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Friday, October 08, 2021

Market Update and Sentiment Charts for 10/08/2021

Despite the recent market volatility, this has been a great year to be invested in the US Stock market.  This table shows that despite last month's market decline, the four major US indexes I track are up double digits: 

Sentiment Charts
CPC is at a 1-year high
(Recent CPC buy/sell signals are hidden)

See page 6 of my October 2021 investment letter for more information about the  $CPC chart. Feel free to ask questions about the other charts or request updates on other charts I've posted in the comments. 

Aided by rising interest rates, the banking sector is on a tear.  I added to XLF, the banking sector index fund in my Newsletter Explore Portfolio during the COVID-19 pandemic sell-off on 3/6/2020 at $25.55.  Then it recovered and took profits recently at $37.00 but I still hold a nice position.  

II Sentiment: Investors Intelligence Bulls / (Bulls+Bears) & S&P 500 

Treasury Bonds (Added 10/9/21)

As of 10/8/21, I hold 1,450 shares on "house money"
("break-even" includes dividends & XLRE spin-off which lowers the break-even point)
More charts for  XLF

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A major purpose of the Explore Portfolio is to help prevent you from getting too greedy at market tops by taking profits or get scared out near market bottoms by buying.  For the last 20 years, my Explore Stocks have also beaten the markets with far less risk since the portfolio is far less than 100% in stocks.  Like Warren Buffett, I don't see loads of value near market tops and I like to have a lot of cash for when the market presents great buying opportunities.  Great individual stock selection has greatly enhanced the overall returns too.

I believe my investment letter is unlike any you have read before.  It is very long and detailed because I write it as a way to review what I hold in my own portfolio each month.   The things I discuss in the newsletter are what I consider important to review monthly if you own stocks. 

Thursday, June 03, 2021

President Biden's Proposed 2021 Tax Plan

On May 28, 2021, the General Explanation of the Biden Administration’s Fiscal Year 2022 Revenue Proposals under the American Families Plan and American Jobs Plan were introduced. These are proposals at this point and are not yet law. 
This summary was prepared by an anonymous CPA who is about to retire, thus not looking for publicity or new clients.
The following are the key proposals: 
Top marginal tax rate to go up from 37% to 39.6% effective for taxable years beginning on or after December 31, 2021, and the 39.6% marginal tax rate would apply to taxable income over $509,300 for married filing jointly and $452,700 for unmarried individuals. These would be indexed for inflation after 2022. 
Major changes in capital gains taxation. 
Currently, long term capital gains and qualified dividends are taxed at graduated rates under the individual income tax with 20% being the highest rate (and, if applicable, 23.8% including the net investment income tax for those above certain modified adjusted gross income). 
  • Capital gains are taxable only upon realization (i.e., Sale or other disposition of an appreciated asset). 
  • When a donor gives an appreciated asset to a donee during the donor’s life, the donor’s basis in the asset is the basis of the donor; in effect, the basis is carried over from the donor to the donee. There is no realization of capital gains by the donor at the time of the gift, and there is no recognition of capital gain or loss by the donee until the donee later disposes of that asset. 
  • When an appreciated asset is held by a decedent at death, the basis of the asset for the decedent’s heir is adjusted (stepped up) to the fair market value of the asset at the date of the decedent’s death. Thus, any appreciation accruing during the decedent’s life on assets that are still held by the decedent at death avoids federal income tax. 
All of this is now changing under the Biden proposal. 

 The proposal relating to capital gains taxation are as follows:
  1. Long term capital gains and qualified dividends of taxpayers with adjusted gross income of more than $1 million would be taxed as ordinary income as high as 43.4% including the net investment income tax, but only to the extent the taxpayer’s income exceeds $1 million ($500,000 for married filing separately). This would be indexed for inflation after 2022. The proposal says this would be effective after the date of the announcement meaning late April 2021. 
  2. Transfers of appreciated property by gift or on death will be treated as a realization event. Under the proposal, the donor or deceased owner of an appreciated asset would realize a capital gain at the time of the transfer. For a donor, the amount of the gain realized would be the excess of the asset’s fair market value on the date of the gift over the donor’s basis in that asset. For a decedent, the amount of gain would be the excess of the asset’s fair market value on the decedent’s date of death over the decedent’s basis in that asset. The deemed owner of a revocable grantor trust would recognize gain on the unrealized appreciation in any asset distributed from the trust to any person other than the deemed owner or the U.S. spouse of the deemed owner. 

