THE WEEK ON WALL STREET
Stocks added to their early 2023 gains amid a busy stream of mixed corporate earnings results and conflicting economic data. The Dow Jones Industrial Average gained 1.81%, while the S&P 500 added 2.47%. The Nasdaq Composite index rose 4.32% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, increased by 1.14%.
FACT OF THE WEEK
On January 30, 1994, the American speed skater Dan Jansen set a new world record of 35.76 at the World Sprint Championships in Calgary, Alberta, Canada. Born in 1965 in Wisconsin, Jansen had been the youngest skater to compete at the 1984 Winter Olympics in Sarajevo, where he came in fourth place in the 500-meter event. Favored to win in Calgary in 1988, Jansen was devastated by the death of his sister Jane from leukemia on the day he was scheduled to race in the 500-meter final. He raced that night in hopes of winning in her honor but fell 100 meters into the race. Four days later, he fell again during the 1000-meter event and left Calgary without a medal. In Albertville, France, in 1992, Jansen came up short again, finishing fourth in the 500-meter and 26th in the 1000-meter.
In December 1992, Jansen became the first man ever to skate 500 meters in less than 36 seconds, when he set a new world record mark of 35.92 seconds in Hamar, Norway. The January 30, 1993 finish marked the sixth time Jansen had either tied or broke the world record in the 500 meters. He had come to dominate that event and the 1,000 meters in international competition, but an Olympic medal still eluded him.
The next Winter Olympics—Jansen’s fourth—were held in 1994, in Lillehammer, Norway. By that time, he had won an overall total of seven World Cup titles and set seven world records. After he slipped in the 500-meter skate, it looked like Jansen’s hopes for Olympic glory might be shattered. When he took to the ice for the 1,000-meter event four days later, however, Jansen turned things around, skating to a world record finish of 1:12.43 to finally win Olympic gold. He retired from competition after the Lillehammer games.
With the backdrop of earnings reports and conflicting economic data, stocks climbed higher on cooling inflation, continued economic resilience, and fourth-quarter corporate earnings results that, while underwhelming, did not appear as bad as many had feared.
There was enough new economic data to support both the “recession is coming” and the “soft landing” camps. It was corporate results and continued labor market strength, along with a solid, if weakening, fourth-quarter Gross Domestic Product (GDP) growth number, however, that raised investors’ hopes that a potential recession may be mild and likely pushed out to later in the year.
The U.S. economy expanded at a 2.9% annualized rate in the fourth quarter, slightly exceeding consensus estimates of 2.8% but down from the third quarter’s 3.2% growth rate. Consumer spending, which accounts for over two-thirds of GDP, rose 2.1%. Increases in private inventory investment, government spending, and nonresidential fixed investment also contributed to the fourth quarter’s growth. Weakness in housing and a drop in exports subtracted from the quarter’s result.
Beneath the headline number, the personal consumption expenditures price index (the Fed’s preferred measure of inflation) rose 3.2%. That was lower than the third quarter’s 4.8% increase, though it remains above the Fed’s 2% inflation target rate.
FINANCIAL STRATEGY OF THE WEEK
When a family member passes away, there are many decisions that need to be made and many emotions to handle. The last thing anyone thinks about is taxes.
Unfortunately, even the deceased can’t escape taxation. If the departed family member earned taxable income during the year in which they died, then federal taxes may be owed. An executor or a survivor must, therefore, file a final federal income tax return (Form 1040).
Similarly, if the deceased individual had a sizable estate or assets that might generate income in the future, the estate may owe taxes. Federal estate tax forms pertaining to the decedent’s estate may need to be filed (Form 1041, Form 706).
The Internal Revenue Service generally gives you until April 15 of the year following the taxpayer’s death to file a final 1040 form. If the deceased was married, a surviving spouse has the option to file a final joint federal tax return for the last year in which the deceased lived.
If you file the return online, the IRS provides instructions on all of this. If you are filing a paper return, you must write “Deceased,” the decedent’s name, and the date of death at the top of the 1040 form. An appointed personal representative and/or surviving spouse must sign this return per IRS guidelines. If a refund is due, you may need to file a Form 1310 (Statement of Person Claiming Refund Due a Deceased Taxpayer).
If an estate is large enough, Form 706 (the United States Estate Tax Return) is due to the IRS within nine months of the death of the deceased, with a 6-month extension permitted. The individual federal estate tax exemption is $11.7 million for 2021, so an estate smaller than $11.7 million may not be faced with estate taxes unless the deceased individual made substantial monetary gifts before their passing.
When the decedent’s estate has an executor or administrator (in IRS terminology, an “appointed personal representative”), they must sign the return for the decedent. For a joint return, the spouse must also sign. Alternately, a survivor of the deceased can file the return.
If an estate generates more than $600 in gross yearly income within 12 months of that taxpayer’s death, it will also be necessary to file Form 1041 (U.S. Income Tax Return for Estates and Trusts), usually by April 15 of the year after the year in which the individual died. Should 100% of the income-generating assets of the deceased be exempt from probate, the need to file Form 1041 is removed. Estates required to file Form 1041 should consult a tax professional.
Lastly, there are some cases where expenses paid before death can be deductible. Under certain circumstances, part of the cost of treating a final illness may be deducted on the deceased’s final federal tax return.
As always, we’re here to answer any questions or help with anything you or your family needs.