Market-Moving News[i]
Market rebound
U.S. stocks rose for the third week in a row, extending their recovery from a sharp weekly decline in the first week of September. The S&P 500 and the Dow added 0.6% to the record-high levels they reached the previous week; the NASDAQ rose 1.0% and ended up 2.8% below a record it set more than two months ago.
Easing inflation
The U.S. Federal Reserve’s preferred inflation gauge on Friday showed further slow-but-steady easing of price pressures. The Personal Consumption Expenditures Index rose at an annual rate of 2.2% in August, slightly below economists’ consensus forecast and the lowest figure since February 2021. Excluding energy and food prices, the core PCE Index rose 2.7%, matching expectations.
China stimulus
Mainland Chinese stocks surged as the nation’s central bank approved measures to accelerate recently sluggish growth for the world’s second-largest economy. The People’s Bank of China on Tuesday announced plans to lower borrowing costs, inject more funds into the economy, and ease households' mortgage repayment burdens.
Positive indicators
The U.S. government’s latest estimate of second-quarter economic growth found that GDP expanded at a 3.0% annual rate—the same figure as an earlier estimate, but better than economists’ expectations for a 2.9% rate. Separately on Thursday, the latest weekly total of new unemployment claims fell to 218,000, the lowest claims figure in four months.
Rising sentiment
An indicator that tracks U.S. consumer sentiment rose for the second month in a row, reversing a recent downward trend that began in the spring. Friday’s 70.1 reading from the University of Michigan’s Consumer Sentiment Index was up from August’s figure of 67.9.
European stock gains
A European stock index climbed more than 2% for the week and eclipsed a record high as investors assessed an economic stimulus announcement from China and better-than-expected inflation data from France and Spain. Stocks in economically sensitive industries such as chemicals and automobiles were among the top performers across the European index.
Oil slide
The price of U.S. crude oil dropped nearly 4% for the week to less than $69 per barrel on Friday. That price is down from a recent high of nearly $84 per barrel in early July and is little changed year to date.
Jobs ahead
A monthly employment report scheduled to be released on Friday will show how September’s jobs growth compared with August’s gain of 142,000 jobs. While that figure was above the previous month’s gain, it was less than economists’ consensus expectations. In addition, initial estimates for June and July were revised downward by a combined 86,000 jobs.
The Week Ahead: Sep 30 – Oct 4
- Monday
- No major reports scheduled
- Tuesday
- Job Openings and Labor Turnover Survey, U.S. Bureau of Labor Statistics
- Institute for Supply Management’s manufacturing index
- Construction spending, U.S. Census Bureau
- Wednesday
- ADP National Employment Report, ADP
- Thursday
- Institute for Supply Management’s nonmanufacturing index
- Factory orders, U.S. Census Bureau
- Weekly unemployment claims, U.S. Department of Labor
- Friday
- Jobs and unemployment, U.S. Bureau of Labor Statistics
Philosophy Quote of the Week[ii]
What Will Prosperity Reveal?
“For even peace itself will supply more reason for worry. Not even safe circumstances will bring you confidence once your mind has been shocked – once it gets in the habit of blind panic, it can’t provide for its own safety. For it doesn’t really avoid danger, it just runs away. Yet we are exposed to greater danger when our backs are turned.”
Seneca, Moral Letters, 104.10b
There’s an old proverb that money doesn’t change people, it just makes them more of who they are. Robert Caro has written that “power doesn’t corrupt, it reveals.” In some ways, prosperity – financial and personal – is the same way.
If your mind has developed a certain cast – the habit of panicking, in Seneca’s example – then it won’t matter how good things get for you. You’re still primed for panic. Your mind will still find things to worry about, and you’ll still be miserable. Perhaps more so even, because now you have more to lose.
This is why it’s foolish to hope for good fortune. If you were to hope for one thing, you could hope for the strength of character that’s able to thrive on good fortune. Or better, work for that kind of character and confidence. Consider every action and every thought – think of them as building blocks of your indestructible character. Then work to make each one strong and significant in its own right.
Tax Tips[iii]
IRS Urges Travelers Requiring Passports to Pay Their Taxes or Enter into Paying Agreements (People Owing More Than $50,000)
Flying off to an international destination and starting life afresh on an exotic island is not an option when you have large piling tax debts. Often glamorized in movies as a fresh start, it isn’t possible for people with “seriously delinquent tax debts”.
The IRS has updated procedures affecting these people as part of the Fixing America’s Surface Transportation (FAST) Act, signed into law in December 2015. The FAST Act requires the IRS to notify the State Department of taxpayers the IRS has certified as owing a seriously delinquent tax debt. See IRS Notice 2018-1. The FAST Act also requires the State Department to deny their passport application or renewal. In some cases the State Department may revoke their passport.
Taxpayers affected by this law are those with a seriously delinquent tax debt. A taxpayer with a seriously delinquent tax debt is generally someone who owes the IRS more than $50,000 in back taxes, penalties and interest for which the IRS has filed a Notice of Federal Tax Lien and the period to challenge it has expired, or the IRS has issued a levy.
