tend to go up, and more often than not, the economy grows.

History tells us that during the run-up to an election, market volatility increases. Despite the increased volatility, the market most often trades sideways in the months ahead of an election. Uncertainty is a far greater problem for the markets than who wins or loses an election. Once the results are known, long-term trends take over.

Policy changes might have an impact on individual companies or entire industries. Policy changes won’t derail the long-term trends that have created tremendous returns for investors over the past 100 years. American capitalism is still the engine that powers the global economy. Long-term investors in American businesses will continue to be rewarded no matter who wins the election.

Matthew A Treskovich | CPA/PFS, CITP, CMA, CFP®, AEP®, MBA, CLU, ChFC, FLMI
Chief Investment Officer

In June of 2019 the Securities and Exchange Commission approved several new rules governing how financial firms work with individual investors. The new rules were designed to help consumers understand the nature of the relationship they have with a financial services firm and the people who work for that firm. These rules apply to both brokers, and also fiduciary investment advisors.

What is Form CRS?

The Securities and Exchange Commission created a new form, called the Customer Relationship Summary, also known as “Form CRS”. The regulations require brokers and investment advisors to deliver a copy of Form CRS to their customers. The new form is also required to be posted on the website of the broker or investment advisor. The new form is intended to make it easier for you to decide whether you should hire a particular firm or individual.

The relationship summary is required to be short and written in understandable language. The form should contain an introduction which describes how the firm is regulated – as a broker, or an investment advisor, or both. The relationships and services section of the document describes the services the financial firm may provide. Form CRS also has a summary of the fees, costs, and potential conflicts of interest an advisor may have.

In theory, Form CRS should make it easier for you to understand whether your advisor is a fiduciary, legally obligated to act in your best interest. In practice, the Dual Registration Loophole will continue to cause confusion among consumers.

Watch Out for the Dual Registration Loophole

The Securities and Exchange Commission regulates two types of firms: broker-dealers (also called Brokers) and Registered Investment Advisors. Registered Investment Advisors are fiduciaries. A fiduciary is someone legally obligated to act in your best interest. Brokers are not fiduciaries. Brokers have a much lower standard of conduct when they make recommendations. Brokers are allowed to accept commissions for selling financial products. This often creates a conflict of interest. When a Broker recommends an investment product, you never know if it is the best thing for you, or it simply pays the best commission to the broker.

Some firms are registered as both Brokers and as Registered Investment Advisors. This is the Dual Registration Loophole that allows some advisors to market themselves as fiduciaries while still collecting commissions. In a perfect world, Form CRS would clearly describe when your advisor is acting as a fiduciary, and when they are acting as a broker. Firms taking advantage of this loophole can publish two separate versions of Form CRS. One form will describe the firm’s activities as a fiduciary, and another form will disclose the firm’s activities as a broker. If you choose a firm that uses dual registration, make sure you understand when they are acting as a broker, and when they are acting as a fiduciary investment advisor.

Choosing a financial advisor can be a life-changing decision. Form CRS can give you important information to help you make that decision wisely. Take the time to read a prospective advisor’s Form CRS and understand the services they actually provide, and how they make money. Most importantly, understand whether your advisor is a fiduciary, obligated to work in your best interest, or a broker who is free to put their own interest first.

Matthew A Treskovich | CPA/PFS, CITP, CMA, CFP®, AEP®, MBA, CLU, ChFC, FLMI
Chief Investment Officer

Grand Re-Opening

Across the globe, the pandemic situation seems to be improving. Many nations continue to struggle with the economic fallout, but case counts and mortality rates hint that things are getting better. In the United States, the first wave of COVID-19 is waning, and many states are looking toward reopening their economies. Public health authorities remain concerned that a second wave of the virus will emerge. Meanwhile, investors are contemplating the possible shape of the recovery. The shape of the economic recovery will depend on how willing and able consumers are to return to their old spending habits.

Employment and Consumer Spending

Prior to the COVID-19 crisis, unemployment was at 50-year lows. Widespread unemployment is an unfortunate effect of the public health measures used to contain the virus. Economic data shows that tens of millions of Americans have already filed for unemployment benefits. The unemployment rate is expected to peak at 20% or perhaps higher. Wise investors know that the employment situation is “old news” as far as the markets are concerned. It is very possible to see the market go up on news that is “less bad” than expected, even while the headlines are bleak.

In times of crisis, Americans have historically reacted by saving a bit more. Many retailers, restaurants, and most entertainment venues are now closed, increasing the savings effect dramatically. In March of 2020, the personal savings rate registered the largest one-month increase on record, and now sits at the highest level in nearly 40 years. The last time the personal savings rate was this high was November 1981. While it is possible this increase in savings is a “new normal”, it is much more likely Americans will rapidly return to their free-spending ways. Using some “walking around sense”, it is not hard to see that most places that people can shop, are full of people shopping. New Year’s Resolutions usually expire a few weeks into January. This new trend of saving will probably last about as long as it takes businesses to reopen, and then consumers will hit the stores with cash to spend.

This Recovery Brought to You by the Letters V, U, L, and W

Investors and the markets are now contemplating what shape the recovery will take. The four most likely possibilities are described as being in the shape of a V, a U, an L, or a W.

  • A V-shaped recovery is still possible, but rarely in history is an economic recovery as rapid as the decline.
  • A U-shaped recovery is also possible, if fear of the disease keeps consumers home and businesses closed even after restrictions are lifted.
  • For much of March, the markets were concerned the recovery would take the shape of an L, a sharp decline followed by a long period of stagnation. The swift public health response, and massive relief and stimulus, make this unlikely.
  • If a second wave of the virus emerges, the recovery might take the shape of a W, especially if parts of the economy need to be closed again.