a. Transfers to a U.S. spouse and charity – transfers by a decedent to a U.S. spouse or to a charity would carry over the basis of the decedent. Capital gains would not be recognized until the surviving spouse disposes the asset or dies. Distributions to charity will not generate a taxable gain. Transfers of appreciated assets to a split-interest trusts (i.e., CRUT, etc.) would generate a taxable capital gain with certain exclusions.  
b. Transfers of tangible property (except collectibles) and principal residence would not trigger any gain. The $250,000 per person exclusion under current law for capital gain on a principal residence would continue to apply.  

c. The Small Business Stock exclusion will continue to apply 
d. In addition to the exclusions above, the proposal would allow a $1 million per person exclusion from recognition of other unrealized capital gains on property transferred by gift or held at death. 
e. Payment of tax on the appreciation of certain family-owned and operated business would not be due until the interest in the business is sold or the business ceases to be family-owned and operated  
f. The proposal would allow a 15-year fixed rate payment plan for the tax on appreciated assets transferred at death, other than liquid assets such as publicly traded financial assets and other than businesses for which the deferral election is made. 
Currently, owners of appreciated real property used in a trade or business or held for investments can defer gain on the exchange of the property for real property of a like kind. As a result, the tax on the gain is deferred until a later recognition event, provided that certain requirements are met. 
The proposal, effective for exchanges completed in taxable years beginning after December 31, 2021, would allow the deferral of gain up to an aggregate amount of $500,000 for each taxpayer ($1 million in the case of married individuals filing a joint return) each year for real property exchanges that are like kind. Any amounts in excess would be taxable in the year the taxpayer transfers the real property subject to the exchange. 
Effective for taxable years beginning after December 31, 2021, the 3.8% Medicare Tax will apply to all income and earnings over $400,000. In particular, for taxpayers with adjusted gross income in excess of $400,000, the definition of net investment income tax would be amended to include gross income and gain from any trades or businesses that is not otherwise subject to employment taxes. Rules relating to limited partners and LLC members are also being revised. 
The proposal would generally tax as ordinary income a partner’s share of income on an “investment services partnership interest” in an investment partnership, regardless of the character of the income at the partnership level, if the partner’s taxable income from all sources exceed $400,000. Accordingly, such income would not be eligible for the reduced rates that apply to long-term capital gains. The proposal also subjects this type of income to self-employment tax. 
The proposal, effective for taxable years beginning after December 31, 2021, the income corporate tax rate will rise from 21% to 28%. 
  • Make permanent the American Rescue Plan Expansion of the Premium Tax Credits 
  • Make permanent the Expansion of the Earned Income Tax Credit for Workers without Qualifying Children 
  • Make permanent American Rescue Plan Changes to the Child and Dependent Tax Credit Daniel C. Moreno, CPA June 3, 2021 
  •  Extend the Child Tax Credit Increase through 2025 and make permanent full refundability
  • Make permanent excess business loss limitations of noncorporate taxpayers
  • Implement additional funding for tax administration 
  • Introduce comprehensive financial accounting reporting to improve tax compliance 
  • Increase oversight of paid tax return preparers 
  • Enhance accuracy of tax information 
  • Expand broker information reporting with respect to Crypto assets 
  • Address taxpayer noncompliance with Listed Transactions 
  • Other administrative matters 
  • Various foreign, housing and infrastructure and energy related proposals 
Surprisingly the following were not included in the proposal at this time:
  • Elimination of the Section 199A 20% deduction on pass through income 
  • Setting a cap on itemized deduction at 28% 
  • Reducing the estate and gift tax exemption thresholds 
  • Eliminating the $10,000 cap on the state and local tax deductions.
This summary was prepared by an anonymous CPA who is about to retire, thus not looking for publicity or new clients.

Friday, March 12, 2021

2020 Timer Digest Results

 I had a great 2020 after an even better 2019 (performance details).  Now it is great to be recognized by Timer Digest! 

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