With the strength in the market last week, our trend indicators have moved back into the bullish zone. The indicators are lower than they were six weeks ago, suggesting that potential gains will be less than we have seen in the early months of the 2013. Economic data continues to be mixed, but the April jobs number came in better than expected at 165,000 new non-farm payrolls. The unemployment rate fell to 7.5%.
Sell in May?
The data shows slight progress, but not enough to take the Fed out of the equation. This continues to create an “all news is good news” scenario. Combined with the fact that most market pundits are in agreement that we are overdue for a correction, and the fact that the “sell in May” theory is getting a lot of air-time, it’s likely that the market will prove the majority wrong and continue to move higher.
In our 2013 forecast, we said that a retail rotation from bonds to stocks would likely take the market to new highs before setting a top. We are beginning to see the new highs in the Dow and S&P, and like the Ouroboros, new highs feed on themselves creating more new highs. In our forecast, we called for the 1620-1660 range on the S&P 500.
Unfortunately, geopolitical risks are mounting. We have seen a terrorist attack on our home soil in Boston and now Israel has issued airstrikes on Syria in response to one on them. The airstrikes open the possibility of wider issues in the Middle East. Syrian ally Iran warned of a “crushing response.” If the situation in the Middle East escalates, look for market volatility to pick up.
Jeremy Nelson serves as Chief Investment Officer for Pinnacle Trust. You can reach Jeremy by emailing him at firstname.lastname@example.org or by calling our office at 601-957-0323.
The first quarter GDP number was released Friday at a 2.5% annual rate, missing expectations of 3% growth. GDP growth was dragged down by poor government spending and a large trade deficit. The drag from government spending does not even include the full affect of sequester.
Farm inventories were a major contributor to growth. Without farm inventories, GDP growth would have only been 1.5%.
On the bright side, every other area of the economy contributed positively to GDP. Consumer spending increased, even with the reinstatement of the 2% payroll tax. Gasoline, food, and commodity prices have fallen, which should be positive for second quarter GDP data.
The continuation of less than stellar economic data just means an extension of loose monetary policy coming out of the Federal Reserve. We have been in an extended cycle of receiving bad economic news, only to have the Fed announce continued easing, thus propping markets up.
For now, the data illustrates an economy that continues to limp along despite all of the stimulus efforts.
We will look to this week’s personal income, manufacturing, and jobs numbers to give us further indications of our country’s economic health.
Maeve Wilson serves as Investment Officer for Pinnacle Trust. You can email her at email@example.com or call our office at 601-957-0323.
Will Rogers once said, “The only two things in life that are certain are death and taxes; but at least death doesn’t get worse every time Congress gets together.” Now that you have just sent your check to Washington for your 2012 Federal Income Tax, what lies ahead for 2013 and 2014 could be even more troubling for many. Provisions under two major tax acts, the Patient Protection and Affordable Care Act (PPACA) signed into law in 2010 and The American Taxpayer Relief Act of 2012 are likely to have significant impact on the personal income taxes paid by higher income Americans – much more than the seemingly modest increases in the marginal tax brackets for “wealthy Americans.” Below are seven provisions scheduled to go into effect in 2013 that will potentially increase your tax bill next year.
0.9% additional Hospital Insurance (Medicare) tax on high income taxpayers.
Under current law, an employee is liable for a Medicare Hospital Insurance (HI) tax equal to 1.45% of his or her covered wages. Self-employed individuals are subject to a HI tax of 2.9% of net self-employment income. Beginning in 2013, taxpayers with incomes above certain thresholds will pay an additional HI tax of .9%. For an employee, the additional .9% effectively increases the HI tax from 1.45% to 2.35% on income in excess of the applicable threshold. For self-employed taxpayers, the additional, tax of .9% effectively raises the HI rate to 3.8% of net self-employment income in excess of the applicable threshold. Also, for self-employed individuals, the additional .9% HI tax is not deductible.The thresholds are $250,000 in case of a joint return (the earnings of both spouses are considered) or a surviving spouse, $125,000 in the case of a married individual filing a separate return, and $200,000 for any other taxpayer.
3.8% unearned income Medicare contribution.
