Protecting Americans from Tax Hikes Act

As you may know, on Friday, December 18, 2015, President Obama signed into law the Consolidated Appropriations Act of 2016, which contains the Protecting Americans from Tax Hikes (PATH) Act of 2015. This act makes permanent several key tax provisions that had previously expired or were set to expire within the next two years. Each of these provisions was made retroactive to the beginning of 2015.

Qualified Charitable Distributions

The Qualified Charitable Distributions (QCD) provision permits taxpayers who are at least age 70½ to make tax-free distributions directly from an IRA or a Roth IRA to a qualified charity.

The donation is limited to $100,000 per person (married taxpayers filing jointly may exclude up to $100,000 donated from each spouse’s own IRA) and partially or fully satisfies the taxpayer’s required minimum distribution for the current tax year.

A few additional notes:

The withdrawal is a tax-free distribution; thus, the amount excluded from gross income is not tax-deductible. The benefit is available to taxpayers who do not itemize deductions and, therefore, would not otherwise be able to take a deduction. For taxpayers who do itemize, the rollover will be excluded from the calculation of their adjusted gross income (AGI).
Donations from an inherited IRA are eligible if the beneficiary is at least age 70½.
Donations from a SEP-IRA or SIMPLE IRA are not eligible.
The charitable recipient must be a 501(c)(3) charity. Nonoperating private foundations, supporting organizations, and donor-advised funds do not qualify.

These provisions will apply retroactively to QCDs made from January 1, 2015, going forward.

State and local sales tax deduction

Under PATH, taxpayers are now permitted to deduct sales tax payments instead of state and local income taxes on their federal returns. This is particularly important for individuals living in states without an income tax, such as Florida, Texas, and Washington.

Qualifying child tax credit

PATH has permanently set the refundable portion of the $1,000 per qualifying child tax credit at 15 percent of earned income in excess of $3,000.

Earned Income Tax Credit

The increased Earned Income Tax Credit for families with three or more children has been made permanent, as has the reduction in the marriage penalty.

American Opportunity Tax Credit

The American Opportunity Tax Credit, which was slated to expire in 2017, has also been made permanent. This provision allows a credit of up to $2,500 to offset the cost of postsecondary education for some taxpayers.

529 account distributions

PATH expands the definition of qualified higher education expenses (QHEE) to include computer equipment and technology, as well as related software, Internet access, and services for beneficiaries during enrollment years. In addition, refunds of tuition paid with 529 distributions are considered QHEE and can be rolled back into a 529 account within 60 days of the refund. This provision is effective for distributions or refunds made in 2015. Also, for refunds made in 2014, the provision will be effective for refunds recontributed to a 529 within 60 days of enactment.

Rollovers to SIMPLE IRAs

Taxpayers will now be permitted to roll assets from traditional and SEP-IRAs, as well as from employer-sponsored retirement plans such as a 401(k), into a SIMPLE IRA, provided that the plan has existed for at least two years. Rollovers from Roth IRAs will not be permitted. This provision will be effective for rollover contributions made after enactment.

We are continuing to monitor these changes closely and are ready to discuss your tax planning strategy with you in light of this legislation. If you have any questions or concerns about the information shared here, please feel free to call our office at 651-774-8759

Weekly Market Update, December 14, 2015

Presented by Mark Gallagher

General market news
• Yields moved lower across the board last week, and the 10-year Treasury opened at 2.12 percent early Monday morning. The 10-year Treasury is below 2.20 percent for only the third day since the beginning of November, in anticipation of the Federal Open Market Committee meetings this week. Experts expect the Federal Reserve (Fed) to raise rates by 25 basis points (bps); however, mixed economic numbers, along with turbulent markets, could cause the Fed to further delay the liftoff.
• Last week was tough for global equity markets, as oil sank to $36 per barrel and worries about the health of the junk bond market intensified.
• In the U.S., the S&P 500 Index decreased 3.74 percent, and the Russell 2000 Index decreased 5.01 percent.
• Internationally, the MSCI EAFE Index decreased 1.50 percent, and the MSCI Emerging Markets Index decreased 2.84 percent.

 

Equity Index Week-to-Date Month-to-Date Year-to-Date 12-Month
S&P 500 –3.74% –3.19% –0.27% 0.96%
Nasdaq Composite –4.04% –3.40% 5.45% 6.12%
DJIA –3.19% –2.43% –0.72% 0.57%
MSCI EAFE –1.50% –2.02% –0.91% –1.53%
MSCI Emerging Markets –2.84% –3.07% –15.44% –14.27%
Russell 2000 –5.01% –6.16% –5.56% –2.40%

Source: Bloomberg

 

Fixed Income Index Month-to-Date Year-to-Date 12-Month
U.S. Broad Market 0.29% 1.17% 1.08%
U.S. Treasury 0.57% 1.59% 1.35%
U.S. Mortgages 0.17% 1.72% 1.70%
Municipal Bond 0.57% 3.17% 3.17%

Source: Morningstar Direct

What to look forward to
We’re anticipating several important economic releases this week, beginning with insight into consumer inflation and the Consumer Price Index, where prices are expected to be flat.

Housing Starts are expected to show an increase for November. Industrial Production data will also be released midweek.

Finally, the Fed is widely expected to increase rates by 25 bps in its meeting culminating on Wednesday.

