Reviewing 2022 with Hopes for 2023 | Tax Prep and Open House

Where We Ended: It’s no surprise that we crawled over the stock market “finish line” given our not-so-great year. As we’ve mentioned in the past, it’s been the worst year for the S&P 500 since 2008 and the seventh worst year ever. Mortgage rates recorded their largest-ever increase in a calendar year in 2022, rising once again in the last week of the year to 6.42 percent (up from 6.27 percent). The average rate was 3.11 percent at the same time last year. Maybe our experience with the Fed this year is best summed up with this cartoon:

And 2023 isn’t looking over-promising as more than two-thirds of the economists at 23 large financial institutions that do business directly with the Federal Reserve are betting the U.S. will have a recession in 2023. Many economists point to the Federal Reserve as the main culprit as they have been raising rates to try and slow the economy and curb inflation. Inflation is often referred to as a tax on the poor, but this time it’s hit middle-income households the hardest.

It’s not a pretty picture but it’s the reality we need to face in order to best prepare for the year ahead. Financial plans are built to help guard against these inevitable bad years. Reach out today if your financial plan is needing fine-tuning as we enter the first quarter of 2023.

Tax Prep: For our clients who use Door Dash or any of those third-party organizations to earn a little extra cash, the Internal Revenue Service announced a delay in reporting thresholds. The American Rescue Plan of 2021 had lowered the reporting amount to $600, but the IRS announced the delay will NOT require individuals to report the tax year 2022 transactions on a Form 1099-K to the IRS.

RMD Adjustment: The year-end federal funding bill passed on December 27 made a change to the required minimum distribution (RMD) rules. The law updates current RMD rules, which require distributions to begin at 72. Per the proposal:

• If you turn 72 after Dec. 31, 2022, or if you turn 73 before Jan. 1, 2033, your distributions must begin when you turn 73.
• If you turn 74 after Dec. 31, 2032, your distributions must begin when you turn 75.

Previously, if you failed to take an RMD, you were subject to a stiff 50% excise tax. SECURE Act 2.0 reduces the penalty to 25%, and if the failure is corrected in a timely manner, the excise tax is reduced to 10%. A kind revision to say the least.

Business Briefing

• Southwest Catastrophe: After a disastrous week of cancellations leaving travelers stranded for hours, and often days, Southwest Airlines said it expects to resume normal flight schedules this week (as of Dec. 30) “with minimal disruptions.” While nearly every airline was affected by winter storms in the U.S. over the Christmas holiday, Southwest was particularly hard-hit due to specific operational organization problems. More than 2,500 Southwest flights were canceled on Tuesday alone, making up 87 percent of all domestic cancellations. (The New York Times)
• Lower Gas Prices: According to estimates from the fuel price tracking app, GasBuddy, gas prices are expected to be lower in 2023 than they were in 2022. Prices could still hit $4 per gallon during the high travel season next summer, or possibly as soon as May. The lowest prices are expected in February when the national average is predicted to be $2.99 per gallon. All told, the 2023 expected national average is $3.49 per gallon, down from 2022’s average of $3.96, when prices hit a record average high of $5 at one point. Other analysts have cautioned against optimism at the pump: “Since the beginning of 2020, seven refineries, totaling almost 6 percent of U.S. capacity, have closed,” writes Timothy Fitzgerald for The Wall Street Journal, adding: “Without the ability to process higher production, prices are likely to spike again next year.” (CNN Business, The Wall Street Journal)
• Amazon Stock Plummeted: In 2022, Amazon stock plummeted by 51 percent, the worst year for the e-commerce giant since 2000 when it tumbled 80 percent. Amazon CEO Andy Jassy admitted the company hired too many workers and overbuilt its warehouse network as it raced to keep up with pandemic-era demand, writes CNBC. (CNBC)

Compass Ion Open House: Just before Christmas, we opened our firm doors for the first time since the start of the pandemic for a client holiday open house. We enjoyed good food, fun gifts, and a lot of laughs. It was an excellent time for connecting with one another, seeing old friends, and meeting new ones. We will be in touch with future dates as we hope to regularly connect with each one of you, as well as provide opportunities for you to network with each other. Here are a few photos from our time together: