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Tax Time Checklist

Looking for a Stress-Free Tax Filing for 2021? Try Our Tax Checklist

Photo by Getty Images

Now’s the time to gather and organize the information you’ll need to get started on your 2021 taxes. And remember: It was a strange year, which also means it has a few unique tax quirks.

Here are four things to know as you get a jump-start on this year’s tax season. And to help further de-stress tax season, consider using the checklist below to aid in the organization and filing process.

Refer to this handy checklist to help you gather the information you need to prepare your 2021 income tax return.

1. Key Dates for 2021

There are two big days—the actual tax deadline and extension dates. This year, the tax filing deadline is on Monday, April 18. If you request and receive an extension, your deadline will be Monday, October 17.

The last day to contribute to an Individual Retirement Account (IRA) for 2021 is also April 18. The maximum contributions are $6,000 for those under 50 and $7,000 for those over 50. Contributions to a traditional IRA can be deducted against your 2021 taxes. Contributions to a Roth IRA aren’t deductible, but withdrawals, including any gains, will be tax-free.

If you’re trying to decide between a traditional and a Roth IRA, make sure you know the differences.

2. Forms Are Coming

Keep an eye on your mailbox and inbox. Your employer, investment provider(s), and the government will soon start sending tax forms detailing your activities for the year. For example, you may receive a W-2 form that reflects your wages for 2021 or 1099-DIV that shows your investment income. Use the checklist provided above to help you track the forms you need to complete your return. If you’re a TD Ameritrade client, you can generally access the 1099 for your account online, giving you quick access to the information you need.

3. A Word on Corrected 1099s

You may receive a corrected 1099 form for a number of reasons. They include:

  • Reallocation of income by the issuer (e.g., mutual fund company)
  • A reporting error
  • Receipt of updated information

Corrected forms may be sent as soon as early February and typically continue through September. Investments that often see capital reallocated include mutual funds, regulated investment companies (RICs), and Real Estate Investment Trusts (REITs) because they have so many different investments. Simple equity or options investments, which typically don’t reallocate their income, don’t usually send out corrected forms.

So what happens if you receive a corrected form after you file? You may need to amend your tax return. To help reduce the chance of this occurring, consider waiting to file your taxes.

4. Your Investment Activities

If you sold any investments last year and have capital gains or losses to report, you’ll need to file a Schedule D. To complete this schedule, you’ll need to know:

You could keep track of all this information yourself, but if you have a lot of different securities in your account, with a lot of buying and selling, deciphering cost basis can be tricky. TD Ameritrade clients have access to Gainskeeper®, a transaction monitoring and reporting service that will track it all for you.

The Bottom Line

It’s true that tax filing is never going to crack the top 10 list of “favorite things to do in the new year.” But if you take a methodical approach with a tax checklist, you may be able to whittle down the amount of time you spend completing and filing your return.

TD Ameritrade does not provide tax advice. Clients should consult with a tax advisor with regard to their specific tax circumstances.

Adam Horning No Comments

Helpful Economic Commentary From TD Ameritrade Regarding the Recent Elections

Democrats in Charge—What Does it Mean for Wall Street? 9 Themes to Watch

People have debated for decades whether Wall Street rides faster on a donkey or an elephant.

With that in mind, remember this: Stocks did just fine the last time Republicans had the political equivalent of a hockey power play from 2017 to 2019 and the last time Democrats had the same thing between 2009 and 2011. The S&P 500 Index (SPX) posted strong double-digit gains both of those particular occasions when one party held the White House and both houses of Congress.

The Market as a Whole and the Sectors Within

While history doesn’t foretell the future, it’s clear that stocks can do well (or badly) under either party’s control. Remember, Democrats held all the levers of federal power in the late 1970s when things got rough, while Republicans controlled Washington in late 2018 when there was a steep Q4 slide.

In other words, the argument about which party is better or worse for the market is somewhat in the eye of the beholder. But when the political winds shift, policy objectives and priorities tend to get tossed around. This could be a major market storyline of 2021.

