dsmWealth: November 3, 2022

The income tax scene this year was marked by a big yawn, especially at the national level.

“The big news in federal taxes is what didn’t happen,” says Joe Kristan (pictured), partner at accounting firm EideBailly LLP. Not exactly zero, but pretty close to it.

This was not for a lack of want, as President Joe Biden had early on proposed higher capital gains rates and a “mark to market” scheme that would have seen investors pay taxes on stocks or other assets based on their current value, not just a price realized upon their sale.

Bigger changes—though not by much—were made in 2022 state taxes. (2023 is a different story; see below.) But there are some twists here, because Kristan says a number of changes in state tax laws due to take effect in 2023 can affect decisions you make now. Iowa currently has six capital gains breaks in place, influencing such things as sales to ESOPs and nonfarm business real estate. These exclude all or part of the gains from Iowa taxes entirely. Four of those capital gains calculations will go away in 2023, says Kristan, while one new one will be added and just two will remain the same. So you’ll want to consider a triggering sale—or stall one—depending on how those gains calculations play out next tax year.

“If you have a nonfarm business and you’re thinking of selling, now is the year” for qualifying taxpayers to take advantage of the expiring capital gain exclusions on asset sales, he says.

Iowa is moving toward a flat tax rate of 3.9%, but that won’t happen until 2026. The first step in that direction takes place in 2023, when rates go to a range of 4.4% to 6%. Also, state taxes on retirement income will be eliminated starting in 2023; current law exempts only the first $6,000.

The Tax Foundation found that Iowa’s overall tax climate was 46th in the nation as recently as 2018, when a round of changes to state taxes was put in place. Iowa now ranks 38th, says the tax policy group, and will boost its way to 15th by 2026 when the final phase of the latest changes goes into effect.

With rare exceptions, expenses and income for the 2022 tax year need to be nailed down by Dec. 31 to qualify. So don’t wait, though you need not panic.

"You still have time to make adjustments if necessary,” Kristan says.

Look for a Market Bounce After the Midterms

BY STEVE DINNEN

If you’re wondering when the market might finally shed its losing streak, mark your calendar for Nov. 9, the day after the election. If data analysts at U.S. Bank crunched their numbers right and history holds true, we’re about to see a positive return in stocks within six months of this year’s midterm election.

This has happened every four years since 1962. And you’d have to go all the way back to 1939 to see the last time the S&P Index posted negative returns in the 12 months after a midterm vote. S&P rising performance ranged from a low of 3% in the year after the 2010 elections to 30.9% in 1962. The average lift was 16.3%, double historic norms.

On the flip side, U.S. Bank said the S&P 500 Index has historically underperformed in the year leading up to midterm elections. The average annual return of the S&P 500 in the 12 months prior to a midterm election is 0.3%.

One factor behind this reversal of fortunes might be policy uncertainty. Without knowing which political party will hold majorities in Congress, it’s unclear which social and economic policies will take priority. This uncertainty resolves after the midterms. Note: It doesn’t matter whether a Democrat or Republican is in charge.

How the Fed's Rate Hikes Slow the Economy—and Affect You

BY RACHEL SIEGEL AND EMILY WRIGHT FOR THE WASHINGTON POST

The economy runs like a machine. Right now, it’s overheating: Inflation levels are at the highest in decades, with prices climbing on everything from groceries to cars to rent. And the job market is unsustainably tight, with nearly twice as many open jobs as people looking for work.

Normally, the financial system, consumer spending and business activity keep the hardware running. But at times, those cogs cause glitches or kick into overdrive, and the sprawling apparatus needs to be slowed down.

Enter the Federal Reserve, which has been aggressively raising interest rates—the central bank’s one major tool to lower inflation, curb demand for goods and services and slow the economy. We won’t know until later if the Fed has been successful—or if it’s forced the economic machine to slow down too much, causing a recession. READ MORE

New Survey Reveals Americans' Number for Retirement

BY LORI KONISH FOR CNBC

Americans now expect they will need $1.25 million to retire comfortably, according to a new study from Northwestern Mutual. That figure represents a 20% increase from the $1.05 million respondents cited last year.

That’s not necessarily good news for individuals who have seen their retirement savings decline in the past year amid persistent high inflation and market volatility. The average retirement nest egg has fallen 11% to $86,869, down from $98,800 a year ago, Northwestern Mutual’s survey found.

Moreover, the expected retirement age has risen to 64, up from 62.6 last year.

The results are based on an online survey conducted in February that included 2,381 adults ages 18 and up. Northwestern Mutual was not available for comment by press time.

Northwestern Mutual’s report comes as another survey from Bankrate.com found 55% of working Americans feel they are behind in their retirement savings as higher costs strain household budgets.

Those closest to retirement—working baby boomers ages 58 to 76—were most likely to say they feel behind, at 71%, Bankrate.com found. Many of those near retirement reported wishing they’d started saving earlier. READ MORE.