The new legislation imposes a 3.8% unearned income Medicare contribution tax on individuals, estates, and certain trusts. For individuals, the tax is 3.8% of the lesser of net investment income or the excess of modified adjusted gross income over a threshold amount. This threshold is $250,000 in the case of a joint return or a surviving spouse, $125,000 in the case of a married individual filing a separate return, and $200,000 in any other case. Investment income, generally, refers to (1) income from interest, dividends, annuities, royalties and rents; (2) gross income from a business to which the tax applies (such as income from “passive” activities); and (3) the net gain from the disposition of certain property. The term does not include distributions from IRAs and other qualified retirement plans.
Threshold for itemized deduction of unreimbursed medical expenses generally increased to 10%.
Under current law, an individual is allowed an itemized deduction for regular tax purposes1 for unreimbursed medical expenses to the extent that such expenses exceed 7.5% of Adjusted Gross Income (AGI). Beginning in 2013, the new legislation increases the threshold for the itemized deduction for unreimbursed medical expenses from 7.5% of AGI to 10% of AGI. However, for the years 2013, 2014, 2015, and 2016, if either a taxpayer or spouse is age 65 before the end of the taxable year, the threshold remains at 7.5%.
New Tax Brackets and an additional 39.6% bracket for “high-income” earners.
The former 10%, 15%, 25%, 33%, and 35% brackets are made permanent. A 39.6% rate will apply to taxable incomes above $450,000 (Married filing joint); 425,000 (Head of Household); $400,000 (Single); and $225,000 (Married filing separately).
20% Capital Gains Tax Rate for High Income Earners
For taxpayers in the 39.6% bracket, a 20% tax rate will apply to long-term capital gains and qualified dividends. For those in the 25%, 28%, 33%, or 35% brackets, a 15% rate will apply. For those in the 10% or 15% brackets a 0% rate is applicable.
Personal and Dependent Exemption Phase-Out.
This provisions requires taxpayers whose income exceeds certain limits to phase-out their personal and dependent exemptions. For 2013 these limits are: $300,000 for Married filing joint; $275,000 for Head of Household; $250,000 for Single; and $150,000 for Married filing separately. The thresholds are subject to adjustment for inflation.
Itemized Deductions Phase-Out
Taxpayers whose incomes exceed specified limits must reduce certain, otherwise deductible, items on Schedule A. The same threshold amounts applicable to the personal exemption phase-out (see above) apply to the itemized deduction phase-out. These threshold amounts will be subject to adjustment for inflation in future years.
What should you do now?
Schedule a meeting with your CPA. Because there are many other provisions of these major tax acts, just how they will ultimately impact you depends on many factors. The best thing you can do over the next few months is to schedule a meeting with your CPA or tax advisor to do some advance calculations as to how your tax liability might change. Don’t wait too long to do this as it could result in you needing to increase your tax withholding or estimated payments.
Implement a tax efficient investment plan. Your investment plan should be tweaked to minimize taxable investment income and high-turnover capital gains distributions. This will be a major theme for the next few years as investors seek to maximize after-tax returns on their portfolios and thus avoid some of these new taxes.
Tax rates will likely not head lower until our federal budget deficit and overall debt picture has improved. Nevertheless as Federal Judge Learned Hand once remarked,
“Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one’s taxes. Over and over again the Courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. Everyone does it, rich and poor alike and all do right, for nobody owes any public duty to pay more than the law demands.”
Jobs numbers disappointed on Friday, with just 88,000 jobs added in March. However, the unemployment rate fell to 7.7%. The decrease in the unemployment rate comes from the fact that the March participation rate hit its lowest level since 1979. The Federal Reserve recently stated that it will keep a zero interest rate policy until we see the unemployment rate reach 6.5%. With jobs numbers continuing to disappoint, it appears as though the zero interest rate policy and quantitative easing measures may stay in effect longer than originally anticipated, despite talks of tapering the program later this year.
Continued quantitative easing polices from the United States, Japan and Europe, directly benefit emerging markets countries. In the early stages of QE, loose monetary policies caused massive inflows of capital into emerging markets counties, such as Russia, South Africa, Thailand, Brazil, and many other Asian and South American countries. In the first quarter of 2013, we saw inflows turn to dividend paying US stocks. Investors are now beginning to look at dividend paying stocks as bond substitutes, so this trend will likely continue through the first half of the second quarter. But with valuations looking a little stretched in defensive sectors such as consumer staples and with limited earnings growth potential, investors will soon have to find a new home for capital.
