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1
Feb

Federal Income Tax Filing Season Has Begun for 2021 Returns

The IRS announced that the starting date for when it would accept and process 2021 tax-year returns was Monday, January 24, 2022.

Tips for making filing easier

To speed refunds and help with tax filing, the IRS suggests the following:

•          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.

•          Go to irs.gov to find the federal individual income tax returns, Form 1040, and Form 1040-SR (available for seniors born before January 2, 1957), and their instructions.

•          File electronically and use direct deposit.

•          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. Also, watch for letters from the IRS with essential information about those payments that may help you file an accurate return.

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] using tax preparation and filing software. You can use Free File Fillable Forms even if your AGI exceeds $73,000 (these forms were not available until January 24). You could file with an IRS Free File partner (tax returns could not be transmitted to the IRS before January 24). Tax software companies may have accepted tax filings in advance.

•          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.

Awaiting processing of previous tax return?

The IRS is attempting to reduce the inventory of prior-year income tax returns that have not been fully processed due to pandemic-related delays. Taxpayers do not need to wait for their 2020 return to be fully processed to file their 2021 return.

Tax refunds

The IRS encourages taxpayers seeking a tax refund to file their tax return 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.

25
Jan

Investments in our Infrastructure is expected to have an impact on our economy.

A bipartisan congress passed the Infrastructure Investment and Jobs Act. The act provides  roughly $1 trillion for infrastructure. Funds are provided  for existing programs and provided more than $550 billion in new funding over the next five years. The expenditures will go toward upgrading aging U.S. transportation, water, power generation, and communication systems.1 The American Society of Civil Engineers called the legislation a significant down payment on the $2.5 trillion in deficiencies identified in the industry group’s 2021 Report Card for America’s Infrastructure.2

The objective is to improve public safety and grease the wheels of commerce by making a historic federal investment in physical infrastructure. This large injection of funds is likely to affect how many Americans commute, travel, transport goods, access the Internet, power homes and buildings, and more, with implications for communities, businesses, industries, and the economy.

How the funds will be used

The new spending is a combination of targeted funds for overdue repair projects and forward-looking programs intended to make the nation’s critical infrastructure assets more resilient to climate risks.3 Here’s an overview of the Act’s allocated funds:

•          $110 billion to fix deteriorating roads and bridges, and other major surface-transportation projects

•          $66 billion to pay for passenger and freight railway maintenance, modernization, and expansion, primarily to overhaul Amtrak and make rail travel a reliable alternative to driving or flying between more U.S. cities

•          $65 billion to build out broadband Internet in underserved areas and subsidies to help lower-income households pay for high-speed Internet access

•          $65 billion to update the electric grid and help protect it from severe weather and cybersecurity threats

•          $55 billion to help ensure access to clean drinking water, remove lead service lines, and upgrade wastewater systems (another $8 billion goes toward addressing dwindling water supplies in the West)

•          $47 billion to help states and cities prepare for and defend against more frequent and destructive storms, droughts, wildfires, and other climate impacts

•          $42 billion to expand and upgrade airports, ports, and border-crossing stations, measures that are sorely needed to shore up supply-chain weaknesses

•          $39 billion to repair and revamp public transit and make it more accessible to the elderly and disabled

•          $21 billion to enhance public health and create jobs by cleaning up abandoned mines and oil and gas wells, polluted waterways, and contaminated superfund sites

•          $11 billion to improve highway and pedestrian safety and support research

•          $7.5 billion to build out a network of electric vehicle charging stations plus $7.5 billion for low-emission school buses and ferries

•          $1 billion to reconnect communities negatively affected by past infrastructure projects

Benefits

Transportation funds are normally allocated to states according to a formula based on population, gas-tax revenue, and other factors, and each state typically decides how to spend the money. Most of the new funding will be distributed under this traditional formula, but $120 billion will be awarded through dozens of new competitive grant programs.4 The Transportation Department will select recipients from applications submitted by state and local governments, and Congress will have direct oversight, so lawmakers can monitor projects and call hearings to assess the results. It’s likely to take at least six months to pass out the money, finalize plans, and kick off projects — and timelines could run longer for grant programs.

