Author: Service2Client

Real Estate Opportunities in 2021

4 min read

Real Estate Opportunities in 2021Even before the pandemic began, the U.S. residential real estate market was short on houses, with more people looking to buy than those who were selling. And yet, unlike the 2008 recession, any economic woes related to the pandemic did not undercut housing prices. If anything, real estate had a banner year as home prices continued to rise. In April of this year, the median sale price of existing homes rose by 19.1 percent to a record high of $341,600.

There are several reasons we haven’t seen a repeat of the housing crisis that we experienced during the Great Recession. Today’s market is different from 2007, when the economic decline was launched by a housing bubble that sent many homeowner values underwater – followed by job losses and the inability to pay their mortgage. This time around, the government stepped in to ensure Americans didn’t lose their homes when they lost their jobs. The stimulus-relief packages included a moratorium on foreclosures and evictions. This, too, has contributed to the low inventory of existing homes, which normally would be put up for sale when owners become cash strapped.

The Homebuyers’ Market

However, in addition to the cash-strapped – we now have the cash-rich. Among the gainfully employed, savings rates increased during 2020. This means there are now several types of eager homebuyers: millennials trying to buy their first home; mid-career professionals looking to trade up; and retirees (or near-retirees) looking to make a cash offer for a smaller or second home.

The coronavirus contributed to this fiercely competitive market of buyers. Some are looking to take advantage of the newly mainstreamed remote work model and move to rural areas for a more affordable lifestyle. People who are nearing retirement are rethinking moves to large metropolitan areas or continuum of care retirement communities, where future outbreaks can spread more quickly.

The point is, there are millions of people looking to buy a home right now and not enough housing stock There are 72 million millennials alone, the oldest of who are approaching their 40s, with Generation Z right at their heels. Over the next 10 years, the demand for first-time homebuyers alone will persist regardless of how conditions change in the housing market.

The Home-Sellers’ Market

While the buyers’ market is booming with demand, the sellers’ market is starting to grow as well, just not as fast. Rising real estate values due to low inventory have presented an attractive opportunity to cash-in on home equity. In fact, according to a recent NerdWallet survey, about

17 percent of today’s homeowners say they plan to put their home on the market within the next year and a half.

The seller’s market is boosted by historically low mortgage rates, which when compared to renting make taking out a home loan even more appealing. Sellers also benefit from the near-desperation of buyers, many of whom are willing make offers before seeing the property, for as-is condition and above offer price. Not only can sellers take their pick of multiple offers, but they can often skimp on home repairs and upgrades before putting their house on the market.

In recent months, existing homes have stayed on the market for an average of only 20 days. Sellers also have the luxury of making their buyers wait under contract until the owner can buy another home. But here’s the tricky part: due to low inventory, it can be very difficult to find a replacement. Sellers who become buyers enter the fray of contract wars just like everyone else.

New Home Building

The single-family homebuilding industry recovered from last year’s economic decline quickly. In March of this year, new home starts swelled 15.3 percent to 1.238 million units. But even with the surge, real estate agents say that new builds need to range between 1.5 million and 1.6 million units per month to meet demand.

Unfortunately, one factor that is holding this market back is access to building materials. Low supply of lumber due to increased demand for new homes and renovations has catapulted lumber prices to record highs. According to the National Association of Home Builders, the cost of lumber has driven up the price of the average new single-family home by more than $35,000 within the past year.

While more inventory will come onto market as people emerge from their lockdowns and the economy fully reopens, one thing is certain: demand in the home-buying market is expected to remain high among Millennials and Gen Z for at least another decade. The momentum for high prices is expected to continue through 2021, so it may be a better time to sell than buy.

Addressing Hate Crimes, Banks Serving the Cannabis Industry and Unilateral Power to Restrict Immigration

3 min read

Addressing Hate Crimes, Banks Serving the Cannibis Industry and Unilateral Power to Restrict ImmigrationComprehensive Debt Collection Improvement Act (HR 2547) – This bill would expand financial protections and restrictions on debt collection activities for consumers, in particular for private student loans and medical debt. The legislation would require lenders to discharge private student loan debt if the borrower dies or becomes permanently disabled. It would prohibit consumer reporting agencies from adding any information related to certain situations, such as debt arising from a medically necessary procedure, and restrict certain debt collection practices.

