Congress Passes Tax Extender Bill – 12/19/14

• Markets Rebound After last week’s decline
• Congress Passes Tax Extender Bill
• U.S. Companies Raise Dividend Payouts
• Housing Outlook Improving
• U.S. Factory Production Increases

Market Summary

Price Returns
Level 1 Week YTD
Dow Jones 17,804.80 3.03% 7.41%
S&P 500 2,070.65 3.41% 12.03%
NASDAQ 4,765.38 2.40% 14.10%
WTI Oil 56.52 -2.11% -42.43%
MSCI EAFE 1,782.04 0.85% -6.97%
MSCI EM* 935.12 -0.35% -6.74%
*As of 12/18/2014

Congress passes Tax Extender Bill

This week the Senate passed the Tax Increase Prevention Act of 2014 by a vote of 76-16. This act will renew dozens of tax breaks that had expired for 2014. The deal is now awaiting President Obama’s signature and would be effective as of January 1, 2014.

However, this passage is not a long-term fix. While this move is effective retroactively, it is only good for 2014 and thus expires in just a couple weeks. The deal would again be voted on next year on whether to extend or make permanent some of the laws. In the interim, taxpayers will again be left in the dark in 2015 on these items. And while late is certainly better than never, the passage of this extension this late in the year could delay tax filing season.

The package includes some provisions that can impact our individual clients:

• The ability to make tax-free charitable contributions, known as qualified charitable distributions (QCDs), from IRAs
• The deduction for qualified tuition and related expenses.
• The option to take an itemized deduction for state and local sales tax rather than state and local income tax.
• The ability to deduct certain mortgage insurance premiums.
• The $250 educator deduction.

The following is a list of provisions extended through 2014 that are most likely to impact our business clients:

• 50% bonus depreciation on eligible new assets has been extended to cover property acquired and placed in service during 2014 (2015 for certain property with a longer production period).
• The section 179 small business expensing and phase-out amounts ($500,000 expense limit and $2,000,000 acquisition limit) has been extended to property placed in service during tax years beginning in 2014.
• The Research and Development Credit.
• The Work Opportunity Tax Credit.
• The exclusion of gain on certain small business stock has been extended for non-corporate taxpayers who acquired stock before January 1, 2015.
• The enhanced charitable deduction for contributions of food inventory.

U.S. Companies continue to raise Dividend Payouts

Dividends per share (DPS) grew 11.3% to $37.99 in the trailing twelve-month (TTM) period ending in October. This marked the 15th consecutive quarter in which DPS for the S&P 500 has grown at double-digit rates. Over this 15-quarter window, DPS for the index has seen average growth of 14.2%. At the sector level, nine of the ten sectors recorded growth in DPS over the prior 12 months. Six of these nine sectors recorded double-increases in DPS growth: Consumer Discretionary (18.8%), Financials (17.6%), Telecom Services (15.5%), Energy (14.6%), Information Technology (13.6%), and Industrials (12.2%). The only sector that recorded a decline in DPS over this period was the Materials sector (-6.6%).

Housing Strength Building into 2015

The U.S. Commerce Department releases housing starts and building permits data for November. Housing starts unexpectedly fell in October, but a jump in permits to near a 6-1/2-year high suggested the housing market is steadily regaining strength.

Manufacturing Data Boost Economic Outlook

U.S. factory production accelerated in November, the largest increase in nine months.
Production expanded across the board, pointing to underlying strength in the economy. Factory production rose 1.1 percent after advancing 0.4 percent in October, the Federal Reserve said. Wall Street had expected manufacturing output to rise only 0.5 percent in November.

The U.S. remains a bright spot in a troubled global economy, where growth has slowed in China and the euro zone. But optimism over U.S. manufacturing was tempered somewhat by a New York Federal Reserve report showing its Empire State general business conditions index contracted in December for the first time since January 2013. A third report showed homebuilder sentiment ebbed in December. The NAHB/Wells Fargo Housing Market Index fell to 57 in December, down one point from 58 in November, and below the year’s peak of 59 in September.


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