Moody’s Analytics projects that the law’s economic impact will peak in about five years and fade as spending tails off, creating an estimated 556,000 jobs and raising U.S. output by 0.5% by year-end 2026. Other projections vary, but economists tend to agree that greater infrastructure spending eases worker mobility and the transportation of goods, providing a boost to labor productivity, business efficiency, and economic growth.5

The additional infrastructure spending will be partially paid for by new revenue and unspent COVID-19 relief funds. However, the Congressional Budget Office found that the Act would add $256 billion to budget deficits over the next decade, so borrowing to cover the difference could offset some of the law’s economic benefits.6

1, 5) The Wall Street Journal, November 6, 2021

2) American Society of Civil Engineers, 2021

3) The New York Times, August 10, 2021; White House Fact Sheet, November 6, 2021

4) The Wall Street Journal, November 7, 2021

6) Congressional Budget Office, August 9, 2021

5
Jan

The Federal Reserve System Fights Inflation

The Federal Reserve System (Fed) adjusts its monetary policy in response to rising inflation. The Federal Open Market Committee (FOMC) quickened the reduction of its bond-buying program mid-December 2021. They projected three increases in the benchmark federal funds rate in 2022, followed by three more increases in 2023 and speedup its buying bonds. These steps were more aggressive than previous FOMC actions or projections.1

A closer look at the FOMC’s tools and strategy may help to appreciate the impact of how these steps may affect the U.S. economy, investors, and consumers.

Jobs vs. Prices

The Federal Reserve is our national bank. It has two mandates, maintain price stability and full employment. These mandates require some inflation. An economy without inflation is typically stagnant with weak employment. A strong economy with high employment is prone to high inflation.

The FOMC currently has set a 2% annual inflation target based on the personal consumption expenditures (PCE) price index to meet the Fed’s mandate. The PCE index represents a broad range of spending on goods and services and tends to run below the more widely publicized consumer price index (CPI). The Committee’s policy is to allow PCE inflation to run moderately above 2% for some time to balance the periods when it runs below 2%.

PCE inflation was generally well below the Fed’s 2% target from May 2012 to February 2021. But it has risen quickly since then, reaching 5.7% for the 12 months ending in November 2021 — the highest level since 1982. (By comparison, CPI inflation was 6.8%.)2-3

Fed officials, and many other economists and policy makers, originally believed that inflation was “transitory” due to supply-chain issues related to opening the economy. But the persistence and level of inflation over the last few months led them to take corrective action. They still believe inflation will drop significantly in 2022 as supply-chain problems are resolved, and project a PCE inflation rate of 2.6% by the end of the year.4

The Fed’s Toolbox

The FOMC uses two primary tools to meet an acceptable balance between employment and prices. The first is its power to set the federal funds rate, the interest rate that large banks use to lend each other money overnight to maintain required deposits with the Federal Reserve. This rate serves as a benchmark for many other rates, including the prime rate that commercial banks charge their best customers. The prime rate usually runs about 3% above the federal funds rate and acts as a benchmark for rates on consumer loans such as credit cards and auto loans. The FOMC lowers the funds rate to stimulate the economy to create jobs and raises it to slow the economy to fight inflation.

The second tool is purchasing Treasury bonds to increase the money supply or allowing bonds to mature without repurchasing to decrease the supply. The FOMC purchases Treasuries through banks within the Federal Reserve System. Rather than using funds it holds on to deposit, the Fed simply adds the appropriate amount to the bank’s balance, essentially creating money. This provides the bank with more money to lend to consumers, businesses, or the government (through purchasing more Treasuries).

Shifting from Extreme Stimulus

When the economy shut down in March 2020 in response to the COVID pandemic, the FOMC took extraordinary stimulus measures to avoid a deep recession. The Committee dropped the federal funds rate to its rock-bottom range of 0% to 0.25% and began a bond-buying program that reached an unprecedented level of $75 billion per day in Treasury bonds. By June 2020, this was reduced to $80 billion per month and remained at that level until November 2021, when the FOMC decided to wind down the program at a rate that would have ended it by June 2022.5-6

The December decision accelerated the wind down, so the bond-buying program will end in March 2022, at which point the FOMC will likely consider raising the federal funds rate. Although it’s not certain when an increase will occur, the December projection is that the rate will be in the 0.75% to 1.00% range by the end of 2022 and the 1.50% to 1.75% range by the end of 2023.7

Rising Interest Rates

Currently the Fed’s plan is to slow inflation by returning to a more neutral monetary policy; this represents confidence that the economy is strong enough to grow without extreme stimulus. If these are the only actions required, the impact may be relatively mild. The first increase in rates will likely occur in the spring.