The bill was introduced by Rep. Maxine Waters (D-CA) on April 15. It was passed by the House on May 13 and is currently under consideration in the Senate.

COVID-19 Hate Crimes Act (S 937) – This bill was introduced by Sen. Mazie Hirono (D-HI) on May 23. The legislation authorizes the designation of a Department of Justice (DOJ) employee to facilitate an expedited review of hate crime reports. The DOJ also must issue guidance for state, local and tribal law enforcement agencies to establish online hate crime reporting processes and issue guidance to raise awareness of hate crimes related to COVID-19. The bill also authorizes funding for states to create state-run hate crime reporting hotlines. This bill was passed by Congress on May 18 and is awaiting signature by the president.

Washington, D.C., Admission Act (HR 51) – This bill provides for the admission of the State of Washington, D.C., into the Union. The legislation was introduced by Rep. Eleanor Norton (D-DC) on Jan. 4 and passed in the House on April 22. It is currently under consideration in the Senate.

SAFE Banking Act of 2021 (HR 1996) – Introduced by Rep. Ed Perlmutter (D-CO) on March 18, this bill would eliminate penalties imposed on a depository institution for providing banking services to a legitimate cannabis-related business. The legislation passed in the House on April 19 and is in the Senate for consideration

DUMP Opioids Act (S 957) – This bill was introduced by Sen. John Kennedy (R-LA) on March 24 and passed in the Senate on April 22. It is currently under consideration in the House. The bill would require the Department of Veterans Affairs (VA) to designate places where any individual can dispose of controlled substance medications at VA medical facilities or law enforcement locations. The bill also directss the VA to advertise the designated disposal times and locations via a public information campaign.

NO BAN Act (HR 1333) – Introduced by Rep. Judy Chu (D-CA) on Feb. 25, this bill passed in the House on April 21 and goes to the Senate next for consideration. The purpose of the legislation is to impose limitations on the president’s authority to suspend or restrict aliens from entering the United States. Furthermore, the bill would prohibit religious discrimination to be used as a basis for immigration-related decisions.

How Senate’s Rules Shape Tax Laws

2 min read

How Senate's Rules Shape Tax LawsSenate rules and procedures have a major impact on how tax laws are drafted and amended, especially when it comes to those related to the budget reconciliation process.

Budget reconciliation is a separate Senate procedure established by the Congressional Budget Act (CBA) of 1974. The main differentiator is that the reconciliation process changes the vote threshold to a simple majority of 50 instead of 60, essentially negating the filibuster.

Not every bill can be taken up under this process, though – including tax provisions. There are guidelines that govern what tax provisions can be included in laws passed using the budget reconciliation process in the form of both rules and precedent.

Impact of the Act

The CBA may help expedite passing new tax legislation, but there are drawbacks and limitations. For example, administrative provisions are often a very important aspect of the policy objective behind tax laws, but using the reconciliation process strips out these measures since it prohibits “extraneous matters.” All an opposing senator needs to do is make a point of order; if it is sustained by the committee chair, then the material deemed extraneous is removed from the bill.

In addition to the removal of extraneous material, there is a prohibition on out-year deficit effects. This means that tax provisions that pass as part of a reconciliation package are often temporary and given expiration dates.

The Role of Precedent

The precedents of the Senate are often just as important as the rules themselves. Senate rules are often vague, but the practices of the Senate regarding these rules are well developed, effectively becoming the rules themselves.

The most important procedural rules can be found in a publication called Riddick’s Senate Procedure. These Senate rules and precedents are not automatic, however. The system relies on senators to raise a point of order to challenge a possible violation of the rules.

Conclusion

The budget reconciliation process makes passage of the bill more efficient for the majority party, but it comes with certain drawbacks by design. The intent is to make sure that the powers are not too broad and cannot be abused by the majority party.

Will The Federal Reserve Create a Taper Tantrum in 2021?

