In the third quarter of 2022, the hottest topics were inflation, market swings, and what’s ahead for our economy. In our October 25th, 2022, economic update, we addressed these topics, as well as proposed legislation and what to expect in the upcoming tax season. We also discussed ways to protect your savings and how to invest in uncertain times.
Watch our Q3 webinar:
Inflation continues to climb, but Americans keep spending
There are a few different ways to look at inflation:
- Headline consumer price index (CPI), which has increased by over 8%.
- Core inflation, which is CPI minus food and energy.
- Personal consumption expenditures (PCE), one of the Fed’s favored tools for measuring inflation. It considers CPI, but also incorporates survey data showing household spending.
This year, we’ve had one of the steepest rate hike cycles in over forty years, at 75 basis points for the last few hikes, and another 75-basis point rate hike coming soon. The question remains: are the Fed’s tools slowing the rate of inflation?
The U.S. still has a significant number of job openings, which most of us would assume is a good thing. Yes, we want people to have gainful employment, but that means that more people have money in their pockets to drive up demand. As a nation, we continue to set records for annual spending. It seems counterintuitive, but to see inflation come down, we’ll have to see unemployment get back to its historical norm of 4-5%.
Investing in uncertain times
Amid midterm elections, rising interest rates, high inflation, and threats of war, it can be challenging to know what to do you with your investment strategy. The truth is that there will always be reasons for us to approach the markets fearfully. What’s important is to make sure you have a plan and stick to it.
- Work with a trusted advisor to help you understand what’s going on
- Diversify and monitor your portfolio regularly
- Keep a close eye on your cash flow and budgeting
- Have an emergency fund
- Work out how much you need to be saving today to meet your goals
- Plan your taxes
- Make sure you have an estate plan in place
Adding alternative investments to your portfolio
In this uncertain market, many people are looking for different ways to differentiate their portfolios:
- Gold: A tradable commodity that’s worth what someone else is willing to pay you for it. Historically, it is not the best hedge against inflation. However, it may be a good addition to a balanced portfolio based on your risk tolerance. Talk to your trusted advisor about whether holding gold can help you meet your long-term goals.
- Crypto: Looking at crypto since its existence, its performance has been relatively correlated with the stock market. Like gold, cryptocurrencies are valued based on what someone is willing to pay for it, but there is still a lot of uncertainty with the future of crypto regulation. While it may be a good option for an educated investor, be careful about putting all your eggs in one basket and speak to your trusted advisor about your risk tolerance.
Things are looking up for the IRS
The IRS continues to dig out from under its horrendous backlog of paper returns and correspondence, but we are still seeing delays, service failures, and difficulties when communicating with them. The good news is that help is on the way in the form of the Inflation Reduction Act, which includes $79.6 billion appropriated to the IRS and related agencies (split among enforcement, operation support, taxpayer services and business systems modernization).
Largest-ever Social Security wage base limit increase is coming in 2023
The Social Security Administration has announced its largest ever wage base limit increase, from $147,000 in 2022 to $160,200 for 2023—an increase of 9% intended to help cover the 8.3% cost of living adjustment for Social Security recipients. The wage base represents the amount of your income that is subject to Social Security withholding. If you earn less than $147,000, you will not see a change in your withholdings in 2023. Those who earn more will notice the difference in their 2023 paychecks.
Student loan forgiveness
The promised student loan forgiveness appears to be taking shape, with applications formally opening on October 17th. However, actual loan forgiveness is not a guarantee just yet, as several pending lawsuits may hinder the process. There’s no action to take at this time as a judge has temporarily blocked forgiveness. That said, the Biden administration is urging borrowers to complete the forgiveness application even while lawsuits are pending.
2021 tax year deadline extension for Florida residents
The 2021 tax deadlines for taxpayers in the state of Florida have been extended until February 15, 2023, due to Hurricane Ian. However, we highly recommend that any taxpayers who have not yet filed do so as soon as possible. Although the deadline for filing the tax return has been extended, payment for taxes was due in April, so penalties and interest continue to accrue for any balances owed. The IRS has also announced an e-filing system shutdown from November 26th to sometime late in January of 2023, so it’s best to file before the freeze starts.
What’s going on with the Employee Retention Credit (ERC)?
If you’re a business owner or sole proprietor, you have probably been inundated with emails from consulting groups about the employee retention credit and how you can apply for thousands of dollars related to people you employed during the pandemic. Proceed with caution! We have seen many cases where these credits are not calculated correctly. The IRS is currently looking into over 11,000 claims worth over $2 trillion for fraud.
As always, Team FSA is here for you
If you have questions, please reach out to us and let us see how we can be of help when it comes to accomplishing your financial goals.