There are several ways taxpayers can avoid having the IRS notify the State Department of their seriously delinquent tax debt. They include:
- Paying the tax debt in full
- Paying the tax debt timely under an approved installment agreement
- Paying the tax debt timely under an accepted offer in compromise
- Paying the tax debt timely under the terms of a settlement agreement with the Department of Justice
- Having requested or have a pending collection due process appeal with a levy
- Having collection suspended because a taxpayer has made an innocent spouse election or requested innocent spouse relief
A passport won’t be at risk under this program for any taxpayer:
- In bankruptcy proceedings
- Identified by the IRS as a victim of tax-related identity theft
- Whose account the IRS has determined is currently not collectible due to hardship
- Located within a federally declared disaster area
- Pending a request with the IRS for an installment agreement payment plan
- With a pending Offer in Compromise with the IRS
- With an IRS accepted adjustment that will satisfy the debt in full
- For taxpayers serving in a combat zone the IRS postpones collection and notifies the State Department and the individual’s passport is not subject to denial during that time
Taxpayers behind on their tax obligations should come forward and pay what they owe or enter into a payment plan with the IRS.
There are several relief programs taxpayers may qualify for:
- Payment Agreements can be requested with Form 9465. Taxpayers can download this form from IRS.gov and mail it along with their tax return, bill, or notice. Some taxpayers can use the online payment agreement to set up a monthly payment agreement for up to 72 months.
- Some taxpayers may qualify for an Offer in Compromise. Offers in Compromise are agreements between a taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed. The IRS looks at the taxpayer’s income and assets to determine the taxpayer’s ability to pay. To help determine eligibility, use the Offer in Compromise Pre-Qualifier, a free online tool available at https://www.irs.gov.
Remember – always contact your tax professional for help! That’s what you pay them for!
Life Insurance Awareness Month[iv]
Top 6 Tax Advantages of Life Insurance
Whether purchased for accumulation, retirement income or for the death benefit, life insurance has many tax benefits. With it always being tax season, there's no better time than the present to educate yourself on the unique tax advantages associated with owning a life insurance policy.
Top 6 Tax Benefits of Life Insurance:
- Life insurance premiums are paid with after-tax dollars:Generally, premiums are not a tax-deductible expense. Dividends from life insurance can also be used to purchase paid-up insurance additions tax-free. Similarly, the cash value of the paid-up additions accrues tax-deferred.
- Tax-deferred cash value accumulation:Growth of policy cash value in excess of the cost basis is typically income tax-deferred while it remains in the policy. Cash value policies are subject to a “seven pay test,” as a way to measure the limit that the Internal Revenue Code (IRC) can place on the amount of premiums that are put into a life insurance contract. It limits the usual First-In-First-Out (FIFO) tax benefits of cash value withdrawals. Any policy that fails this test is classified as a Modified Endowment Contract (MEC) and withdrawals are taxed under the LIFO rules.
- FIFO tax-free distribution:For non-MEC policies, cash can be withdrawn from the policy tax-free up to the adjusted cost basis. Some cash distributions received, due to certain changes in the death benefit of a contract, may not be taxed under the FIFO cost recover rule. However, these could be taxed under the Last-In-First-Out (LIFO) rule. For a full definition of what constitutes as earlier determination or adjustment, check the life insurance guidelines of the IRC Section 7702.
- Tax-free death benefit: IRC Section 101(a) provides that death benefits of life insurance are income-tax-free when paid to the policy beneficiary. If the life insurance policy is owned by someone other than the insured, the death benefit is taxed as if the insured were the owner of the policy. That is, the death benefit is income tax-free under the IRC Section 101.
- No deposit limits: There are no restrictions on the total amount that can be placed in a policy versus QRP/IRA Limits (see chart below). For this reason, life insurance policies are a popular financial asset to pass funds along to the next generation. Often the value of a life insurance policy, for a gift tax purpose, is the interpolated terminal reserve plus any unearned premium. A Form 712 Life Insurance Statement should be obtained from the carrier.
- Life insurance included in an insured's gross estate: The death proceeds of life insurance can be included in an insured’s gross estate in the following three circumstances.
- The proceeds are payable to the insured’s estate, or are receivable for the benefit of the insured’s estate;
- The proceeds are payable to a beneficiary other than the insured’s estate, but the insured possessed one or more incidents of ownership in the policy, whether exercisable by the insured alone or only in conjunction with another person;
- The insured has made a gift of the policy on the insured’s life within three years of his or her death.
Consider these tax advantages (or disadvantages) when funding a portfolio for retirement income or for leaving an inherited legacy for heirs.
Remember, it's the AFTER-TAX INCOME STREAM that's important. In other words, focus on what you get to keep after payment of income taxes, both during the accumulation and distribution.
As you can see, life insurance has the flexibility to satisfy multiple financial needs that help protect, accumulate, and transfer wealth. Based on the income tax results described above, you may have more to consider when making a decision regarding life insurance than you think.
[i]https://www.jhinvestments.com/weekly-market-recap#market-moving-news, accessed 09.30.2024.
[ii] Holiday, Ryan. The Daily Stoic: 366 Meditations on Wisdom, Perseverance, and the Art of Living. Kindle edition, page 288-289. Accessed 09.30.2024.
[iii] Hockensmith, Robert F. 52 Ways to Outsmart the IRS, Weekly Tax Tips to Save You Money. Kindle edition, page 176-178, accessed 09.30.2024.
[iv] https://blog.bsmg.net/tax-advantages-of-life-insurance, accessed 09.30.2024.