4 min read

Federal Reserve 2021With the economy reopening and more Americans receiving COVID-19 vaccinations, the economy is expected to be operating on all cylinders. However, some economists and market analysts are afraid The Federal Reserve may create a “taper tantrum” if and when it starts to reduce its purchase of U.S. Treasury debt. The Fed’s current track of purchasing $120 billion of U.S. Treasury debt every month has kept the 10-year yield moderated. However, if The Fed signals fewer monthly purchases from current levels, recent history has already seen higher 10-year yields and increased market volatility.

As the Federal Reserve Bank of St. Louis outlines, the Federal Open Market Committee (FOMC) holds meetings eight times a year to evaluate the country’s economic conditions and determine the forward monetary policy. This includes what they will do (or not do) to the federal funds rate, which is the rate that financial institutions charge each other for overnight interbank lending.

Whatever the FOMC decides to do with the federal funds rate, it’s important to know that any changes to the federal funds rate impacts short-term interest rates, such as the three-month Treasury bill. Depending on how it’s modified (increased or decreased), the rate change impacts consumer and business loans and longer-term debt.

When the FOMC raises or lowers the federal funds rate, it sends a policy directive specifying the new target range to the trading desk of the New York Fed. Depending on the target rate of the new fed funds rate, more government securities will be bought to lower the rate, or government securities will be sold to raise the new target. This is accomplished through its open market operations (OMO).

OMO is made up of two parts. The Fed buying or selling U.S. Treasury bonds, for example, consists of the operations part of OMO. Since the Fed relies on the trading desk of the New York Fed to accomplish its goals, it uses the open market to purchase these securities through the traditional bid and offer trading method. It’s one tool in its toolbox to accomplish the dual mandate policy of maximizing employment and maintaining price stability.

Depending on which way the Fed goes – either tightening or loosening its policy – it tries to steer the level of the banking system’s reserves, creating a shift in interest rates. For example, when the Fed buys Treasury bonds, it adds capital to the purchasing bank’s reserve balance to increase lending through lower interest rates. When the Fed sells its U.S. Treasury bonds, it moves the federal funds rate upward. This lowers banks’ reserves, causing financial institutions to increase lending costs.

When it comes to the term “quantitative easing,” the Federal Reserve Bank of St. Louis defines it as “large-scale operations of the purchase of large amounts of longer-term U.S. Treasury securities and mortgage-backed securities.” One noteworthy consideration for OMO is that when the federal funds rate is near zero, which occurred during the 2008-2009 financial crisis, quantitative easing is one more tool in the Fed’s toolbox to help the economy dig itself out of a downturn and provide liquidity.

Tapering in Action

According to the Federal Reserve Bank of St. Louis, when tapering was even mentioned, it had negative effects on the markets. After continued quantitative easing was instituted to rescue the economy from the 2008-2009 financial crisis through part of 2013, the Fed made comments regarding these efforts in its FOMC meeting and during its press conference on June 19, 2013. It indicated that it would begin “tapering” (gradually lessening) its monthly bond purchases during the end of 2013, assuming economic conditions were improving. However, the market reacted badly to these comments.

U.S. 10-year bond yields spiked to 2.35 percent within hours of the FOMC meeting and press conference on June 19, 2013. On June 21, 2013, the 10-year bond yields climbed farther to 2.55 percent. Similarly, the same meeting prompted a spike in “normalized foreign exchange per USD rates,” according to the St. Louis Fed. In the two days from June 19-21, 2013, the U.S. dollar gained between 2 percent and 3 percent in value against the Euro, the British pound, the Canadian dollar, and the Japanese yen.

Conclusion

Looking at markets on June 19, 2013, when the Fed announced the tapering, the Dow Jones fell more than 200 points, the S&P dropped 1.4 percent and the Nasdaq finished 1.1 percent lower.

Retail and institutional investors can’t predict the future, but they can look at the past and monitor upcoming Federal Reserve events to see what it might end up doing to the stock market.

How to Choose the Right Accounting Software for your Business

4 min read

Choose the Right Accounting SoftwareBusiness accounting activities can be tedious when performed manually and are prone to errors. For these reasons, many businesses have shifted to accounting software that offers numerous benefits, including data accuracy, time savings, easier auditing and on-demand reports.