Over the last few turbulent days, investors heard all kinds of scuttlebutt from TV talking heads about how a Democratic surge might help one aspect of the market while Republicans keeping the Senate and maintaining mixed power would support other aspects. They saw the market tank Monday when it looked like Democrats might gain and then roar back Tuesday on talk of more gridlock.

There’s nothing wrong with speculation, as long as investors keep in mind that over the long run, it’s really the market’s basic fundamentals­—not the ups and downs of political parties­—that drive stocks. That means earnings, the interest rate picture, and the long-term economic cycle ultimately are likely to say more about where the market goes the next two years. Especially considering gridlock remains likely with Congress leaning left but still closely divided.

Nine Market Themes that Could Be in Play

Having said that, let’s go quickly over how a Democratic-controlled Washington might affect Wall Street over the next two years before voters return to the polls in November 2022, remembering that all kinds of fundamentals we can’t predict now are likely to have a longer-term impact on the market. Here are a few places to watch, based on what analysts have said could happen.

Infrastructure. An infrastructure bill never got very far the last four years, but now appears more likely. Sectors to watch for possible impact include Materials and Industrials.

Banks. Chances of a new round of fiscal stimulus increase under Democratic control, meaning a chance for more spending and rising yields. Consider monitoring the major banks in the Financial sector and the regional banks in the Russell 2000 (RUT) small-cap index.

Stimulus. Congress recently passed and President Trump signed a $900 billion stimulus package. Democrats originally wanted $3 trillion. Another stimulus now seems likely, which would conceivably put more money into pockets and potentially help the Consumer Discretionary and Consumer Staples sectors.

Health Care. Attempts by the Republicans to end the Affordable Care Act (ACA) didn’t get too far even under President Trump. With Democrats in control, ACA might get more support, and this could be helpful for health insurance companies. However, pharmaceutical firms might face more political pressure to ease the pace of price increases.

Taxes. This may be the issue that’s under the most scrutiny, but it’s unclear how much traction Democrats will have to change corporate taxes (lowered under Trump) or increase capital gains taxes, considering the Senate and House are still so balanced.

Alternative Energy. Solar power firms got an immediate boost Wednesday when it began to look like Democrats might win. These firms received a lot of support under the Obama administration, but Obama and the Democrats had a bigger power base during the first two years of his first term than President-elect Biden and his party do now. It’s unclear how much change we’ll see.

China Trade. More of the same seems likely, with Biden indicating he plans to keep Trump’s tariffs. The tariffs haven’t seemed to hurt Tech companies reliant on China, including semiconductor firms, which rallied despite this trade friction.

Defense. It’s a truism that Republicans are good for defense stocks and Democrats aren’t. However, analysts don’t see a lot of appetite in Congress to reduce defense spending. The recent bipartisan override of President Trump’s veto of the defense bill speaks to that.

Technology. Some say big-tech firms are going to face more pressure with Democratic senators like Sen. Elizabeth Warren and Sen. Bernie Sanders potentially wielding committee gavels. But think of how many times Facebook (FB) and Alphabet (GOOGL) CEOs got called in front of Congress with Republicans in charge of one chamber or both over the last four years. It’s hard to believe pressure could get worse, though it’s probably not going away.

Word from Washington

As investors saw the last four years, the president can definitely influence day-to-day action. One example is how President Trump’s tweets about trade with China often immediately sparked a rally or unleashed a selloff.

Though Trump was unlike other presidents in the way he communicated, even his predecessors could cause market swings. Look at how President Obama’s support of clean energy subsidies arguably helped companies like Tesla (TSLA) gain a foothold.

Then there’s Congress. Anyone who’s read the papers or watched TV this week probably heard that Democratic control could lead to more stimulus, and that’s arguably why the 10-year yield popped above 1% on Wednesday for the first time in 10 months. Fears that Democratic control of Congress could lead to higher taxes and more regulation in the longer run probably were an element of last Monday’s selloff to start the year.

