Tax and Financial News August 2018

Summer Jobs and Taxes

Summer is in full swing and, with school out, lots of high school and college kids are working seasonal jobs before they return to their studies. It doesn’t matter if it’s mowing lawns, checking out groceries, painting houses or lifeguarding at the beach, here’s what you need to know about summer jobs and taxes.

Even if you don’t owe taxes, you still might need to file a tax return

Often, a first summer job is also the first time dealing with a form W-4. Figuring out the right number of exemptions to claim might not be easy, especially with the increased standard deduction under the latest tax law. A summer job has the chance of not resulting in any taxes, so claiming a few exemptions could be fine – but there’s no guarantee. Remember that the more exemptions claimed, the less paid in taxes each paycheck, but this may result in a higher tax liability at the end of the year. If you’d rather play it conservatively, have your child claim 0 or 1 exemption on his W-4 and hope for a refund at tax time.

Getting paid off the books doesn’t mean you’re off the hook when it comes to taxes

Getting paid off the books or under the table means the employer isn’t reporting the wages paid to the IRS and local and state tax authorities. Paying employees under the table is a big risk for the employer and can result in fines and penalties for them, but don’t make the same mistake. If your child is paid cash, she’ll need to report it even if the employer doesn’t.

The IRS isn’t the only one you might owe

The first time doing taxes, kids tend to focus on the IRS and federal taxes, but that doesn’t mean they should forget about state and local taxes. Many states, unlike the federal government, do not exempt low income, and some states even impose taxes on the first dollar earned. Make sure you understand the state and local filing situation or consult a tax advisor. Things can be especially tricky for college kids who have a job at both home and school during the year and end up earning income in more than one state.

Self-employment can happen at any age

Some kids might not get a seasonal W-2 job and instead be self-employed mowing lawns or babysitting, for example. In this case, they’ll need to file a Schedule C to claim their business income and related expenses, the same as everyone else. Encourage them to keep good records and receipts just in case.

Tax professionals may be needed

Just because someone is a high school or college, it doesn’t mean they won’t need the help of a good tax professional – especially with a more complicated tax return. One good example is the kiddie tax rule change under the recent tax law.

Previously, unearned income (such as dividends and interest from investments) could be claimed on the parents’ tax return since the kiddie tax rates were same as the parents. However, the new tax law changed the kiddie tax rates to be the same as trust tax rates. The IRS released a new postcard size return to handle the issue, but the details depend on the situation and this won’t be the answer for everyone.

Don’t spend it all in one place

Encourage your children to save a portion of their earnings and they might end up saving some taxes in the process. Consider helping them set up a ROTH IRA to enable their hard-earned dollars to grow and be taken out tax-free in the future. Parents can even encourage saving by contributing to the ROTH IRA themselves since it doesn’t have to be funded solely by your child’s income. Note, however, that parent/child combined contributions may not exceed the annual IRA contribution limit or 100 percent of the child’s earned income.

 

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Stock Market News August 2018

Speculation of $150 Oil and What it Means for the Markets

Over the past 30 months, the price of a barrel of oil has increased from the mid-$30s to – in recent days – as high as the mid-$70s per barrel. At nearly half the historic $150 per barrel price level nearly 10 years ago, how will the market react if oil reaches $150 again, as some analysts are speculating?

Understanding the Increase in the Price of Oil

With investors speculating in the markets to drive prices higher and the Organization of Petroleum Exporting Countries (OPEC) and Russia cutting production, global production has been experiencing production pressure since 2016. Add in America’s 2015 decision to export its expanding domestic crude oil production – ending a four-decades ban on the practice – and there are many reasons for the run up in oil prices.

Speculating About Oil’s Future

While there’s no crystal ball as to where crude oil will peak, looking at how production might play out in the near and long terms can provide insight for future global crude supplies. Whenever oil prices increase, producers look to ramp up production to take advantage of increased prices. But what are global producers capable of?

Despite the shale oil renaissance, if America’s existing shale production increased by 100 percent, it would still make up only 15 percent of the world’s oil supply. Of the remaining global oil suppliers outside of America, OPEC accounts for 40 percent of worldwide production, with offshore producers comprising another 30 percent of global supply. While many experts contend OPEC is a cartel, there is much exploration and innovation by offshore drillers and this may have a bigger impact on worldwide oil prices going forward.  

According to industry reports, 75 percent of the globe’s 32 best performing oil fields are offshore. Based on a few data points, there’s a lot of potential for increased oil production at higher margins. Norway has increased its offshore oil output this year compared to last, and the country is expecting another offshore oil drilling project to come online in 2019 – one of the biggest projects in the last half century. This increased production is coupled with one in four of Norway’s new car sales in 2017 being electric, further reducing the country’s domestic demand for refined oil products.

Another example of increases in offshore production is energy companies working with the Guyanese government. Within approximately 24 months, Exxon is planning to extract 500 million barrels. Yet this discovery represents only 15 percent of the total projected output.

Along with increased production, the advent of new technology lowers production costs for offshore drillers to between $20 and $40 a barrel. Due to advances in technology such as sub-sea robots; robo-rigs and drones; and augmented and virtual reality, which will reduce labor costs, the case for $150 per barrel oil is less likely. This is true even if global demand grows at the projected 1.5 million barrels annually.

How Higher Oil Prices Could Impact the Economy Overall

When it comes to increased oil prices, the economy can respond in various ways. For the general consumer, as oil prices increase, a ripple effect will raise the price of gasoline. This will undoubtedly offset some of the recent gains consumers received with the recent tax cuts signed into law, potentially dampening consumer spending.

