Friday Financial Five – February 27, 2015

Friday, February 27, 2015

Dan Forbes, GoLocalWorcester MINDSETTER™

Home ownership at a low

Economic conditions have propelled a transition from owning to renting as home ownership is at the lowest level in twenty years, according to the Commerce Department. Almost 70 percent of people owned their homes in 2004, but that rate has steadily crept down to the current seasonally adjusted rate of 63.9 percent. In the meantime, rental vacancies continue to dwindle, currently standing at the lowest level since 1993. Like most financial trends, this should eventually reverse as conditions are ripe for home ownership, but younger buyers need improved earnings to afford it.

Inflation goes negative

For the first time since 2009, yearly inflation has gone negative, including a 0.7 percent drop in the CPI in January alone. It means more spending power, but there are conflicting viewpoints regarding its importance. The conventional wisdom is that the Fed is still poised for a rate increase this summer. This would signal that they expect the drop in inflation as temporary. Conversely, Jeffrey Gundlach, co-founder of the Doubleline funds, disagrees that rates need to be raised and cites disinflationary pressure from the drop in energy prices as the reason.

President Obama pushes expansion of the fiduciary standard

The fiduciary standard holds that a fiduciary will make prudent financial decisions on another’s behalf, while putting that person’s best interests first. Seems like that would make perfect sense for a financial adviser, but the standard doesn’t apply in several areas of the profession. The president recently weighed in, calling on the Department of Labor to expand fiduciary rules for those providing retirement plan advice. There has been plenty of money spent to prevent expansion of the rules, but it appears the debate has reached a turning point where more advisers will be required to always put the client first.

1099 delays

Each year sees 1099 information getting dispersed at later dates, which hasn’t been convenient for taxpayers or their accountants. The issue at hand for brokerage reporting has been yearly adjustments to how tax basis and qualified dividends must be reported. The main goal of the investment firms is accuracy as opposed to getting the information out as quickly as possible. This might mean delaying tax return filings until the middle of March, when issuers should have provided finalized information.

Possible tax changes for Donor-Advised Funds

For many philanthropists looking to reduce tax liability, Donor-Advised Funds (DAFs) have become the easier administrative alternative for charitable giving. Private foundations have a requirement to discharge five percent ever year to charitable organizations. DAFs have no such requirement, and estimates are that many are not dispersing at all on a yearly basis. This tax avoidance has put DAFs under the congressional microscope for the last year, as occurs with many of the popular tools that may deprive the IRS of tax revenue.

Dan Forbes is a regular contributor on financial issues. He is a CFP Board Ambassador. He leads the firm Forbes Financial Planning, Inc in East Greenwich, RI and can be reached at [email protected].

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