Cases in Point: Tesla and Boeing

Politics is generally a long game, however. Stocks and bonds trade every day, whether Congress is in session or not, and whether the president tweets or not. Every day, investors and traders check the latest data, yields, earnings, mergers and acquisitions, corporate developments, initial public offerings, and volatility as they cumulatively make decisions that drive all these metrics. Politics does play into it, but not the way you might think if you just listen to pundits.

Keep TSLA in mind, since we mentioned it already. The stock went ballistic during the Trump administration despite Trump’s opposition to alternative energy subsidies (TSLA actually lost some of its government support over the course of the Trump administration).

Yet anyone who invested, say, $10,000 in TSLA back on Jan. 20, 2017, the day Trump took office, would now be sitting on more than $150,000 worth of TSLA shares. It turned out TSLA’s ability to meet supply expectations and begin to turn a profit arguably meant more to investors than anything Congress or the president did (it also benefited from investors betting on the promise of its future, of course).

Earnings Calendar

That’s an extreme example, obviously. Not every stock is going to skyrocket or plummet during any single congressional or presidential term. Still, four years ago, some thought TSLA and other electric vehicle stocks might buckle under Trump while defense stocks would roar. That wasn’t the case, as anyone who bought Boeing (BA) near its highs could tell you.

What’s Next? Earnings, Fed and Fundamentals

The inauguration of President-elect Biden on Jan. 20 coincides with earnings season gaining steam. It might not mean a sense of calm from Washington, and as we know geopolitics can always rear its head. But it puts some of the election noise behind us and allows investors to focus.

Then the Fed meets Jan. 26 and we’ll hear the latest on monetary policy from Chairman Jerome Powell and company. Will they say anything about inflation prospects or the chance of pulling back some monetary stimulus?

Those are the kinds of questions most investors will probably ponder in a few weeks, and it takes us back to our original point: Washington personalities change. Earnings and interest rates will always be with us.

Adam Horning No Comments

Stocks and Government Gridlock

Interesting commentary from TD Ameritrade regarding the outcome of the elections and possible impacts on the market:

In the 1994 midterm election, Republicans captured House and Senate victories under the banner of a “Contract with America,” which they said would foster dramatic change. Instead, their takeover of Congress led to gridlock as then-Speaker Newt Gingrich clashed with Democratic President Bill Clinton.

How did the stock market respond as gears ground to a halt in Washington amid government shutdowns and partisan bickering? Only with one of the steepest and longest rallies in history. The S&P 500 Index (SPX) nearly tripled in the six years following January 1, 1995.

Fast Forward to 2020

Republicans seem likely to control the Senate while Democrats hold the House and the presidency starting early next year, meaning the so-called “gridlock trade” could set in again. Under historic thinking that gridlock is good, this division of powers would presumably help Wall Street. In fact, the recent rally might reflect “a swift tsunami of gridlock-anticipated optimism,” wrote Sam Stovall, chief investment strategist at research firm CFRA.

One big reason for gridlock-generated optimism is around taxes.

“Whether gridlock is good or not can depend on where you’re gridlocked,” said Pat O’Hare, chief market analyst at research firm “Right now, the existing tax policy is very favorable in terms of favoring lower corporate and capital gains taxes. Looking at a scenario where we’re likely to be gridlocked for the first two years of the next administration, it’s favorable for the stock market in terms of tax policy.”

Investors shouldn’t take anything for granted, because although gridlock might often be good, there are times when stocks can benefit from Congress and the president getting down to business. Let’s examine a few reasons gridlock might help stocks next year, but also explore why it might not be a slam dunk.

Gridlock Is Good—According to Some

Advocates of the “gridlock trade” sometimes cite the past. After all, they note, the record stock market highs of the late 1990s coincided with a “gridlock detente” that arguably helped pave the way for market-friendly developments like the construction of the “information superhighway,” welfare reform, and a brief budget surplus. Never mind, of course, that the internet was well on its way to becoming a behemoth even before that election and probably would have either way. Amazon (AMZN) was founded July 5, 1994.

