dsmWealth: February 1, 2024

So what lies ahead in 2024? We spoke about this with Kelly Flynn, founder and chief investment officer of Prospective Value Partners in Des Moines. While he didn’t make predictions about specific stocks — you have to hire him to do that — he did say that he’s seeing several factors playing out that bode well for the market as a whole.

“All things being equal, lower rates are certainly better overall for stocks, and at least some Fed dovishness seems to be in the cards,” he said.

Of course, the factors that could push the Federal Reserve toward more aggressive cuts are themselves bad for stocks — namely, economic weakness or deflation. “So with a ‘soft landing’ economic base case, I am reasonably optimistic but mindful of the potential for volatility,” he said.

“Value versus growth” and “small versus large” market capitalizations are also important considerations, Flynn said. Over the long term, value has outperformed growth, as it did when inflation and rising rates reared their ugly heads in 2022, making growth stocks even more expensive. But if you consider the few previous years, growth outperformed value, bucking the longer-term patterns.

“Was 2022 just a head fake?” Flynn wondered. “Time will tell.”

One more tip: Even though the S&P 500 is generally thought of as a “core” index, it’s effectively become a growth index because it doesn’t regularly rebalance. In 2023, for instance, about two-thirds of its gains came from just seven growth stocks, known as the Magnificent Seven.

Experts suggest tilting the old 60-40 split toward bonds
BY STEVE DINNEN

Now that interest rates have perked up, it might be time to reconsider the 60-40 split on stocks versus bonds.

Bonds, you may recall, have hovered near zero for seemingly forever. That made it pretty tough to justify following the advice for prudent investors to allocate 60% of their money to equities and 40% to bonds. Sticking with bonds pretty much assigned you to a zero-sum game.

But then interest rates rose, along with inflation. Today, AAA-rated corporate bonds are yielding as much as 4.95%. BBB ratings are 5.74%. Barron’s even floated the notion of getting into junk bonds, some of which yielded more than 8%.

On government debt, the current yield on a one-year Treasury note that sold Jan. 25 is 4.57%. A five-year bond that sold Jan. 31 is at 4.055%. Series I bonds sold between Nov. 23 and April 24 carry a yield of 5.27%.

“In our view, 60-40 is back,” J.P. Morgan asset manager Dan Holtkamp said last month to the Financial Planners Association of Iowa.

He noted that between 1950 and 2023, a portfolio of stocks returned 11.2%, while bonds returned 5.5%. A 60-40 split returned 9.3%.

In tax season, big IRS tax changes to know before you file
BY KELLEY R. TAYLOR FOR KIPLINGER

Tax season officially started Monday, when the IRS began accepting tax returns. Whether you plan to file your tax return early or prefer to wait a while before filing, reviewing key tax changes that may affect your tax bill is essential.

IRS tax changes for 2024
Tax provisions can change yearly, and the reasons for these changes vary. Some tax changes are due to inflation adjustments, while others result from new legislation or IRS rules.

This year, changes for the 2023 tax year are a combination of inflation adjustments and potential last-minute tax law changes from the U.S. Congress that could impact your tax return. Here’s more of what you need to know about seven changes in particular.

1. 2024 child tax credit?
You may have heard that the U.S. Congress is considering tax legislation that includes an enhanced child tax credit (CTC). If approved, the bipartisan tax deal would expand the popular tax credit and benefit around 15 million children in the United States.

Lawmakers were trying to pass the changes to the CTC (and other proposed changes to research and development credits for businesses) before the tax season began. However, some lawmakers have suggested that the bill could be passed in the coming weeks and applied retroactively to 2023 tax returns. If Congress passes the bill, the proposed changes to the child tax credit could mean a larger credit for some families.

So, stay tuned to potential tax credit changes coming at the last minute from Capitol Hill. To learn more about what Congress is discussing, see Kiplinger’s coverage of the bipartisan tax deal.

New child tax credit deal announced

New tax credits in last-minute tax deal would help families, businesses

2. IRS 1099-K form 2023
The IRS has delayed the so-called $600 rule for 1099-K reporting again. This time, the delay is for 2023 federal tax returns, confusing payment networks and casual online sellers. That rule would have meant that millions of people paid at least $600 for goods and services through a third-party network (think PayPal, Square, Venmo, Stripe, Cash App, etc.) would have received a Form 1099-K this month or in early February.