With so many available options, it’s overwhelming to choose the right fit for a particular business. As more software vendors join the market with different enticing offers, it’s wise to be equipped with the right information.

Making a Decision Between Different Accounting Software

Each business is different and varies with industry. For efficient accounting operations, you cannot afford to choose a one-size-fits-all solution. Here are tips to help ease the selection process.

  • Understand your business requirements
    Whether you are a start-up or already have an existing business, begin by establishing your accounting requirements. This will help in making a list of features that you need in accounting software. Avoid copying other businesses without understanding what your business needs are. Consider your business size, number of users and projected growth (in order to support business scaling).
  • Conduct Research
    Learn more about accounting software options. Some might offer only general accounting features while others provide industry-specific features. By reading online reviews, you can see what users are saying about different accounting software.
  • Get Recommendations From Your Accountant
    Accountants who have already worked with the software have better knowledge about the product and can advise what will work for your business. Get their opinions.
  • Your Budget
    A business budget is a major determining factor in purchasing an accounting program. Note that software vendors have different pricing models. Depending on how much you are willing to spend, you can choose between monthly subscription fees or a pay-per-use model. Ensure that you have checked out any extra or hidden costs as you could end up spending more than initially planned. And pricing aside, avoid choosing the cheapest option just to save on expenses. The wrong software could cost your business more in the long run.
  • Integration with Other Software
    Businesses today use various software applications. It’s crucial that you select one that integrates with your existing business applications. This will help avoid duplication of work, such as manual data entry from one program to another.
  • Online Versus Offline Accounting Software
    You might prefer to have accounting software that you install on your computer, or maybe you’d rather use the online hosted version. Online accounting software is gaining popularity among SMBs due to its affordability. To use this option, you don’t need to install anything – just access it with your credentials. This allows users to access the accounting software from anywhere, even using different devices.
  • Availability of Customer Support
    Check whether the software vendor offers support after you have purchased or subscribed to use the software. What times do they offer support? And for how long will this support be available?
  • Data Security
    Data security is especially important for those who choose to work with online accounting software. Consider security measures offered by the software vendor to safeguard against data breaches and other cybersecurity risks. A good software vendor should have measures in place like automatic data backup, data encryption, and allow granular user roles to be assigned.

Parting Words

Accounting software is crucial for businesses of all sizes as it plays an important role in the accounting process; thus, you can’t afford to choose randomly. Consider all your business needs before making a choice for the best fit for your business. Create a list of preferences, then check for vendors that offer free trials to get a taste of their services before making a final decision.

Remember, choosing the right accounting software will save you from the costly mistake of replacing a wrong one. 

Vaccine Hesitancy: Why We Have It and How It Affects Employers and Employees

6 min read

Vaccine Hesitancy, Covid 19 Vaccine HesitancyAccording to a Tufts University survey, six in ten of those surveyed are now vaccinated against COVID-19. However, almost 40 percent of the unvaccinated respondents said they won’t get the vaccine. Only 28.5 percent of the remaining unvaccinated respondents said they will get vaccinated against COVID-19 in the future, with the remaining unvaccinated respondents unable to decide whether they will take the vaccination. With vaccine hesitancy a concern, how can employers encourage more people to get the vaccine?

It is important to understand why some view vaccines skeptically in order to overcome vaccine hesitancy among employees.

The Johns Hopkins University Coronavirus Resource Center attributes vaccine hesitancy to these factors:

The first factor is safety. Since the vaccine was developed faster than most vaccines have been traditionally, many individuals are concerned about reactions, side effects and quality assurance. More can be read from the CDC VAERS Report.

The second reason has to do with the vaccine’s effectiveness, and how well it works against the coronavirus.

The other reasons for hesitancy are due to things like religious beliefs, vaccine phobias and current health issues of the unvaccinated.

This phenomenon is not isolated to the United States. Based on a global survey of 32 nations that Johns Hopkins cites, 98 percent of Vietnamese would get the vaccine, while only 38 percent of those in Serbia would get the vaccine once it’s available.