Gridlock did return to some degree as the 1998 midterms and the 2000 presidential election approached, especially with Clinton’s presidency getting hobbled by impeachment proceedings.

Those who argue gridlock could be good going into 2021 say we’re in a similar place, where Washington getting out of the way could potentially lead to market-friendly developments. Here are a few examples:

  • Health care. Under a gridlock scenario, an expansion of the Affordable Care Act (ACA, or “Obamacare”)—one of the pledges made on the campaign trail—seems less feasible. But so does an outright repeal—something also pledged on the campaign trail.   
  • Taxes. A lack of consensus on tax reform could help lift markets by providing certainty, particularly as it relates to some recent ideas on corporate governance. 
  • Antitrust allegations. FAANGs and other “Big Tech” firms have spent a good bit of time on Capitol Hill in recent years, defending their business models and business practices, with some legislators calling for a breakup of these firms.

Basically, market participants appear confident that the outcome in Washington will result in a continuation of the status quo for Wall Street, which has done pretty well considering the pandemic.

Gridlock by Sector: Who Benefits and Why?

From a sector view, gridlock has its benefits. Here’s why some sectors might get a boost in this environment next year and beyond:

  • Energy. It’s unlikely politicians would be able to rock the boat too much when it comes to some of the more dramatic environmental proposals typically put forward by Democrats.
  • Technology. Those on either side of the aisle pressing for major action against supposed antitrust violations by the mega-cap FAANG companies could find themselves stymied. Also, the trade wars that raged under the Trump administration might end, loosening relations with China, where these companies do so much business and manufacture so much product.
  • Financials. It now seems less likely President-elect Biden will appoint a Treasury secretary determined to make huge waves in the banking sector. Changes could be more incremental. Borrowing rates seem likely to stay low partly due to COVID-19, but also because it’s hard to see major changes at the Fed when Congress and the president are at odds.
  • Health Care. Besides the lack of changes to ACA mentioned above, a divided Congress means it’s less likely something gets done on drug and device pricing issues that rattled the industry at times under the last two administrations.
  • Transports. Environmental-related legislation that could slow down railroad and trucking industries if Democrats had more power probably won’t pass in a mixed Congress.
  • Small Caps. These companies might have faced tax challenges in the event of a “blue wave” by Democrats. It’s hard to imagine any major tax legislation getting through Congress between now and 2022.
  • Industrials and Materials. The trade war with China and Europe under the Trump administration made life hard for many of these firms, including construction and agricultural powerhouses. Biden is seen by political analysts as less likely to keep up this battle. Also, with Congress divided, anti-free-trade advocates on the far left and far right of the two parties might have less power to blunt trade agreements.
  • Aerospace. A “blue wave” might have put pressure on defense spending. The election results speak more toward the status quo being maintained.

Since the election, investors have piled into sectors and stocks that many see benefiting from the “gridlock trade.” These include Industrials, Materials, Financials, Energy, and other cyclical parts of the market that tend to do best when the economy grows quickly. In a sense, they’re betting on gridlock (and perhaps improved trade relations and some sort of stimulus) to boost economic growth.

After leading most of the year, Big Tech declined after the election, perhaps because investors felt more bullish about domestic-focused stocks that could do well if the economy bounces due to gridlock. Meanwhile, the 10-year Treasury yield picked up about 20 basis points from mid-October to Election Day, again partly due to economic hopes. Small-cap investors appeared to be banking on “reflation” (which could also nudge interest rates higher).

How Gridlock Might Hurt Certain Sectors

Maybe gridlock ultimately underpins the market. However (and there’s always a “however”), it’s not necessarily just biscuits and gravy to have divided rule, and in some ways, this also showed up on Wall Street after the election.