Similarly, as the cost of oil increases, businesses may choose to pass the increases on to consumers – in the form of higher fares for airlines, for example. Businesses also can increase the price of their services with fuel surcharges or increase prices for products derived from crude oil. However, for workers in the oil and gas industry, companies will increasingly look to invest more in capital expenditures to increase drilling capacity, stimulating job creation and economic growth.

 

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Financial Planning August 2018

The Perks of Working Past Traditional Retirement Age

A large number of Americans intend to keep working past retirement age. For many, their reasons are financial. Some have a high level of debt while others are afraid if they retire too soon, they will run out of money.

Working longer offers several financial benefits; workers are able to:

• Accrue a higher Social Security benefit
• Grow a higher pension benefit
• Allow more time to save money and permit investments to grow
• Utilize company-paid insurance benefits

In addition to financial benefits, there are cognitive, physical and social advantages to working longer. Studies have found that older Americans, who tend to work longer than people in European countries, score higher than those citizens on memory tests. The research correlates continued mental stimulation provided through work with retaining mental acuity longer than those who retire.

Working outside the home also exposes older folks to a larger social network than some retirees might experience. As we get older, our social networks tend to narrow. Most people see fewer people after retiring and must make a concerted effort in order to engage in conversation and activities with a wide range of people on a daily basis. Maintaining a job past traditional retirement age can keep us socially engaged longer. Scientists say that regular social contact contributes to better health and a positive sense of well-being as we grow older.

Some people prefer to keep working because they are self-described workaholics. We tend to associated any type of “-aholic” with negative connotations. However, recent research has found that an addiction to working long hours can yield positive outcomes. For one,

American businesses generally reward workaholic behavior with promotions and higher pay, so there is a financial benefit.

Also, a recent study correlated health benefits as well. The research discovered that workaholics who love their job have no more risk of developing health conditions (e.g., high blood pressure, high blood sugar, abnormal cholesterol, excess waistline fat) than the average employee.

Unfortunately, if work is causing undue stress and health problems, this will likely cost more money for treatment during retirement. In this case, if you don’t love your job it could be worth considering retiring – even if that means living on less income. At least it would give you the opportunity to pursue a daily regime of healthy habits and interesting hobbies – which might help ward off expensive medical bills and provide a higher quality of life.

When weighing the benefits of retiring versus working longer, don’t rule out opportunities for income other than a full-time job. Consider taking on a less stressful part-time job that will allow you to explore some of your interests. For example, if you like carpentry or gardening, consider applying for a position at Lowes, Home Depot or Ace Hardware. If you enjoy crafts or sewing, consider selling wares at a local market or starting your own tailoring and alterations service. If you like being around animals, consider offering a pet sitting service.

Working longer doesn’t necessarily mean working longer at the same job. You can enjoy many of the same perks – financial, mental, physical and social – by simply switching to a less stressful type of work that you enjoy more.

 

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Congress at Work August 2018

Offshore Jobs for U.S. Workers, Money for North Korean Refugee and Human Rights Programs, and a New $1 Coin Honoring American Innovation

Northern Mariana Islands U.S. Workforce Act of 2018 (H.R. 5956) – This bill is related to the Consolidated Natural Resources Act of 2008, which stated that the U.S. Citizenship and Immigration Services must reduce the number of Commonwealth of the Northern Mariana Islands (CNMI) transitional worker (CW) permits each year, with the goal of ceasing all permits by the end of 2019. However, over the past five years, there has been increasing demand for CW permits resulting from economic expansion largely due to the construction of casinos and hotels. H.R. 5956 authorizes an increase in the percentage of U.S. workers for CNMI work permits. The bill was sponsored by Rep. Rob Bishop (R-UT) on May 24 and signed into law by the President on July 24.

North Korean Human Rights Reauthorization Act of 2017 (H.R. 2061) – This bill was introduced by Rep. Ileana Ros-Lehtinen (R-FL) on April 6, 2017, and signed into law by the President on July 20. H.R. 2061 authorizes funding of $10 million a year from 2018 to 2022 as well as reinstates and extends human rights and democracy programs under the North Korean Human Rights Act through 2022. The purpose of these programs is to promote human rights, democracy, and freedom of information in North Korea, and provide humanitarian assistance to North Korean refugees.

American Innovation $1 Coin Act (H.R. 770) – Introduced by Rep. James Himes (D-CT), this bill directs the Department of the Treasury to mint and issue $1 coins commemorating innovation and innovators from each state, U.S. territory and the District of Columbia. Starting in 2019, the Treasury will issue four coins per year over a 14-year period in alphabetical order by jurisdiction. Coin designs may not feature the bust of any person nor the portrait of any living person. The bill was introduced on Jan. 31, 2017, and signed into law by the President on July 20.        

Swan Lake Hydroelectric Project Boundary Correction Act (H.R. 219) – Sponsored by Rep. Don Young (R-AK), this bill authorizes the Department of the Interior to modify the boundary of the Swan Lake Hydroelectric Project (FERC No. 2911) and convey to the state of Alaska any additional land necessary for the project. The bill was introduced on Jan. 3, 2017, and was signed into law by the President on July 20.

To extend the deadline for commencement of construction of a hydroelectric project (H.R. 2122, 2292, 951, 447, 446; S. 490) – This series of bills were sponsored by various Republican Congressmen and women from several different states. Although the initial legislative Acts were enacted in various past years, each of these bills authorizes the Federal Energy Regulatory Commission (FERC) to extend the time period for starting construction on their respective hydroelectric projects. The bills were signed into law on various days in July by the President

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