U.S. First Quarter GDP Revised Higher

The Commerce Department announced this morning that the first quarter slowdown was less than originally thought.  The Department stated the Gross Domestic Product (GDP), which is the broadest measure of goods and services produced in the U.S., expanded at a 0.8% annual rate in the first quarter.  This is higher than the estimate announced last month of 0.5% but was lower than the average economist expectation of a 0.9% reading.  Today’s report also offered the first official estimate of corporate profits for the first quarter (which includes non-publicly traded companies).  After-tax profits are estimated to have risen at a 1.9% rate from the fourth quarter after seeing two straight quarterly decreases.


Oil Prices Flirt with Key $50 Level:

Oil prices hit $50 per barrel on Thursday for the first time since October, though they retreated a bit today.  Oil prices have bounced back and are now up nearly 90% off its low in February.  The U.S. continues to see declines in production and also announced last week its stockpiles had shrank more than expected.  Nigeria, Venezuela, and Canada also saw their supplies decrease.  Nigeria has cut their output to a 20-year low while Venezuela’s production has been hindered by power cuts.  Canada has seen a drop in volumes mainly due to the wildfires that have been ongoing for nearly a month.

While the $50 level is somewhat of a psychological barrier, speculators and traders do base some of their trading decisions on whether or not these types of price levels hold.  The bottom line is that, barring additional fundamental factors that affect oil prices, oil remaining above the $50 level could mean we will see higher oil prices in the short-term.  Conversely, if oil prices “fail” to remain above $50, we could see a short-term drop in prices.  But as we know, trading does not exist in a vacuum and fundamental factors do exist, making it very difficult to predict oil prices in the short-term.


Gifting Strategies:

Qualified Charitable Contributions:

In December of 2015, Congress permanently passed legislation to allow qualified charitable distributions to be taken from IRA accounts as part of an IRA owner’s required minimum distribution (RMD).  These Qualified Charitable Distributions (QCD) can bring a sizable tax benefit to taxpayers over the age of 70 ½. The reason that QCDs have become highly considered is because retirees are able to satisfy all or a portion of their required minimum distributions by donating their distribution to a charity and forgoing the income tax imposed on the withdrawn funds.

Unlike regular required minimum distributions, QCDs are not considered a taxable distribution. In order to execute a QCD and bypass the income tax, the charity must be approved by the IRS and the account holder is required to transfer the funds directly from his/her IRA to the charitable fund.  If the account holder collects the distribution and then donates the money, he/she will have to report the distribution as taxable income which would otherwise not have occurred using the QCD.

Because the QCD is not recognized as taxable income, the amount of the charitable deduction is not reported as a deduction on Schedule A of the tax return.  Taxpayers are able to donate up to $100,000 per year (or up to the amount of their RMD, whichever is less) in a quality charitable distribution and count it as a tax-free distribution.

Highly-Appreciated Securities:

Another option for charitable donations is gifting shares of highly-appreciated securities. It is possible to donate mutual funds, stocks, ETFs, and bonds that are owned in non-qualified accounts (e.g. individual, joint, and trust accounts) and have appreciated in value since the date of purchase.  The security must have been owned for at least one year before the donation occurs.

The donor is eligible to receive an income tax deduction for the fair market value of the securities at the time of the gift. The added bonus of gifting highly appreciated assets is the avoidance of capital gains tax.  The benefactor is able to avoid capital gains taxes by donating securities instead of selling them and then donating the cash proceeds.

An additional advantage of these gifting strategies that is often overlooked is the lowering of Adjusted Gross Income (AGI).  This often ends up being as beneficial as taking a deduction because many tax calculations are based off of a percentage of AGI.  Medical expenses for seniors, cost of Medicare premiums, and miscellaneous itemized deduction are just a few, with other personal exemptions in tow if AGI exceeds a certain threshold.

Making qualified charitable distributions or donating highly-appreciated securities are both extremely tax-beneficial options for those with a sense of goodwill to consider.


Paradigm Office Closed Monday:

The equities and bond markets are closed Monday in observance of Memorial Day.  The Paradigm office will also be closed.  We pause in remembrance of the men and women who have given their lives in defense of our great nation.  To military personnel, both past and present: thank you for your service to our country.


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.