The good news for investors is that government officials and businesses now have much more experience with containment than they did a few months ago. If a second wave emerges, this experience will make future containment efforts more effective and less expensive. In the meantime, sentiment among consumers and businesses alike hint that the recovery will most likely be somewhere between a V and a U.

It is too soon to tell what shape the recovery will take, but we do know that the economy and the markets will recover. We also know that old habits die hard, and US consumers are very likely to continue to spend as they have in the past. For investors in great American businesses, the future is still bright.

Matthew A Treskovich | CPA/PFS, CITP, CMA, CFP®, AEP®, MBA, CLU, ChFC, FLMI
Chief Investment Officer

Over the past week, the stock market saw some of the heaviest selling in over two years. When the market has several days of steep declines, it can make investors very uncomfortable. The best advice for investors during market turbulence is to take a deep breath and keep things in perspective.

The financial press tells us the selloff this week was the result of the Wuhan Coronavirus. Although the Coronavirus has been in the news for the better part of two months, it didn’t seem to be impacting the market at all until a few days ago. To understand the possible impact of this virus, think about other viruses we’ve seen in the recent past.

The world has seen many epidemics over the past two decades. From SARS and the bird flu, to the swine flu and Ebola, many diseases have threatened to wreak havoc. All of these were terrible diseases, leaving thousands dead and millions more fearing a pandemic. Despite the human toll, they all passed, and the markets eventually continued to new highs. Long-term investors who had the presence of mind to remain fully invested were ultimately rewarded.

Rational investors would expect healthcare stocks to be driven higher by fears of a global pandemic. Companies that make drugs, operate hospitals, and build medical devices would all see higher sales. In fact, the healthcare sector has seen the same declines as the rest of the market. At times, especially during market selloffs, market participants behave irrationally.

Students of the market know that 5% selloffs happen about three times per year. The market averages one 10% drop per year. Even after Monday and Tuesday’s sell-off, the market was still higher than it was six months ago. Despite the 6% drop in the first two days of the week, the market closed higher on Tuesday than it was a year ago.

More importantly for long-term investors, a few days of market turbulence don’t change the economic fundamentals. Unemployment remains at historic lows. Inflation is muted, advances in technology continue, and the American consumer will keep spending money. As long as consumers continue to spend, American businesses will continue to profit, and investors will ultimately reap the rewards.

There’s always something in the news that feels like a reason to not own stocks. Last year, it was the inverted yield curve and fear of recession. The year before, it was tariffs and trade wars. Before that, Brexit, the Greek debt crisis, the global financial crisis, September 11th, and the tech wreck all gave investors excuses to sell what they owned and not buy stocks.

In every case, investors who sold because of the “bad news” lost out. Investors who held on were rewarded. A few investors bought more, when everyone else was afraid to buy, and they profited handsomely. For long term investors, the best course of action is to stay the course and not make emotional decisions.

Matthew A Treskovich | CPA/PFS, CITP, CMA, CFP®, AEP®, MBA, CLU, ChFC, FLMI
Chief Investment Officer

Avoid Surprises at Tax Time: Check Your Withholding Now

The Tax Cuts and Jobs Act of 2017 reduced taxes on 80% of all Americans. The IRS has updated the forms and tables for income tax withholding to reflect the new rates. The new rates and withholding tables could mean surprises for some workers at tax time next year. It is important to understand how withholding works and what these changes mean for you.

How Income Tax Withholding Works

Most working Americans have estimated income taxes taken out of each paycheck throughout the year. Employers take a part of each employee’s paycheck and send it to the IRS. This system is called “withholding”.

When the year is over, your employer totals up the withholding for income tax and lists the amount on your Form W2. This form also has other details on your earnings, and on payroll tax payments.

Withholding from your paycheck for income taxes is based on an estimate of what your income tax bill will be. The actual amount of income tax you owe is determined when you file your personal income tax return.

Your “tax return” is the set of paperwork you send (by mail, or electronically) to the IRS showing your income, deductions, and tax payments. Your “tax refund” is the money you get back if you overpaid your taxes during the year. Personal income tax returns are usually due by April 15th of the following year.

If the amount withheld from your paychecks during the year is greater than the amount of income tax you owe, you receive a tax refund. If you didn’t pay enough tax throughout the year, you may have to pay a penalty for underpayment of estimated tax.

New Tax Law Means New Withholding Tables

The IRS provides a form called Form W4 that employees use to  provide withholding instructions to their employer. Changes to this form will change the amount of tax withheld from each paycheck. The IRS also gives employers a set of tables called “withholding tables”. Employers use the withholding table, and the employee’s Form W4, to determine how much tax should be withheld from each paycheck.

The Tax Cuts and Jobs Act provides new, lower income tax rates for the majority of workers. Because most workers will have a lower  income tax bill, the IRS has released new withholding tables to reflect the lower rates. Under the new tables, less tax will be withheld than last year for the same amount of earnings. For many workers, the new tables will suffice. However, some taxpayers may find that the new tables do not withhold enough estimated tax.

You can perform a quick “paycheck checkup” using the IRS withholding calculator at www.IRS.gov . Ask your tax advisor for an estimate of your 2018 taxes. If it looks like you will owe more than is being withheld, you can file an updated W4 to request extra withholding. When it comes to possible underpayment of income taxes, the sooner you start to fix it, the better!

 

Peter C. Golotko is president and CEO of CPS Investment Advisors. Matthew Treskovich is the Chief Investment Officer for CPS Investment Advisors.

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