Rising interest rates make it more expensive for businesses and consumers to borrow, which could impact corporate earnings and consumer spending. Rates have an inverse relationship with bond prices. When interest rates rise, prices on existing bonds fall (and vice versa), because investors can buy new bonds paying higher interest.

Conversely, higher rates on bonds, certificates of deposit (CDs), savings accounts, and other fixed-income vehicles could help investors, especially retirees, who rely on fixed-income investments. Brick-and-mortar banks typically react slowly to changes in the federal funds rate, but online banks may offer higher rates.8

Many believe Inflation is a far greater concern other than rising interest rates, and it remains to be seen whether the Fed’s projected rate increases will be enough to tame prices. There are other moving parts, such as the movement of wages and prices. Generally, it is best not to overreact to policy changes. Often the best approach is to maintain an investment portfolio appropriate for your situation and long-term goals.

U.S. Treasury securities are guaranteed by the federal government as to timely payment of principal and interest. The principal value of all bonds fluctuates with market conditions. Bonds not held to maturity could be worth more or less than the original amount paid. The FDIC insures CDs and bank savings accounts, which generally provide a fixed rate of return, up to $250,000 per depositor, per insured institution. Forecasts are based on current conditions, subject to change, and may not happen.

1, 4, 6–7) Federal Reserve, 2021

2) U.S. Bureau of Economic Analysis, 2021

3) U.S. Bureau of Labor Statistics, 2021

5) Federal Reserve Bank of New York, 2021

8) Forbes Advisor, December 14, 2021

The foregoing is provided for information purposes only.  It is not intended or designed to provide legal, accounting, tax, investment or other professional advice.  Such advice requires consideration of individual circumstances.  Before any action is taken based upon this information, it is essential that competent, individual, professional advice be obtained.  JAS Financial Services, LLC is not responsible for any modifications made to this material, or for the accuracy of information provided by other sources. 

3
Jan

Social Security Offices will not reopen for in-person meetings as originally planned January 3, 2022.

December 22, 2021, SSA announced they would not re-open as many expected.

The public is encouraged to use their online services. https://www.ssa.gov/onlineservices/
Their online services can be accessed by activating your Social Security account. Create an account if you do not have an account.
https://secure.ssa.gov/RIL/SiView.action
https://www.ssa.gov/myaccount/

The phone numbers for the local offices can be found using their “Field Office Locator”
https://secure.ssa.gov/ICON/main.jsp

Their COVID-19 web page provides mor information to learn more.
https://www.ssa.gov/coronavirus/

The Retirement Benefit portal has been updated.
https://www.ssa.gov/benefits/retirement/

20
Dec

2022 Mileage Rates 1)

The optional standard mileage standard mileage rates for the use of a cars (also vans, pickups or panel trucks) for business, charitable, medical, or moving purposes beginning January 1, 2022, have been issued.

Cars (also vans, pickups or panel trucks) 58.5 cents per mile for business use.

Medical, or Moving expenses for qualified active-duty members of the Armed Forces is 18 cents per mile.

Miles driven in service of charitable organization is 14 cents per mile.

Keep in mind that unreimbursed employee travel expenses miscellaneous cannot be deducted as itemized deductions. Moving expenses are not deductible, unless they are members of the Armed Forces on active duty moving under orders to a permanent change of station.

Medical, or Moving expenses for qualified active-duty members of the Armed Forces is 18 cents per mile.

Use of the standard mileage rates are optional. The alternative is to claim actual expenses.

The optional standard rates must be used in the first year the vehicle is used in business.

Election of the standard mileage rate for lease vehicles must be used for the entire lease period including renewals.