Navigating Vaccinations in the Workplace

Requesting a Vaccine Exemption Due to Religious Beliefs

Businesses that fall within the purview of Title VII (Civil Rights Act of 1964), must accommodate an employee’s sincerely held religious belief, practice or observance unless it causes an undue hardship on the business.

The CDC says that once a company is aware of a worker’s “sincerely held religious belief, practice or observance [that stops him from accepting the flu shot], the employer has to provide a reasonable accommodation [except if it causes] an undue hardship.” While this refers to influenza, the reasoning behind it applies equally to an employee expressing their religious objection to a COVID-19 vaccination.

Accommodations for Disabled Employees

According to the Equal Employment Opportunity Commission (EEOC), the Americans with Disabilities Act (ADA) covers employers in the private sector and state and local governments that employ 15 or more workers. The ADA offers guidance for employers when an employee requests to be exempt from a COVID-19 vaccination due to a disability. This Act says that employers are able to implement a workplace standard specifying that a person cannot “pose a direct threat to the health or safety of individuals in the workplace.”

If, however, this workplace standard either sorts out or will likely sort out a disabled person from meeting the workplace safety standard by being unvaccinated, the employer must demonstrate that such person without a vaccine would pose a direct threat of risk to another person in the workplace that cannot be reduced by a reasonable accommodation.

The Equal Employment Opportunity Commission (EEOC) believes a direct or proximate threat exists from the unvaccinated person through four tests: length of the danger, how severe and the type of harm that could occur, the chances of the potential harm that will happen, and proximity of the realistic harm.

When it comes to determining if a reasonable accommodation exists, the EEOC lists three criteria: the worker’s professional responsibilities, if there is a different job the worker could transition to in order to make the vaccination less necessary, and how serious it is to the company’s function that the worker be vaccinated.

How to Encourage More Vaccinations

The U.S. Chamber of Commerce cautions that employers who are contemplating mandating their workers take the COVID-19 vaccination, state law varies on how far they can go. However, a good way to get employees vaccinated is by encouraging and not requiring vaccination. Forcing employees to get the COVID-19 vaccination might make workers look for new employment or face a lack of motivation. Depending on the state laws, a vaccine mandate from an employer might lead to a legal battle if employees refuse to get vaccinated or in rare cases an employee dies from the vaccine.

One way to incentivize employees to get the COVID-19 vaccine is by offering them a cash payment to do so. Average incentives range from $50 to $500 with most being $100.

Based on recommendations from the Centers for Disease Control and Prevention (CDC), there are many things employers can do to help get their employees vaccinated against COVID-19.

One recommendation is to have management explain to employees why it’s important to get the vaccination by creating flyers, posters and other forms of communication when staff are entering and leaving the building.

Offering workers, the ability to get vaccinated onsite could encourage people who are on the fence, especially after they see their co-workers get vaccinated.

One part of the American Rescue Plan, which passed in 2021, as the Internal Revenue Service (IRS) outlines, permits businesses to claim tax credits if they give their workers paid time off to get vaccinated. This tax credit is eligible for employer reimbursement through paid sick and family leave. It also provides an employer tax credit if employees need time off to recover from any post-COVID-19 vaccine side effects.

Businesses with fewer than 500 employees are eligible for this tax credit for paid sick and family leave that occurs between April 1, 2021, and Sept. 30, 2021. This includes for-profit, tax-exempt organizations and some government employers. Self-employed taxpayers also are eligible for an equivalent tax credit.

Taking the time to encourage workers to get vaccinated, learning how to navigate certain aspects of employment laws and state laws, and making sure to maximize one’s business balance sheet are all essential tools to make the most of 2021 and set up an even better 2022 fiscal year.