Even though the IRS has postponed the $600 rule, you might receive a 2023 1099-K in the coming weeks. It could come from any provider that paid you through an online platform, including Etsy, StubHub, eBay, etc. If you receive a 1099-K, ensure it matches the information in your records. If there are problems with your form, contact the third-party payment network that sent the form.

And remember, whether you receive a 1099-K or not, the IRS expects you to report all taxable income on your federal income tax return.

3. Free File taxes
IRS Free File allows people with income within a specific limit to file their federal income tax returns for free. The program connects taxpayers with the agency’s trusted tax prep partners, which differs from the new Direct File pilot program mentioned below. You can use Free File this year if your adjusted gross income (AGI) is $79,000 or less. That’s a $6,000 increase over last year’s income limit for the service.

The IRS Free File program operates with tax preparation providers with various eligibility rules and products. IRS Free File has been open since Jan. 12. If you haven’t filed your taxes yet and are interested in Free File, visit the IRS Free File site. Follow the online lookup tool prompts to find the right product for you.

4. Tax brackets 2023
As you likely know, federal income tax rates are tied to tax brackets that change yearly for inflation. That means you could fall into a higher or lower tax bracket each year based on your income and pay a different tax rate from one year to another.

With that in mind and the start of tax season officially open, it’s good to know which bracket you fall into if you don’t already. The good news is tax brackets are more favorable this year than last due to inflation adjustments. To learn more about what that means for you and your tax bill, see Kiplinger’s guide to the federal tax brackets and income tax rates for 2023 and 2024.

5. 2023 standard deduction
When preparing your federal income tax return, deciding whether to take the standard deduction or itemize your deductions is an important step. The standard deduction is a fixed dollar amount that reduces your taxable income, whereas itemized deductions can also lower your taxable income, but the amount varies and is not predetermined. Most taxpayers claim the standard deduction.

With the tax season starting, it's good to know the standard deduction amounts, (which, due to adjustments for inflation, are higher than last tax year) if you don't already. To learn more, see Kiplinger’s guide to the standard deduction for 2023 and 2024.

Also, if you are age 65 or older, you can take advantage of the extra standard deduction.

6. Direct File pilot
The IRS is launching a pilot program for Direct File, its in-house tax preparation and filing system this tax season. The program will enable eligible taxpayers from a dozen states to file their federal returns directly with the IRS at no cost. The pilot will be limited in scope and mainly involve state government employees with straightforward federal tax returns. Several hundred taxpayers will be selected to participate in the program.

Would you want to file your taxes directly with the IRS? You’ll likely have to wait until the IRS reveals the results of the pilot. In the meantime, see our coverage of the new program, including whether the agency can compete with tax prep giants H&R Block and TurboTax.

Will an IRS tax prep service replace H&R Block and Turbo Tax?

IRS Direct File pilot eligibility

7. State rebate payments
If, during 2023, you received a state tax rebate payment, inflation relief check, or other special rebate or "stimulus" check, you may have been wondering whether the amount will be taxable on your federal income tax return.

The IRS recently announced that it won’t challenge the taxability of most special state payments. However, the agency has said that amounts issued in some states, including Minnesota Walz checks and Arizona Families Tax Rebates, are considered taxable income.

Not having to report most special state payments on your federal income tax return is good news for many taxpayers. But, if you need clarification on whether the 2023 state payment you received is taxable, consult a tax professional before filing your federal return.

Tax season bottom line: When are taxes due?
This year, the tax filing deadline to submit 2023 tax returns or to submit an extension to file and pay taxes you owe for 2023 is April 15. If you have a valid filing extension, those returns will be due Oct. 15. The IRS may offer tax deadline extensions to those in areas affected by natural disasters.

If you are an early filer, be sure that you have all the information you need before you file. You are responsible for filing a complete and accurate tax return, so gather your records and tax forms and double-check your taxpayer identification number and PIN.