A taxpayer using the standard mileage rates must comply with the requirements of Revenue Procedure 2019-46 2)

1) IR-2021-254, December 17, 2021
2) Notice 22-03

11
Dec

2021 Some Potential Year-end Tax Moves

Maybe possible before year-end

Accelerate or defer income
Depending on you anticipated tax position for this and next year you may have the opportunity to accelerate income into 2021 or defer some to 2022. Some possible sources of income are collection of compensation, sales of property, sale of investments, collection of rents, collection from an installment sale, receipt of required minimum distributions and conversion of any portion of your traditional IRAs to Roth IRAs.

Accelerate or defer deductions
If you itemize deductions, making payments for deductible expenses such as medical expenses, qualifying interest, and state taxes before the end of the year (instead of paying them in early 2022) could make a difference on your 2021 return. If you do not itemize you may be able to defer enough expenses to itemize in 2022.

Make deductible charitable contributions
If you itemize deductions on your federal income tax return, you can generally deduct charitable contributions, but the deduction is limited to 60%, 30%, or 20% of your adjusted gross income (AGI), depending on the type of property you give and the type of organization to which you contribute. (Excess amounts can be carried over for up to five years.)

For 2021 charitable gifts, the normal rules have been enhanced: The limit is increased to 100% of AGI for direct cash gifts to public charities. And even if you don’t itemize deductions, you can receive a $300 charitable deduction ($600 for joint returns) for direct cash gifts to public charities (in addition to the standard deduction).

Contribution of securities with long term gains can be advantageous. If you itemize deductions, you can deduct the value as of the date you made the contributions. Whether you itemize your deductions or not the gain is not taxable. Contact the charity for instructions. If you are transferring the securities from your financial institution to theirs you will need the name of their financial institution, account number and routing number.

Increase withheld tax
If your employer has the capacity to withhold tax before December 31, 2021, notify your employer. They may be able to increase the tax withholding by the amount you specify. Alternatively, you will need to submit a Form W-4 for the remainder of the year to cover the shortfall. There may not be enough time for employers to process a Form W-4 to change withholding before December 31, 2021. The biggest advantage in doing so is that withholding is considered as having been paid evenly throughout the year instead of when the dollars are taken from your paycheck. This strategy can be used to make up for low or missing quarterly estimated tax payments.

There are other alternatives that maybe available. Consider having tax withheld from a transfer of funds from your financial institution to another account or financial institution. You would not want to do this if would be subject to penalties if the funds are in retirement plans. This maybe applicable if you have not taken your 2021 Required Minimum Distributions.

Maximize retirement savings
Deductible contributions to a traditional IRA and pre-tax contributions to an employer-sponsored retirement plan such as a 401(k) can reduce your 2021 taxable income. If you haven’t already contributed up to the maximum amount allowed, consider doing so. For 2021, you can contribute up to $19,500 to a 401(k) plan ($26,000 if you’re age 50 or older) and up to $6,000 to traditional and Roth IRAs combined ($7,000 if you’re age 50 or older). * The window to make 2021 contributions to an employer plan generally closes at the end of the year. The payment must generally be paid by April 15, 2022,

*Roth contributions are not deductible, but Roth qualified distributions are not taxable.

Take required minimum distributions
Required minimum distributions (RMDs) were waived for 2020. They are required for 2021. You must start withdrawing your RMD at age 701/2. If your 70th birthdate is July 1, 2019, or later you do not need to withdraw your first RMD until you are 72 years old. RMDs generally must be withdrawn from traditional IRAs and employer-sponsored retirement plans (special rules apply if you’re still working and participating in your employer’s retirement plan). You must make the withdrawals by the date required — the end of the year for most individuals. The penalty for failing to do so is substantial: 50% of the amount that wasn’t distributed on time.

Weigh year-end investment moves
Tax considerations should not drive your investment decisions. However, it’s worth considering the tax implications of any year-end investment moves. For example, if you have realized net capital gains from selling securities at a profit, you might avoid being taxed on some or all those gains by selling losing positions. A loss will not be recognized if the security is purchased within 30 days before or after the sale. Any losses over and above the amount of your gains can be used to offset up to $3,000 of ordinary income ($1,500 if your filing status is married filing separately) or carried forward to reduce your taxes in future years.

