The Dow Jones Industrial Average closed up over 2.62% this week which was the best weekly gain for the index thus far in 2016. The S&P 500 was up 2.84% and the Nasdaq Composite finished up 3.85%.
To say financial markets have had a rough start to 2016 is a clear understatement. Thus far in 2016, financial markets have been concerned with low oil prices, Chinese currency movements, solvency of European banks, and slowing global growth. Even with all of these fears, we have maintained that the data does not suggest that the U.S. is entering recessionary territory. Personal consumption, which accounts for over 2/3 of the economy, continues to hold strong; job growth (even including energy-related layoffs) is still robust, housing continues to take steps in the right direction and cheap oil is acting like a major tax cut for consumers and corporations. U.S. earnings growth is still intact and if you exclude the energy sector it is actually on pace to increase around 5%-7% in 2016.
The global economic backdrop is still relatively strong and the consensus estimate for GDP growth in the U.S. is still for growth of 2.4%, down only 0.4% from six months ago. Central banks globally are actively easing monetary policy to support growth and fight deflation risks, going as far as to take policy rates into negative territory. China’s economy has slowed down over the past few years, but at the same time the nominal economy is still very strong and growth estimates range from 5%- 7% for 2016.
The volatility in financial markets so far this year has been stressful for investors. Some of the recent fears in the market seem to be reminiscent of the volatility markets experienced in 2011 (the height of the European banking crisis) and as we know, at that time investors that stayed disciplined to their diversified asset allocations were able to ride the wave back up. We acknowledge that we are in a later part of the economic cycle; but the overwhelming macroeconomic data suggests we are nowhere near a recession.
We will continue to make regional and sector tilts to portfolios (where appropriate) in this rocky environment and focus on high-quality companies to take advantage of the recent volatility. As we continue to analyze the markets and study the data, we may take additional tactical steps to manage through this current market environment.
Overlooked Tax Deductions
With the tax filing deadline less than two months away, we wanted to remind everyone of a few of the most common overlooked tax deductions that are available for personal tax filers. They are:
1. Tax Preparation Fees
The cost of tax preparation is a deductible item on your Schedule A. You can write off expenses for paid services, such as TurboTax and H&R Block, and can deduct convenience fees paid for paying taxes with a credit or debit card. But this deduction doesn’t apply if you used a free online tax preparation software or service. This deduction only applies to fees you paid in the year you’re deducting them. For instance, when filing taxes for 2015, you can only deduct fees paid in 2015 for your 2014 tax return.
2. Hobby Expenses
Hobby expenses can be claimed as “other miscellaneous deductions.” While your hobby may not actually qualify you for small business tax deductions, you can deduct some of its expenses but only to the extent of the income you generated from your hobby. This helps if you have a small business that has gone three years without showing a profit, in which case the IRS classifies your business as a hobby.
3. Personal Legal Bills
Personal legal bills are also eligible for the “other miscellaneous deductions” category. Legal fees are deductible as long as they are for pursuing taxable income or working on a determination, collection, or refund of any tax. Miscellaneous deductions like the ones above are subject to the 2% of adjusted gross income (AGI) rule.
4. Charitable Mileage
While cash or goods donated to charities are tax-deductible, mileage driven as a volunteer is also deductible. If you drive to your volunteer location, you can deduct the cost of gas and oil to get to and from the location. If you don’t want to keep track of expenses, keep a log of your miles. You can deduct 14 cents per mile plus parking and toll fees.
5. Losses Due to Theft or Destruction
If your car or home was damaged by hail, you can deduct the amount of the loss that you weren’t reimbursed by your car or homeowners’ insurance company. You must complete Form 4684 to determine the amount you can deduct.
6. Property Taxes on a Timeshare
Your portion of the property taxes paid on a timeshare are often included in your yearly maintenance fee. Check your annual statement to see if these fees were itemized. Additionally, if you sold a home or timeshare this year, any property taxes you already paid should be on your settlement statement and can be deducted as well.
7. Prior Year’s State Income Taxes
If you owed any state tax from 2014 and paid it in 2015 it’s now a deduction on Schedule A for 2015 taxes.
8. Penalty on Early Withdrawal of Savings,
If you cashed in a certificate of deposit (CD) early this year and were charged a fee for doing so, you can deduct the penalty.
9. Medicare B and D Premiums
Medicare B and D premiums can be deducted as a medical expense. Also, if you aren’t eligible for Social Security and you voluntarily enroll in Medicare A, you can deduct your Medicare A premiums. You can deduct the part of your medical or dental expenses that exceeds 10% of your AGI (or 7.5% if you or your spouse is 65 or older).
This publication is provided as a service to our clients and associates of PFA solely for their own use and information. The material is derived from sources believed to be reliable but its accuracy and the opinions based thereon are not guaranteed and have not been verified. The content in this publication is for general information only and not intended to serve as individual investment advice. You should seek independent advice from a professional based on your individual circumstances.