Sources

https://www.uschamber.com/co/start/strategy/employee-vaccination-incentives

https://www.cdc.gov/coronavirus

https://coronavirus.jhu.edu/vaccines/report/building-trust-in-vaccination

https://www.irs.gov/newsroom/american-rescue-plan-tax-credits-available-to-small-employers-to-provide-paid-leave-to-employees-receiving-covid-19-vaccines-new-fact-sheet-outlines-details

https://www.irs.gov/newsroom/employer-tax-credits-for-employee-paid-leave-due-to-covid-19

https://www.eeoc.gov/coronavirus

https://www.dol.gov/agencies/whd/pandemic/ffcra-questions

https://www.ada.gov/regs2010/smallbusiness/smallbusprimer2010.htm#whoiscovered

E-Invoicing Presents Opportunities for Businesses to Save

4 min read

E-Invoicing Invoicing is an important process in any business. Unfortunately, it’s also a laborious process that requires accuracy. With technology advances, businesses have tried to use various means to ease the invoicing process. Some outfits send scanned invoices; others might transfer PDFs through email; and some still use manual invoices. In this technology age, businesses are choosing to automate functions in a bid to increase overall business productivity and efficiency. E-invoicing is a technology that promises to help entrepreneurs add value to their businesses.

What is E-Invoicing?

E-invoicing is the exchange of an invoice between a buyer and seller using an integrated electronic format. This allows the buyer to pay online through a card payment, direct debit or other option after receiving the e-invoice.

E-invoicing is not a new technology; it’s already used by large scale businesses and governments. Some governments have already mandated the use of e-invoices from their suppliers and even for taxpayers. These programs have been running onsite, making it expensive for small and medium businesses (SMB) to use. Another challenge for SMBs has been dealing with multiple providers who have different platforms and technologies. This is a challenge because it requires a business to support extra business processes when sending or receiving invoices.

However, the rise of cloud computing and Software as a Service (SaaS) technologies has become an enabler for SMBs to implement e-invoicing.

Making e-invoicing available as SaaS eliminates complicated system installations and integrations that have previously been a challenge to SMBs. The SaaS systems come with features that allow you to automate the invoicing process, send reminders, accept online payments and generate reports, among other things.

Benefits of E-Invoicing

Here are some reasons that businesses are moving to e-invoicing:

  • Eliminates the manual process of sending invoices between a buyer and seller.
  • Prevents human error with the use of a template. The automated e-invoice ensures correct data is used with a validation process. This ensures there is no mistyped information, no data entry errors, no double entry, missed details or wrong data. Therefore, it improves accuracy.
  • Low cost of processing, since it helps to cut down on administration costs and printing invoices. It also saves a business from the task of sending emails back and forth concerning an invoice.
  • Maintains a more predictable cashflow as e-invoicing facilitates the seller receiving payment faster.
  • Enables ease of tracking invoices as you can track and trace the entire document journey. This means better accounting.
  • Enhanced convenience. Businesses create a different number of invoices depending on their transactions. E-invoicing provides a convenient way to store the invoices and easily retrieve them when needed.
  • Saves on time so you can concentrate on other business activities. There is no need to waste time looking for client information and entering data every time you need to send an invoice.
  • Improves the accounting process. When a business integrates e-invoicing with an accounting system, the invoicing function is faster and easier to handle.
  • Enhances invoice security and guaranteed delivery. There is no risk of invoices getting lost in the mail or landing in junk email. Encrypted file transfer and digital signatures are used to enhance security.
  • Real-time processing, which allows one to view the live delivery and processing status of an invoice.
  • Remote handling as SaaS can be accessed from anywhere. This makes it possible to send an invoice anytime and from anywhere as there is no need for printers or scanners.

Conclusion

The business environment is becoming increasingly competitive and the adoption of technology that automates processes can only help. E-invoicing provides an opportunity for business owners to effectively use their time on growing their business instead of spending it on a labor-intensive administration process. This service also helps SMBs align themselves with large corporations.

Finally, as with any technology, business owners should take time to research which e-invoicing service provider will best serve their unique business needs.

New Rules and Ways to Use HSAs/FSAs

3 min read

New Rules HSAs FSAs, health savings account People who own a high-deductible health insurance plan may have the ability to open a health savings account (HSA). They can contribute pre-tax income to an HSA and invest the money for tax-free growth in a variety of mutual funds, stocks and exchange-traded funds (ETFs).

The funds may be withdrawn tax-free when used to pay for qualified expenses, such as the plan’s high deductible, copayments and coinsurance. The funds also can be used to purchase a wide range of health-related products.