The foregoing is provided for information purposes only. It is not intended or designed to provide legal, accounting, tax, investment, or other professional advice. The above is not a complete discussion of the requirements, limitations, or applicability. Such advice requires consideration of individual circumstances. Before any action is taken based upon this information, it is essential that competent, individual, professional advice be obtained. JAS Financial Services, LLC is not responsible for any modifications made to this material, or for the accuracy of information provided by other sources.

5
Dec

2021 RMDs

Required Minimum Distributions (RMD) for 2021 must be paid by December 31, 2021. The requirement for 2020 was waived. Check with the custodian(s) where your IRA(s) are held if you have not yet received your entire RMDs for 2021. Some custodians have indicated delays in completing time sensitive transactions by December 31, 2021.

Annual RMDs have been required to begin at age 70.5 before a recent change. This requirement still applies to anyone born by June 30, 1949. Anyone born on or after July 1, 1949, are now required to start at age 72.

An exception to the beginning date applies to employees of retirement plans sponsored by their employers unless they own 5% or more of their employer. The required beginning date is postponed until they retire.

The first RMD may be postponed till April 1 of the following year. Delaying the distribution will result in 2 distributions in the following year. Among the factors to consider is the tax impact of delaying the RMD to April 1 of the next year.

RMDs apply to defined contributions plans and Induvial Retirement Plans (IRA). The distribution rules appl to IRA, SEP IRA, SIMPLE IRA, and Qualified Plans, such as Simplified Employee Plans, 401(k) Plans, are examples of Qualified Plans.

A 50% penalty applies if the RMDs are not paid by December 31 of the year required.

The above rules do not apply beneficiaries of inherited accounts. The rules for inherited is beyond the scope of this discussion.

RMDs are the minimum distribution. Larger distributions are permitted. This may apply when the applicable tax rate will be different in each year. Another factor is if you have a large or unexpected expenditures.

Your account balance is usually calculated as of December 31 of the year preceding the calendar year for which the distribution is required to be made. That balance is generally divided by the life expectancy factor determined by the IRS. You use your attained age in the distribution year by factor in the applicable IRS Uniform Lifetime Tables. The table assumes that you have designated a beneficiary who is exactly 10 years younger than you are. Every IRA owner’s and plan participant’s calculation is based on the same assumption.

Different calculations are used if the spouse is more than 10 years younger than you. the calculation of your RMDs may be based on the longer joint and survivor life expectancy of you and your spouse.

A new table will be used starting in 20222. The tables will reduce the annual RMD. The foregoing is provided for information purposes only. It is not intended or designed to provide legal, accounting, tax, investment, or other professional advice. Such advice requires consideration of individual circumstances. Before any action is taken based upon this information, it is essential that competent, individual, professional advice be obtained. JAS Financial Services, LLC is not responsible for any modifications made to this material, or for the accuracy of information provided by other source

Required Minimum Distributions (RMD) for 2021 must be paid by December 31, 2021. The requirement for 2020 was waived. Check with the custodian(s) where your IRA(s) are held if you have not yet received your entire RMDs for 2021. Some custodians have indicated delays in completing time sensitive transactions by December 31, 2021.

Annual RMDs have been required to begin at age 70.5 before a recent change. This requirement still applies to anyone born by June 30, 1949. Anyone born on or after July 1, 1949, are now required to start at age 72.

An exception to the beginning date applies to employees of retirement plans sponsored by their employers unless they own 5% or more of their employer. The required beginning date is postponed until they retire.

The first RMD may be postponed till April 1 of the following year. Delaying the distribution will result in 2 distributions in the following year. Among the factors to consider is the tax impact of delaying the RMD to April 1 of the next year.

RMDs apply to defined contributions plans and Induvial Retirement Plans (IRA). The distribution rules appl to IRA, SEP IRA, SIMPLE IRA, and Qualified Plans, such as Simplified Employee Plans, 401(k) Plans, are examples of Qualified Plans.

A 50% penalty applies if the RMDs are not paid by December 31 of the year required.

The above rules do not apply beneficiaries of inherited accounts. The rules for inherited is beyond the scope of this discussion.