Look how quickly shares of machinery maker Caterpillar (CAT) descended when the election appeared decided. CAT’s 7% plunge likely reflected declining hopes of a massive stimulus package and dramatic gains in infrastructure spending that might have happened if gridlock weren’t a factor.

Let’s look at some sector-related negatives that could result from gridlock:

  • Industrials and Materials. As CAT demonstrated, less chance of a huge stimulus could hurt hopes for a massive economic surge that would lift business for these sectors. “I think in the end there will be some resolution that something has to be done, but it’s likely to be on the lower side of things, relatively speaking,” O’Hare said, referring to the stimulus. There’s also less chance of a big infrastructure bill passing.
  • Energy. Gridlock in Congress often leads to the president using executive orders. We saw that under Trump and Obama and could again under Biden. A Biden administration could put new restrictions on pipelines, emissions, and fracking, O’Hare noted. (See figure 1.)
  • Alternative Energy. The Obama administration gave grants to solar and wind energy companies using stimulus money passed by Congress in 2009 when it was under full Democratic control. It seems unlikely a Biden administration would be able to get a divided Congress to help these firms.
  • Financials. The banks would probably have benefited from higher rates associated with a larger stimulus package. Also, although massive banking legislation like what passed after the 2008 financial crisis is unlikely, a Democratic president might impose new regulations that could potentially hurt banking industry profits. The Biden Treasury Department could be slower to loosen restrictions on certain activities like buybacks.
  • Health Care. Again, major changes to the ACA seem unlikely in gridlock. However, the U.S. Food and Drug Administration (FDA) did introduce many new rules and regulations under President Obama and Vice President Biden that proved challenging for the industry. Biden wouldn’t need Congress to go ahead and tighten the regulatory screws again. An FDA controlled by a Democratic administration could potentially be pickier about approving new products.
  • Transports. The White House has a lot of unilateral control over things like rules affecting break periods for employees, other safety measures, and gas mileage. Some of these can be burdensome.
  • Technology. We’ve already seen a lot of pressure on tech firms under the Trump administration. A Democratic administration might be able to continue this pressure even if Congress steps back.

How Has Gridlock Historically Affected Wall Street?

Let’s look at three political scenarios to see how stocks performed:

  • Unified government. A completely unified government (where the White House and all of Congress are under single-party control) coincides with the best stock market returns, according to CFRA’s research. The last time the government was unified with one party’s complete control of Congress and the White House was in 2017–18 under President Trump and Republicans. Before that it was in 2009–10 under President Obama and Democrats. Both times were positive for stocks, though historic performance doesn’t necessarily tell us anything about the future.
  • Split Congress. The second-best outcome for stocks, CFRA found, is with what we’re likely to have in 2021 and 2022, with the House and Senate under different parties’ control. That’s how things were before the election, a period that was mainly good for stocks other than the brief and steep COVID-19 bear market early this year.
  • President vs. Congress. The worst performance historically came when the president was from one party and all of Congress was controlled by the other, CFRA said. Surprisingly, perhaps, this political lineup was the case from 1995 through 2000, which we all remember as a historic bull market.

Any long-term rally under the current gridlock could be limited by a couple things. First, stocks are already scraping against all-time highs and valuations remain lofty. Second, the COVID-19 situation adds confusion, because any real progress with a vaccine is probably going to be “a tide that lifts all boats,” O’Hare said, regardless of what Congress or the president do.

Maybe the 2021–22 divide in Washington can ease some of the geopolitical volatility, help with the virus fight, and keep Wall Street’s current exuberance charging along. Those might be things investors of both parties could cheer.

Adam Horning No Comments

Q4 and Election Commentary

As we head into the fourth quarter, many people have questions about the upcoming elections and related market volatility. Here are links to two sites I have found helpful in digesting and understanding this information. Keep in mind that a major factor in success is to work your investment plan without making emotional decisions that are based on short term political or economic turmoil. Please reach out if you would like to discuss your planning or portfolio.

Adam Horning No Comments

Work From Home Like You Own the Place!

