FOURTH QUARTER GROWTH COMES IN AT 2.6%:
In the fourth quarter of 2017, the U.S. gross domestic product grew at an annual rate of 2.6% according to the Bureau of Economic Analysis. This did not match the above 3% growth of the prior two quarters, but it remains above the 2% average that has prevailed since the early 2000s. Contributing to the growth was consumer spending (rose at 3.8%) and business nonresidential investment (rose at 6.8%). For the year of 2017, growth came in at 2.3% (the first quarter was 1.2%).
MARKETS LIKE GROWTH:
Stock prices climbed once again with a big rally on Friday capping off gains of over 2% for the week. The week started off well with the U.S. Congress making a deal to prevent a government shut down. Although fourth quarter GDP growth came in at under 3%, the report, especially the underlying data, was positive enough to drive further optimism about the economy. Positive fourth quarter earnings reports by individual companies is also driving stock upwards. Intel’s stock jumped when it reported record growth in fourth quarter revenue. Caterpillar broke a four-year streak of declining sales with annual revenue jumping 18%. Fiat Chrysler’s fourth quarter net profit rose 97% from a year earlier (Ford is not doing as well). United Airlines, Johnson & Johnson, Delta and P&G all posted positive reports.
WATCH FOR AN ACTIVE WEEK IN THE ECONOMY AND MARKETS:
This will be a week with a lot of activity that can potentially move markets. Politically, there is this thing called the State of the Union Address. Fed Chair Janet Yellen will hold her farewell meeting and the Fed will likely do nothing with interest rates. Over one fifth of the S&P 500 companies will release their fourth quarter earnings reports, little companies like Facebook, Apple, Amazon, ExxonMobil and Chevron. Reports on U.S. car sales, manufacturing and productivity data and the monthly employment report all come out this week.
CAPITAL GAINS TAXES:
This is a particularly tough time for capital gains taxes because anyone with money invested in a taxable account is probably sitting on a lot of investments with unrealized gains. For 2018, capital gains are taxed at the rate of 15% if the capital gains push taxable income above $77,200 for joint returns and $38,600 for singles. A 20% rate applies if capital gains propel taxable income past $479,000 for joint filers and $425,800 for single filers.
How do you avoid paying capital gains tax? Here are some ways:
- Keep Taxable Income Low. As you read above, if you keep your taxable income below the thresholds ($77,200 for joint filers and $38,600 for single filers), you can avoid the tax. For many, this is not a viable choice, but if you find yourself in a transition year, or you are going back to school, or you are retiring with little income, this may be an option.
- Tax Loss Harvest/Tax Gain Harvest. Are you sitting on any investments that are worth less than what you paid for them? If you sell and do not repurchase the same investment within a specified period, you can take that loss and use it to offset future or current gains. In addition, if you do find yourself in a low income year, you may want to carefully sell some investments with unrealized gains while you are in the zero percent capital gains tax bracket.
- Donate Appreciated Shares to Charity. If you give to charity (if you don’t I encourage you to consider it!), you probably write a check or send it online from your bank account. Instead of sending cash, you can give stocks or mutual fund shares directly to a charity (if the charity is set up for this, and many are). When you do this, no one pays the capital gains tax. The charity takes the stock, sells it, and uses the proceeds for its charitable purposes.
- Hold Until You Die. When assets in a taxable account are passed on to heirs, the cost basis is reset to the date of death value. The heirs can then sell them with no capital gains tax liability.
FOURTH QUARTER GROWTH COMES IN AT 2.6%: https://www.wsj.com/articles/u-s-economy-grew-at-2-6-rate-in-fourth-quarter-1516973505; http://www.calculatedriskblog.com/2018/01/bea-real-gdp-increased-at-26-annualized.html; https://www.wsj.com/articles/thank-you-for-tax-reform-1517009242?mod=searchresults&page=1&pos=1; https://www.wsj.com/articles/caterpillar-returns-to-growth-as-global-recovery-continues-1516887472?mod=WSJ_earnings_LEFTTopHeadlines&tesla=y; https://www.wsj.com/articles/fiat-chryslers-income-soars-in-latest-quarter-1516884180?mod=WSJ_earnings_LEFTTopHeadlines&tesla=y; http://www.wsj.com/public/page/news-earnings.html
WATCH FOR AN ACTIVE WEEK IN THE ECONOMY AND MARKETS: https://www.cnbc.com/amp/2018/01/26/big-week-for-markets-with-fed-meeting-earnings-tsunami-and-trump-state-of-union.html
CAPITAL GAINS TAXES: https://www.whitecoatinvestor.com/pay-no-tax-capital-gains-dividends/