RMDs are the minimum distribution. Larger distributions are permitted. This may apply when the applicable tax rate will be different in each year. Another factor is if you have a large or unexpected expenditures.

Your account balance is usually calculated as of December 31 of the year preceding the calendar year for which the distribution is required to be made. That balance is generally divided by the life expectancy factor determined by the IRS. You use your attained age in the distribution year by factor in the applicable IRS Uniform Lifetime Tables. The table assumes that you have designated a beneficiary who is exactly 10 years younger than you are. Every IRA owner’s and plan participant’s calculation is based on the same assumption.

Different calculations are used if the spouse is more than 10 years younger than you. the calculation of your RMDs may be based on the longer joint and survivor life expectancy of you and your spouse.

A new table will be used starting in 20222. The tables will reduce the annual RMD.

The foregoing is provided for information purposes only. It is not intended or designed to provide legal, accounting, tax, investment, or other professional advice. Such advice requires consideration of individual circumstances. Before any action is taken based upon this information, it is essential that competent, individual, professional advice be obtained. JAS Financial Services, LLC is not responsible for any modifications made to this material, or for the accuracy of information provided by other source

2
Dec

College Cost Data for 2021-2022 Academic Year

Annually, the College Board releases new college cost data and trends in its annual report. Keep in mind costs can vary significantly depending on region and college when reviewing the averages.
Over the past decade, average tuition, fee, room, and board costs have increased 11% at public colleges and 14% at private colleges over and above increases in the Consumer Price Index. Here are cost highlights for the 2021-2022 year.1

Public colleges: in-state students

  • Tuition and fees increased 1.6% to $10,740
  • Room and board increased 1.9% to $11,950
  • *Total cost of attendance: $27,330

Public colleges: out-of-state students

  • Tuition and fees increased 1.5% to $27,560
  • Room and board increased 1.9% to $11,950 (same as in-state)
  • *Total cost of attendance: $44,150

Private colleges

  • Tuition and fees increased 2.1% to $38,070
  • Room and board increased 2.3% to $13,620
  • *Total cost of attendance: $55,800

* Total cost of attendance includes direct billed costs for tuition, fees, room, and board, plus an amount for indirect costs for books, transportation, and personal expenses.

Sticker price vs. net price

The College Board’s college cost figures are based on published college sticker prices. But many families don’t pay the full sticker price. A net price calculator, available on every college website, can help families see beyond a college’s sticker price.

A net price calculator provides an estimate of how much grant aid a student might be eligible for at a particular school based on the student’s financial information and academic record, allowing families to estimate what their out-of-pocket cost, or net price, will be. The results aren’t a guarantee of grant aid, but they are meant to be close. A net price calculator can be a useful tool for students who are currently researching and/or applying to colleges.

 

FASFA for 2022-2023 year opened on October 1

The Free Application for Federal Student Aid (FAFSA) for the 2022-2023 school year opened on October 1, 2021. The 2022-2023 FAFSA relies on income information from your 2020 federal income tax return and current asset information. Your income is the biggest factor in determining financial aid eligibility.

Note: The FAFSA is getting an overhaul to simplify it. The changes will be phased in, with all changes expected to be completed for the 2024-2025 FAFSA (available starting October 1, 2023), a year later than originally planned. Three things to watch out for: (1) the expected family contribution, or EFC, will be replaced with a measurement known as the student aid index, or SAI; (2) parents with multiple children in college at the same time will no longer receive a discount in the form of a lower EFC; and (3) cash support and other types of income will no longer have to be reported on the FAFSA, including funds from a grandparent-owned 529 plan.2

Student loan repayment to resume in February

Repayment on federal student loans is set to resume beginning February 1, 2022. There have been four pauses to federal student loan repayment since the start of the pandemic. The first pause was instituted in March 2020 for six months (through September 2020) when Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The second and third pauses came via presidential executive order and extended the payment pause through January 2021 and through September 2021, respectively. The fourth and “final” extension is now scheduled through January 31, 2022, meaning payments will resume beginning February 1, 2022.3

 