Your health and safety are critical, and never more so that during this time of COVID 19 outbreak.

There will likely be an ongoing impact to our economy and in the ways that we engage with one another from the COVID 19 pandemic.  Many people will be making an adjustment to working from home. Working from home can come with its own unique advantages and challenges. Here are some ideas on how you can work from home effectively.

  1. To increase your safety and security, consider using a VPN service to protect sensitive information including passwords, account numbers and personal information.
  2. Keep a dedicated work space. You may or may not have a dedicated office space in your home. If you don’t, consider setting up a desk and/or monitor that you can use specifically when you are working. Whey you are at your desk, its time to work, and when you are lounging on the couch you can give yourself permission to surf the web or purchase things for your next delivery.
  3. Keep your work hours consistent. Most people work better, have less stress and enjoy better health when they stick to a schedule. Have clarity on when you work and when you can relax. However, realize that working from home can give you the flexibility to adjust your hours, work later or start earlier. Give yourself permission to adjust your hours as your lifestyle needs change.
  4. Share your “Work Rules” with people in your home. You may need to communicate with your spouse or kids to help them understand your new schedule. They will need to recognize that your work time means that you wont be able to walk the dog or participate in domestic labor. Help your family understand what you and they can and cannot do during your work day so that everyone is on the same page.
  5. Don’t forget to lock your computer or device when you leave. Doing this can help prevent a family member from erasing a document or closing a program that you are working on. Its also a good idea to make sure you have an active backup program running for your computer in case of an unexpected hard drive failure.
  6. Take breaks and refresh. If you work for a company, know the break times that your company gives you and take them fully so you get plenty of time to recharge. There are apps that can lock your computer temporarily if you need help managing your breaks. If its a nice day, go outside and get some sunlight to increase your vitamin D, help you re-energize, and give your eyes a rest from staring at a computer screen.
  7. Keep in touch with friends and colleagues. Working from home can lead to a sense of isolation without the “water cooler” conversations you may be accustomed to. Take time to call friends, family and co workers to get the social interactions you may need. Consider using your web cam for video chats so that you can see other people and be seen by them.
  8. Make a list and check items off. Keeping track of your day using a list will help reduce the stress and clutter of trying to remember too many tasks. Cross items off of your list as you get them accomplished, and don’t forget to celebrate your victories as you make progress.

Adam Horning No Comments

Planning Opportunities During a Market Downturn

Market downturns happen periodically and often times those drops can cause a fair amount of anxiety. There are, however, some planning opportunities that you might be able to take advantage of during the next downturn. Below is a list of some ideas that could be helpful.

1. Take a look at your overall asset allocation. Its possible that your bond holdings have increased relative to your stock holdings.  If you have the risk tolerance, this could be a good time to re-balance and increase your stock allocation and take advantage of the market recovery when it happens.

2. Cash is king.  Due to the uncertainty of how this will effect the economy it would be wise to increase your cash reserves.  If your cash position is low, consider reducing your debt payments to the minimum until your reserves are built back up.

3. Interest rates are low. Consider refinancing your mortgage or other debt if you can save money.

4. This could be a good buying opportunity due to stock prices being low and you have extra cash on hand.

5. If you need to take money from your investment account, look at taking from your fixed income/bond holdings. Those positions are less likely to have been affected in recent weeks when compared to stocks that are selling at a reduced value.

6. If you are close to retirement, take a close look at your budget and your liquidity to find out how many months of reserves you have on hand. 12-24 months of cash reserves or more is ideal.

7. If you have a non-qualified investment account, this could be a good time to re-position your portfolio and reduce the amount of capital gains tax you are subject to and/or take advantage of tax loss harvesting.  

8. Keep in mind that, although it feels uncomfortable, economic and market uncertainty has happened in the past and will happen again in the future. Markets have recovered from past outbreaks, and I am optimistic that we will weather this storm as well. 

As always, feel free to email or call me if you would like to chat, update on your planning or discuss current events.