Tax and Financial News January 2019
Divorce Can Be Taxing
Divorce is expensive. Aside from the emotional toll divorce takes on a family, both the process and aftermath of a divorce can be costly. Below we look at some of the steps people can take to help remove the tax sting out of an already challenging time and arrive at the best financial position.
Changes to Alimony
We ring in the new year with changes to alimony tax law. Prior to Jan. 1, 2019, alimony payments were deductible by the spouse who paid them and taxable to the spouse receiving them. Typically, this provided an overall benefit to the family unit as the alimony recipient, generally being the lower earner, paid a lower tax rate. Often referred to as the “divorce subsidy,” this situation was costly to the government. From 2019 and forward, alimony is no longer deductible by the payer or taxable to the recipient.
This might appear to be a win for the receiving spouse; but consider that the change will most likely mean less alimony for the receiving spouse. It could also cause non-working divorced spouses to lose their eligibility to make IRA/Roth IRA contributions since they won’t have a source of taxable income.
One note on timing: if you finalized your divorce in 2018, the alimony will still be treated under the old rules for tax purposes – and even if you modify your divorce agreement in the future, the alimony will retain this tax treatment.
Pre- and Post-Nuptial Agreements Could be in Trouble
If you have a pre-nuptial or post-nuptial agreement, it is advisable to have the agreement reviewed. Aside from the impact of the new tax provision on alimony, relevant changes since it was written and more recent court rulings could impact how well an agreement holds up in court. Additionally, knowing where you stand if your divorce gets confrontational will give you the knowledge to negotiate your best financial case via a settlement or in court.
Decide What Really Matters to You
It’s unlikely you’ve stopped and taken the time to parse out what you really want in the next chapter of your life after divorce. Going through your divorce with great clarity on this topic will help you focus your financial negotiations to arrive at the best outcome for you in less time and, as a result, lower professional fees.
Calculate Whether You Should or Not
Settling seems enticing instead of fighting it out, but it’s best to work with both your divorce attorney and CPA or other financial professional to understand the long-term implications of any settlement. On the other hand, if there is little at stake, a long drawn out divorce process might prove to be more expensive than it’s worth. Working with the right professionals will help provide an objective view of the financial situation and assist you in understanding if you’ll need to change your spending habits, work longer or take other actions.
Financial Planning January 2019
What Leading Economic Indicators Tell Us
One of the reasons investing is tricky is because it involves so many factors that we cannot control. One factor is the specific investment itself. In the case of a stock, the share price relies on company management and leadership; manufacturing, marketing and distribution; and balancing expenses with revenues. Another factor is investor and market sentiment, which can change on a dime based on economic uncertainty, the day’s news or a presidential tweet.
Then there’s a third component, which encompasses broader economic events and how they impact investment market fundamentals and the business life cycle. One way we monitor the economy and try to predict market cycles is through economic indicators. These are trackable data points that economists use to get an idea of the direction of specific aspects of the economy.
The following is an overview of regular economic indicators considered reflective of the current economy and indicative of future activity.
Gross Domestic Product (GDP)
GDP measures the total monetary value of all finished goods and services produced in the United States over a specified time period. Economists believe it is the most accurate measure of a country’s overall health.
There are several types of price indexes, which are basically a way of tracking prices – and thus cost increases and decreases – in order to measure inflation. The most popular measure is the Consumer Price Index (CPI). It is published monthly and tracks the prices of a “basket” of many of the most common goods and services that urban consumers buy, including food, transportation, clothing and medical care.
The Producer Price Index is used to help monitor data from a commercial (wholesale) perspective. It tracks product price changes from a cross-section of sectors in the U.S. economy and is published on a monthly basis.
Jobless Claims Report
The jobless report tracks the number of workers who file for unemployment benefits, which tend to increase when the economy slows. The report does not track self-employment, contract or part-time employees (none of who qualify for unemployment benefits). It is published weekly but typically evaluated as a four-week moving average to account for short-term variances.