1) College Board, Trends in College Pricing and Student Aid 2021

2) savingforcollege.com, FAFSA Simplification Pushed Back 1 Year, June 14, 2021

3) U.S. Department of Education, 2021

 

30
Nov

Supply-Chain Chaos

The network, supply chain, that products and parts moved from the factories to distributors and resellers to the consumer have been under pressure since the pandemic began. This situation has gotten worse in the latter months of 2021at the same time demand for goods increased as the holiday season approached.1

 California ports receive about 40% of U.S. imports. Operating 24/7 was enough to solve the problem. Workers were not able to keep up with the flow of container ships arriving from overseas. In mid-November, there was a record backlog of vessels waiting offshore for more than two weeks to unload their cargo.2 Other U.S. ports are also congested, and severe shortages of truck drivers and warehouse workers have further slowed the distribution of goods. The availability of contains is another factor slowing the flow of merchandise. These bottlenecks held up finished merchandise, as well as the inputs and raw materials needed to manufacture products domestically.

Compounding supply-chain issues have been increasing freight and labor costs, delaying shipments, and leaving consumers with higher prices and fewer options since the spring of 2021. As the seasons changed, logjams remained and time was running out, raising fears that U.S. retailers would not have sufficient inventories of goods to meet consumer demand during the holidays.

The good news is that many businesses responded nimbly to challenging conditions, and some consumers have been innovative, too. Here’s a glimpse into how these kinks in the supply chain might affect your holiday shopping in 2021.

Are Retailers Ready?
Many of the nation’s largest retailers anticipated problems and went to great lengths to ensure that shelves would be well stocked with a robust variety of goods in time for the holiday shopping season. In many cases, this required paying much higher freight costs to charter their own smaller ships or cargo planes so they could bypass clogged ports and make up for production delays.3

These costly measures are usually not an option for smaller retailers, which could put them at a disadvantage. In a November survey, 48% of small businesses reported that supply-chain disruptions are having a significant negative impact on their holiday sales.4

Expecting enthusiastic consumer demand, the National Retail Federation (NRF) forecast record holiday spending of 8.5% to 10.5% above 2020 levels. But retailers have also warned consumers that sporadic product shortages and shipping delays would continue and perhaps worsen later in the season.5

Poised to Spend
U.S. retail sales rose 1.7% in October, a surprisingly strong showing and the third monthly increase in a row.6 The potential for a more limited selection of some types of products has been widely reported, and it seems that consumers are paying attention. According to an annual NRF survey, a record share of consumers (49%) started their holiday shopping before November, and 36% did so to avoid missing the chance to buy key holiday items.7

U.S. households have extra money to spend this year after amassing about $2 trillion in excess savings during the pandemic. This was largely due to historic levels of economic relief provided by the federal government, along with fewer spending opportunities due to lockdowns.8 The recent rise in consumer spending bodes well for retailers and economic growth, but heavy demand also weighs on the supply chain and pushes up prices.

A Season of Inflation
Unfortunately, escalating prices for holiday gifts and basic needs could prompt the loudest “bah humbug” of the 2021 holiday season. With businesses paying more for the raw materials, packaging, labor, transportation, and fuel needed to produce and distribute products, a portion of the additional costs are being passed on to consumers. Some sellers have added additional price increases.

Measured by the Consumer Price Index (CPI), prices across the U.S. economy increased 6.2% during the 12 months ending in October 2021 — the highest inflation rate in nearly 31 years. Grocery prices (food at home) rose 5.4% year over year, while prices for the category that includes meats, poultry, fish, and eggs spiked 11.9%.9

Energy prices overall have climbed 30% since October 2020, and the natural gas that keeps many homes warm and cozy increased 28.1% year over year. Gasoline prices rose nearly 50% over the prior 12 months, slamming the budgets of households who plan to drive to family gatherings over the holidays.10

Because supply-and-demand shocks have driven these sharp price increases, some economists still believe they are temporary and that inflation will moderate in 2022 as supply constraints ease.11 Of course, even short bursts of inflation can be especially painful for consumers with lower incomes and little or no savings, and no one knows for certain how long prices might stay elevated. The impact of price increases and the many factors that impact the economy are beyond the scope of this discussion.