Disclosures: Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poor’s. The Nasdaq Composite Index measures the performance of all issues listed in the Nasdaq Stock Market, except for rights, warrants, units, and convertible debentures. The Dow Jones Industrial Average is computed by summing the prices of the stocks of 30 large companies and then dividing that total by an adjusted value, one which has been adjusted over the years to account for the effects of stock splits on the prices of the 30 companies. Dividends are reinvested to reflect the actual performance of the underlying securities. The MSCI EAFE Index is a float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Index is a market capitalization-weighted index composed of companies representative of the market structure of 26 emerging market countries in Europe, Latin America, and the Pacific Basin. The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index. The Barclays Capital Aggregate Bond Index is an unmanaged market value-weighted performance benchmark for investment-grade fixed-rate debt issues, including government, corporate, asset-backed, and mortgage-backed securities with maturities of at least one year. The U.S. Treasury Index is based on the auctions of U.S. Treasury bills, or on the U.S. Treasury’s daily yield curve. The Barclays Capital Mortgage-Backed Securities (MBS) Index is an unmanaged market value-weighted index of 15- and 30-year fixed-rate securities backed by mortgage pools of the Government National Mortgage Association (GNMA), Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (FHLMC), and balloon mortgages with fixed-rate coupons. The Barclays Capital Municipal Bond Index includes investment-grade, tax-exempt, and fixed-rate bonds with long-term maturities (greater than 2 years) selected from issues larger than $50 million. The Barclays Capital U.S. Treasury Inflation Protected Securities (TIPS) Index measures the performance of intermediate (1- to 10-year) U.S. TIPS.

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Mark Gallagher is a financial advisor located at Gallagher Financial Services at 2586 7th Ave East, North Saint Paul, MN, 55109. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at 651-774-8759 or at mark@markgallagher.com.

Authored by the Investment Research team at Commonwealth Financial Network.

© 2015 Commonwealth Financial Network®

 

Weekly Market Update, November 30, 2015

Presented by Mark Gallagher

General market news
• The yield on the 10-year Treasury opened at 2.21 percent early Monday morning, slightly above the lowest level we’ve seen in more than three weeks. Although it seems that a majority of investors, along with the fed funds futures, expect the Federal Reserve to raise rates in December, the Treasury markets are actually signaling more uncertainty. The 30-year yield opened below 3 percent on Monday, again at the lowest level we’ve seen in three weeks.
• U.S equity markets were relatively flat during last week’s holiday-shortened trading session.
• The S&P 500 increased 0.08 percent, as there was little in the way of news to move markets.
• Elsewhere, emerging markets sold off; weak commodity prices and a strong dollar drove the decline.

Equity Index Week-to-Date Month-to-Date Year-to-Date 12-Month
S&P 500 0.08% 0.76% 3.48% 3.22%
Nasdaq Composite 0.46% 1.65% 9.56% 8.38%
DJIA –0.10% 1.13% 2.18% 2.30%
MSCI EAFE –0.47% –1.22% 1.42% –2.05%
MSCI Emerging Markets –2.02% –2.48% –11.47% –15.47%
Russell 2000 2.35% 3.62% 0.99% 3.87%

Source: Bloomberg

 

Fixed Income Index Month-to-Date Year-to-Date 12-Month
U.S. Broad Market –0.32% 0.82% 0.91%
U.S. Treasury –0.44% 0.98% 1.12%
U.S. Mortgages –0.24% 1.44% 1.59%
Municipal Bond 0.33% 2.51% 3.03%

Source: Morningstar Direct

What to look forward to
The service sector will receive some attention this week, with releases of both manufacturing and nonmanufacturing data. The ISM Manufacturing survey is expected to remain fairly flat, while the ISM Nonmanufacturing index is likely to pull back but remain at healthy levels.

The main focus this week, however, will be Friday’s Employment Report, where expectations are for a gain of 220,000 jobs.

Disclosures: Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poor’s. The Nasdaq Composite Index measures the performance of all issues listed in the Nasdaq Stock Market, except for rights, warrants, units, and convertible debentures. The Dow Jones Industrial Average is computed by summing the prices of the stocks of 30 large companies and then dividing that total by an adjusted value, one which has been adjusted over the years to account for the effects of stock splits on the prices of the 30 companies. Dividends are reinvested to reflect the actual performance of the underlying securities. The MSCI EAFE Index is a float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Index is a market capitalization-weighted index composed of companies representative of the market structure of 26 emerging market countries in Europe, Latin America, and the Pacific Basin. The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index. The Barclays Capital Aggregate Bond Index is an unmanaged market value-weighted performance benchmark for investment-grade fixed-rate debt issues, including government, corporate, asset-backed, and mortgage-backed securities with maturities of at least one year. The U.S. Treasury Index is based on the auctions of U.S. Treasury bills, or on the U.S. Treasury’s daily yield curve. The Barclays Capital Mortgage-Backed Securities (MBS) Index is an unmanaged market value-weighted index of 15- and 30-year fixed-rate securities backed by mortgage pools of the Government National Mortgage Association (GNMA), Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (FHLMC), and balloon mortgages with fixed-rate coupons. The Barclays Capital Municipal Bond Index includes investment-grade, tax-exempt, and fixed-rate bonds with long-term maturities (greater than 2 years) selected from issues larger than $50 million. The Barclays Capital U.S. Treasury Inflation Protected Securities (TIPS) Index measures the performance of intermediate (1- to 10-year) U.S. TIPS.

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Mark Gallagher is a financial advisor located at Gallagher Financial Services at 2586 East 7th Ave, North Saint Paul, MN 55109. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at 651-774-8759 or at mark@markgallagher.com.
Authored by the Investment Research team at Commonwealth Financial Network.

© 2015 Commonwealth Financial Network®