The New Residential Housing Construction Report tracks the number of new building permits issued, which indicates increases or decreases in new construction activity. For reference, new construction usually picks up during the early expansion phase of the business cycle. This housing report generally refers to supply, while the Existing Home Sales Report, compiled by the National Association of Realtors, reflects the current demand for home sales. When viewed together, they offer a balanced assessment of the housing sector.
Because consumer perspective can influence market fundamentals, economists track what is called a Consumer Confidence Index (CCI) that measures the general outlook of the American population. The CCI monitors a sample of 5,000 U.S. households with regard to consumer spending, which represents 70 percent of the economy. A rise in consumer confidence is typically viewed as a positive indicator for strong economic growth.
The Purchasing Managers’ Index (PMI) gauges the confidence level of businesses, based on their spending patterns with regard to new orders, inventory levels, production, supplier deliveries and employment. The PMI is comprised of a sample of 300 purchasing executives in the manufacturing sector. For reference, an increase in new orders typically indicates a rise in prices, while a decrease points to a drop in prices. This indicator is generally used to anticipate GDP growth.
There are dozens of key economic indicators that signal changes in the direction of the economy. These regular reports help investors, market analysts and wealth managers make day-to-day buy and sell investment decisions.
General Business News January 2019
Tips for Choosing the Appropriate Liability Insurance for Your Business
When it comes to liability insurance, the saying “you can never be too prepared” is quite meaningful. While business owners cannot predict what happens day to day or year to year, they can look into having business liability as way to give themselves peace of mind. The first step is to understand why it’s so important.
The Rocky Mountain Insurance Information Association reports that more than one in two home-based business owners lack necessary insurance. Furthermore, the Independent Insurance Agents of America (IIAA) found that 4 of 10 respondents do not have enough coverage because they believe their homeowners policy covers commercial liability. As you can see, education on this matter is essential. Here are descriptions of several different types of liability insurance from the U.S. Small Business Administration.
One of the most common types of liability insurance for businesses is general liability. If the business is a grocery store or restaurant, general liability usually covers customers looking to have their doctor and hospital bills, damaged property or lost wages paid for because they claim they were somehow affected in the course of business operations. General liability also can protect businesses against claims if a third party believes their reputation has been tarnished by written or spoken materials from the company.
Product Liability Insurance
Whether a business makes a product, is a wholesaler, a distributor or sells the product directly to customers, product liability insurance protects a business against monetary losses if said product is defective and harms the user. Examples of a defective product is if there’s a chain cracked on a swing or there’s an over-the-counter medication with a harmful ingredient and the defective product is determined to have caused the harm.
Professional Liability Insurance
This type of insurance, also known as errors and omissions, protects business owners who provide professional advice or services if they make a mistake or unintended omission in the course of delivery of said services. Examples of this can include a radiologist or one of their subordinates failing to deliver and communicate results of initial and final reports, especially if a medical condition diagnosis has been changed to indicate a more serious problem, and that failure to fully communicate all information leads to preventable medical problems for the patient.
Other examples can include engineers miscalculating combinations of traffic loads on a bridge. If engineers miscalculate the maximum load levels and use incorrect materials and anchors, it could lead to construction delays and/or additional costs to use different materials if a stronger bridge is necessary.
Commercial Property Insurance
When it comes to protecting one’s company against damages to their business’ assets, this type of insurance can reduce the potential financial impact. Policies can and do cover the business owners’ structure from events such as fires, hail and wind events, along with property damage due to criminal activity. This type of insurance may cover business assets as well, such as computers, furniture and inventory.
Home-Based Business Insurance
For business owners who run operations from their home, this type of policy can become part of a homeowner’s existing policy. This type of coverage can protect home-based business owners by covering limited amounts of equipment, such as computers, phones and cameras. It also may provide liability coverage for the homeowner if, for example, a client visits and is injured by slipping on steps or tripping over a box.
No matter what insurance policy a business needs, the best way to protect against loss is to reduce risk in the first place. Along with training employees to follow workplace safety procedures and reducing hazards for customers and workers to reducing the likelihood of accidents, finding the right mix of liability insurance lets business owners focus on growing their business.