Shop Early or Be Flexible
On top of being more expensive, some in-demand products could be hard to find, and transportation bottlenecks aren’t the only issue impacting supplies. A global shortage of semiconductors, or computer chips, is limiting the production of all kinds of electronic devices, including cars, home appliances, laptops, smartphones, TVs, and gaming consoles. The availability of some brands of sportswear, shoes, and accessories could be affected by a COVID outbreak that shut down factories in Vietnam. Other reported shortages include jewelry, some popular toys and books, frozen turkeys, cardboard boxes needed for shipping, and Christmas trees, both real and artificial.12

If you need certain items for entertaining or have family members with specific gifts on their wish lists, it could be risky to wait until the last minute to buy them. Otherwise, shopping locally, being open to alternatives, and giving cash or gift cards to be spent later might end up being your best options.

Projections are based on current conditions, are subject to change, and may not happen.

1) Consumer Reports, October 20, 2021

2) Bloomberg, November 13, 2021

3) The Wall Street Journal, October 10, 2021

4) National Federation of Independent Business, November 3, 2021

5, 7) National Retail Federation, November 16, 2021

6) U.S. Census Bureau, 2021

8) Bloomberg, November 16, 2021

9-10) U.S. Bureau of Labor Statistics, 2021

11) Moody’s Analytics, November 18, 2021

12) CBS News, November 18, 2021

 

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Required Minimum Distributions (RMD) for 2021

Following are some of the developments to be consider before December 31,2021.

What Are RMDs?

Required annual distributions are required if you have a traditional IRA and most employer-sponsored retirement plans. RMDs are not required from an employer plan if you are still working at the company sponsoring the plan and you do not own more than 5% of the company. You can always take more than the required amount if you choose.

The portion of an RMD representing earnings and tax-deductible contributions is taxed as ordinary income, unless the RMD is a qualified distribution from a Roth account. Failing to take the full amount of an RMD could result in a penalty tax of 50% of the difference.

Everyone who reached 70½ (required beginning date) before January 1, 2020, was required to start making annual RMDs. Generally, RMDs must be taken by December 31 each year. You can delay your first RMD until April 1 following the year in which you reach RMD age; however, you will then need to take two RMDs in one year — the first by April 1 and the second by December 31. (If you reached age 72 in the first half of 2021, different rules apply; see below.)  You should weigh the decision to delay your first RMD carefully. Taking two distributions in one year might bump you into a higher income tax bracket for that year.

New RMD Age and a 2020 Waiver Add Complexity

The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 raised the minimum RMD age to 72 from 70½ beginning in 2020. That means if you reached age 70½ before 2020, you are currently required to take minimum distributions.

However, there was a pandemic-related rule change in 2020 that might have affected some retirement savers who reached age 70½ in 2019. To help individuals manage financial challenges brought on by the pandemic, RMDs were waived in 2020, including any postponed from 2019. In other words, some taxpayers could have benefited from waiving both their 2019 and 2020 RMDs.

Anyone who took advantage of the 2020 waiver should note that RMDs have resumed in 2021 and need to be taken by December 31. The option to delay to April 1, 2022, applies only to first RMDs for those who have reached or will reach age 72 on or after July 1, 2021.

New Life Expectancy Tables
The IRS publishes tables in Publication 590-B that are used to help calculate RMDs. To determine the amount of a required distribution, you would divide your account balance as of December 31 of the previous year by the appropriate age-related factor in one of three available tables.

Recognizing that life expediencies have increased, the IRS has issued new tables designed to help investors stretch their retirement savings over a longer period. These new tables will take effect for RMDs beginning in 2022. Investors may be pleased to learn that calculations will typically result in lower annual RMD amounts and potentially lower income tax obligations as a result. The old tables still apply to 2021 distributions, even if they’re postponed until 2022.

The New Fixed Distribution

The New Fixed Distribution Rule

The beneficiaries of an IRA, other than a spouses and certain other specified persons, are required to take the balance of the account within 10 years. The distributions do not have to be consist in each year if the entire balance is paid out within 10-years

Timing

Allow for delays in in processing and delivery of the distributions before December 31, 2021.

For more information on RMDs, consider speaking with your financial and tax professionals.