However, a recent poll found that 40 percent of respondents who have access to a health savings account do not fully understand them. Perhaps that is why legislation passed last year that increased eligible uses of HSA funds largely went under the radar. The CARES Act included a provision that greatly expanded the number and types of health-related products and services that can be paid for with money from an HSA or an employer-sponsored Flexible Spending Account (FSA). The following list includes many of the newly eligible expenses (some require a Letter of Medical Necessity (LMN) from a licensed provider):

  • Over-the-counter medications, such as for fever, cold and flu, headache, muscle aches, acid, heartburn and indigestion relief, allergy and sinus relief, anti-diarrheal and constipation medicine
  • Toothache relief
  • Skin and rash ointments, medicated body lotions
  • Rubbing alcohol
  • Thermometers
  • Band-Aids and bandages
  • Kinesiology tape
  • Hot and cold therapy packs, cooling headache pads
  • Eye drops
  • Facial cleansers, face wipes
  • Prescription acne medication and over-the-counter acne treatments
  • Sunscreen and SPF moisturizers (including expensive anti-aging facial lotions with SPF protection)
  • Lip balm for sun protection and chapped lips
  • Sleep and snoring aids
  • Smoking cessation nicotine gum, patches, lozenges, inhalers and nasal sprays
  • Prescription sunglasses
  • Humidifiers, air purifiers and filters
  • Dietician fees
  • Some mental health treatments and services
  • Prescription hormone replacement therapy
  • Birth control pills
  • Pregnancy tests
  • Fertility tests
  • Fertility treatments such as in vitro fertilization, intrauterine insemination, fertility medication, the temporary storage of eggs or sperm
  • Birth classes and medically certified doulas
  • Breast pumps, breastfeeding classes, absorbent breast pads, breast milk storage bags
  • Baby monitors and potty training undies
  • Feminine care items, such as pads, tampons, cups and sponges
  • DNA/Ancestry kits

In 2021, the contribution limit for a health savings account is $3,600 for individuals and $7,200 for families; anyone age 55 or older can make an additional $1,000 annual contribution.

Just recently, the IRS published guidelines for employers regarding the use of Flexible Spending Account funds. Because of social distance guidelines and shutdowns in 2020, many people continued to work from home and contribute to their FSA but were unable to use those funds, which are generally designed to be used in the year saved (or otherwise lost).

The new guidelines allow employers to carry over or extend the grace period for unused health and/or dependent care FSA funds to the immediately following plan year. This new rule is retroactive for the 2020 and 2021 plan years. Note that while the IRS permits these new extension rules, it’s up to employers to decide what they want to do.

How Businesses Can Hedge Against Increasing Inflation

3 min read

Increasing InflationInflation is on the rise. According to a recent Economic News Release from the U.S. Bureau of Labor Statistics (BLS), the Producer Price Index for final demand grew by 1 percent in March. February saw “final demand prices” grow by 0.5 percent; and January’s final demand prices increased by 1.3.

According to BLS, the Producer Price Index (PPI) consists of many indicators and evaluates the mean difference over a period of time for the “selling prices received by domestic producers of goods and services.” In other words, PPI is a way to gauge how much manufacturers and similar businesses face in increased costs due to inflation.

This inflation gauge takes a broad survey of approximately 10,000 unique manufactured items and the amount of inflation businesses face. The BLS’ PPI measure looks at items produced by fisheries, food growers, miners, manufacturers, etc. It also includes 72 percent of production of the service sector, as the 2007 Economic Census found.

Hedging with Futures  

One way to reduce risk is by hedging. A popular example is with futures contracts. Much like buying an insurance policy, futures contracts can reduce the impact of a negative event, such as a spike in commodity prices.

If a company is worried about the price of oil for their planes or coffee for their cafes, they can enter into a futures contract to buy a designated quantity of that particular commodity at an agreed-upon price, with the ability to exercise it on or before the expiration date.

With a futures contract, a company can better plan its budget based on the contract’s parameters and the cost of the contract. If the price of the commodity rises in the future due to increased demand or limited supplies, the business can save money by taking delivery of the particular commodity at the originally agreed upon price through the futures contract.