But the IRS still says that visiting the website IRS.gov is the fastest way to get tax refund information and answers to common tax questions. The agency also says direct deposit is the quickest way to get your tax refund if you're due one.

How to get your tax refund faster in 2024
BY MICHELLE SINGLETARY FOR THE WASHINGTON POST

Americans have a love-hate relationship with tax season. They hate the process of filing a return. But oh, how they love the refunds. Last year, that came to $3,167, on average.

The 2024 tax season officially opened Monday, meaning the IRS has begun accepting and processing returns for the 2023 tax year. The deadline to file is April 15. Taxpayers who reside in Maine or Massachusetts have until April 17 because of Patriot’s Day and Emancipation Day holidays.

The IRS expects to receive about 167 million returns this year, according to IRS spokesman Eric Smith. Many of those returns will involve a refund.

Here’s what you need to know if you’re expecting a refund.

How soon can I expect my refund?
The three keys to a faster refund: No errors, e-filing and direct deposit.

Simple errors can delay the processing of your return and, as a result, your refund. That includes incomplete forms or a math error, which may require a manual review. If your return is flagged for possible identity theft or fraud, that, of course, will slow down your refund.

If you file electronically and authorize direct deposit, your refund should appear in your bank account within 21 calendar days. It can take four weeks for mailed returns.

How do I check on the status of my refund?
Track the status of your refund with the “Where’s My Refund?” tool at irs.gov. I know you need the money, but checking frequently won’t yield new information. Updates are made daily, usually overnight.

Your refund status typically appears around 24 hours after you e-file and four weeks after you file a paper return, the IRS says.

If using the online refund tool, here are the messages you might encounter, the IRS says.

Return received. The IRS has received your return and is processing it.

Refund approved. The agency agrees with the refund shown on your return and is preparing to issue it.

Refund sent. This is when you do the happy dance. The IRS has sent your refund, which it says may take five days to show up in your bank or several weeks by mail.

If you don’t have internet access, call the automated refund hotline at 800-829-1954.

Why is my refund delayed when I claim the Earned Income Tax Credit?
Many low- and moderate-income workers with qualifying children are eligible for the Earned Income Tax Credit (EITC). You may qualify even if you can’t claim children on your tax return.

But, to stem fraud, the IRS cannot issue EITC and Additional Child Tax Credit refunds before mid-February. This doesn’t mean you should wait to file. The IRS says the “Where’s My Refund?” should show your refund status by Feb. 17 if you file early.

Most refunds related to these two credits will be deposited in bank accounts or on debit cards by Feb. 27 if you select direct deposit and there are no other issues with your return.

Do I have to report my income from Venmo, PayPal, Cash App?
The simple answer is yes.

But this issue has confused a lot of people.

A little background: Under the pandemic-related American Rescue Plan, changes were made to the tax code relating to what are called “third-party settlement organizations.” These include companies such as PayPal, Venmo and Cash App, which accept payments for the sale of goods and services.

Starting with the 2022 tax season, the IRS was supposed to start requiring all third-party payment processors in the United States to report payments received for goods and services of $600 or more a year. The target is tax cheats.

By the way, this isn’t a new tax. It’s a new reporting requirement.

But there was so much pushback that the IRS has delayed implementation of the new rule. That’s the case for the 2024 tax season. The old reporting rule will apply. Companies will not be required to issue IRS Form 1099-K unless a taxpayer has more than 200 transactions per year totaling more than $20,000.

However, even if you don’t receive a 1099-K, you must still report any taxable income received through these platforms.

How do I file for an extension?
There’s at least one good thing about the federal tax code. It allows more time to file for procrastinators and people who need an extension when life happens.

If you live in a federally declared disaster area, you may have additional time to file. For example, individuals and businesses in parts of Connecticut and Tennessee affected by severe storms and tornadoes have until June 17 to file and pay their tax bills.

You can request an extension electronically, which gives you six extra months to file your return. No excuses necessary. Go to irs.gov/extensions for details.

Although the IRS gives you more time to file your return, you’ll have to estimate what you owe and pay by the deadline. If you owe and can’t pay, call the IRS or go online and set up a payment plan. It’s much easier than you think.