Emerging markets have not participated in the equity rally this year, and they tend to be faster growing and high yielding assets. With valuations and long-term growth prospects looking attractive, we are looking for another round of capital inflows into emerging markets. It may not happen immediately, but look for emerging markets to benefit as loose monetary policy stays in effect for the unforeseeable future. – Maeve Wilson
Maeve Wilson serves as Investment Officer for Pinnacle Trust. You can reach Maeve by emailing her at firstname.lastname@example.org or calling 601-957-0323.
If you have decided to utilize a living trust as the vehicle for your estate plan, and you want to make it comprehensive of everything you have in your name alone (even possibly naming it as the beneficiary of your retirement accounts and life insurance policies), it requires re-titling those assets in the name of the trust.
To the extent that this includes your home, be aware that you will need to re-file for your homestead exemption from your property taxes. This is because filing a deed to your home to a trust gets picked up as a new owner by the Tax Assessor’s office. The Assessor will then send you a notice to come in to re-establish the exemption. Yes, it is another step, but there is a valid reason for it. Under the law, you only have to do it once and the savings are worth it.
The notice from the Hinds County Assessor asks you to bring (1) the notice, (2) your deed, (3) your SSN, (4) any mortgage information and (5) your car tag number (sorry, I have no idea why). I would be sure to bring my last tax bill or receipt or something that shows the parcel number and exemption. The clerk there fills out the application online and will have you sign it and then give you a stamped copy. You will be notified if a problem arises in its approval. You must file the application before April 1st of the year after you deeded to the trust.
One last thing: not all the personnel at the various assessors’ offices may be familiar with trusts. Do not be deterred by any confusion or resistance on their part. Ask for someone higher up. Mississippi statute 27-33-17 clearly authorizes qualified trust beneficiaries to maintain this important exemption. – Warren Wiltshire
Warren Wiltshire serves as Chief Legal Counsel for Pinnacle Trust. You may reach him by emailing Warren at email@example.com or calling him at 601-957-0323.
The Patient Protection and Affordable Care Act (PPACA) was signed into law by President Barack Obama on March 23, 2010. A companion package of “fixes to PPACA, the Health Care and Education Reconciliation Act (HCERA), was signed by the President on March 30, 2010. Taken together, these two bills make the most profound changes to our country’s private-market health care system in 50 years.
Many provisions of the new health reform law will impact American employers and private health consumers very soon, while others take effect over the course of the next eight years. For a number of provisions, the actual application and operation of the new law will remain hazy until the federal government creates and issues detailed regulations.
Most people I know have health insurance through their employers. However, these same people have college age or older children who are not finding employment that includes health benefits. Also after age 26, dependent children of covered employees are no longer covered on their parents’ health plans, so the coverage options, and the penalties for not getting coverage under these options, is something to pay attention to. – David Russell
To read more about the PPACA and how it might affect you or your family, click the link below.
David Russell serves as Senior Vice President of Pinnacle Trust. You can email David at firstname.lastname@example.org or call him at 601–957-0323.
Pinnacle Trust announced today that total revenues for the company increased by +17% during 2012. Total assets under management also experienced dramatic growth, climbing +21%. Stacey Wall, President & CEO, said, “We are, once again, extremely grateful for our clients and their continued votes of confidence. Helping them to achieve their life and wealth goals are the reasons for our existence.”
At is March 6th meeting, the Pinnacle Trust Board of Directors approved a dividend of $1.23 per share, payable March 15, 2013, to shareholders of record as of March 15, 2013. The dividend represents a +34% increase over 2012.
Chartered and regulated by the State of Mississippi Department of Banking and Consumer Finance, Pinnacle Trust is one of Mississippi’s largest and fastest growing wealth management companies, and its only independent trust company. The company offers integrated financial solutions in three primary areas: asset management, financial planning and trust services. This month marks the 16th anniversary of its founding in 1997.
For more information, email email@example.com or call 601-957-0323.