Since the goal of hedging is to protect against losses, it’s important to weigh the cost of the futures contract. If the price of the commodity falls for the above-mentioned futures contract example, the company would still be forced to buy the commodity at the contract’s price, which would be a poor investment. If, however, it sells the futures contract before its expiration to avoid receiving the physical commodity at a poor price, that would lead to a loss. Having a contingency plan to reduce losses in futures contracts is always a good part of a hedging strategy.

Negotiate with Suppliers

Much like businesses enter into specified timeframes with suppliers, companies can do the same with their purchased supplies to provide more predictable prices. When the PPI measurement is used, the purchasing company can contract with its supplier to settle on the initial product’s price, and how price fluctuations will be determined going forward. Since the PPI is released monthly, the price can adjust accordingly (decrease or increase, depending on the PPI) for the supplier and purchasing company. It can be re-evaluated every three, six or 12 months, for example.

While there’s no predicting the future and if and how much commodity prices may rise and impact businesses, the more tools that businesses have to mitigate increased costs, the more likely they are to survive rising inflation.

Sources

https://www.bls.gov/ppi/ppifaq.htm

https://leg.mt.gov/bills/2007/fnpdf/HB0204.pdf

https://www.bls.gov/news.release/ppi.nr0.htm

How Will a Steepening Yield Curve Impact Markets?

3 min read

Yield CurveBased on data from the Federal Reserve Bank of St. Louis, the spread between the 10-year and two-year constant maturity Treasury rates increased by 66 basis points – from 0.48 percent in July 2020 to 1.14 percent by February 2021. Due to the Federal Reserve’s open market operations, two-year notes have fallen to near 0 percent, while the 10-year yield has risen higher.

Experienced investors and financial institutions such as the Federal Reserve Bank of St. Louis would see this change in the slope of the yield curve of the two U.S. Treasury rates and call it a steepening yield curve. This recent widening spread illustrates what a steepening yield curve looks like and how it impacts the economy moving forward.

The Federal Reserve Bank of St. Louis attributes the steepening yield curve to fiscal stimulus and the mass adoption of COVID-19 vaccinations. These two factors could be indicative of future economic growth, including stock market earnings and job gains.

The Yield Curve as Predictor

When it comes to the yield curve and employment, the Federal Reserve Bank of St. Louis explains how the two are related.

Employment growth mirrors the spread in the 10-year and two-year Treasury notes. When the yield curve first steepens, employment numbers might be negative. However, because the steepening yield curve projects increased economic growth, employment growth will soon follow a similar positive growth trajectory.

Historically speaking, the association between the yield curve’s increasing spread and future economic growth keeps its positive trajectory movement over time. This association, based on historical data from the Federal Reserve Bank of St. Louis, has been able to project between 18 months and 36 months of positive future economic growth and approximately 30 months of a positive yield spread and employment growth trend.

While the Federal Reserve Bank of St. Louis is uncertain about much inflation will accompany the economic expansion, it is confident that the Federal Open Market Committee (FOMC) will  keep short-term interest rates low to contain borrowing costs and help boost strong financial markets through projected positive economic growth going forward.

Widening Yield Curve and Bank Earnings

As the Federal Deposit Insurance Corporation (FDIC) explains, banks benefit from a steep yield curve because they engage in maturity transformation. The New York University’s Leonard N. Stern School of Business defines maturity transformation as when banks borrow short-term and lend long-term. This lets banks profit from the mean of the short- and long-term rates, the so-called term premium. Term premium is how much premium long-term government bond holders realistically anticipate they will receive versus a string of short-term bonds that might have differing interest rates. Buyers of long-term bonds receive payment in exchange for the uncertainty of changing short-term interest rates.

A widening yield curve also can impact a bank’s net interest margin. According to the Federal Reserve Bank of San Francisco, net interest margin is what’s left over for the bank after deducting interest expenses from interest income. Donald Kohn explains that if short-term interest rates increase, interest costs accordingly increase to interest income. This would lower net interest margins as well as the bank’s holdings.

Assuming there are no further negative economic headwinds, history tells us there is a reasonable expectation of an economic resurgence from the coronavirus pandemic.