Charles Rotblut will speak at the 2015 AAII Investor Conference this fall; go to www.aaii.com/conference for more details.
The last thing any editor wants to do is publish information they know may be incorrect. Yet, this is exactly the risk I’ve taken with this year’s tax guide, which starts here.
There is admittedly an irony that I would do this on the last day of the Mayan cycle, when doomsayers believed the world would end. Yet, there are realities that I cannot change. I pushed back the deadline for publishing our tax guide as much as I could in hopes of an agreement in Washington to avert the fiscal cliff, but none has been reached. Rather, uncertainty about the tax code and federal spending loom.
I continue to believe a deal will be reached. I don’t know when, much less what the exact details of it will be. I learned a long time ago not to predict what will or won’t be contained in legislation. I do hope, however, that an agreement will be reached somewhere between my pixel time and the moment when you read this.
Because of the uncertainty, we had to make assumptions about various aspects of the 2012 and 2013 tax code. In some cases, I went on the assumption that the Bush-era tax breaks expired, since that is the only thing we know will happen if no deal is reached by December 31. In other cases, I used projections from Mark Luscombe at tax authority CCH. Mark was very helpful in supplying us with key data and answering many of my very specific questions. (CCH runs a very useful tax website, finance.toolkit.com.)
Throughout the guide, you will see where we have notated data that is based on assumptions and projections. To put things bluntly, some of this information will need to be changed. After new legislation is passed and the Internal Revenue Service publishes new numbers and rules, we will update the guide. My current plan is to update it first on AAII.com and then run a brief article in the March AAII Journal listing the changes (assuming we can do so by the mid-February print deadline).
If you use any type of tax aid such as TurboTax, check for updates before sending in your return. I know an electronic update for “J.K. Lasser’s Your Income Tax 2013” will be forthcoming. (This book was another of my key sources for our tax guide.) Equally important, if you are a person who likes to file earlier rather than later, it may make sense to hold off on filing until there is new legislation. Just don’t delay so much that you miss the April 15, 2013, deadline for filing. (Sorry, unlike the past two years, you don’t get any extra days to file this year.)
One thing we do know is that two new taxes stemming from the health care reform law start this year. High-income earners face both a net investment income tax and an additional Medicare tax. Both are discussed here.
On a positive note, 2012 was a good year to be in the stock market. Despite all of the uncertainty created by politicians (and political pundits), months of above-average pessimism in our weekly AAII Sentiment Survey and constant outflows from domestic equity mutual funds, investors who stuck with stocks made money. The S&P 500 was up 12.8% as of December 7, 2012.
The market’s rise aided the performance of our stock screens. Out of the 64 screens tracked on AAII.com, 53 posted gains. More impressively, 26 beat the S&P 500 last year, led by the Piotroski: High F-Score’s 93.9% rebound. Wayne Thorp shows you the numbers and explains what worked in his annual stock screen review, which starts here.
Our Model Shadow Stock Portfolio also had a good year, rising 28.5% as of November 30. Higher micro-cap stock prices helped the portfolio, but also prompted a rule change. AAII Founder and Chairman James Cloonan, who runs the portfolio, increased the minimum and maximum market capitalization criteria to account for the change in valuations. The new rules and an analysis of the portfolio’s performance can be seen here.
Wishing you a happy, healthy and prosperous new year,
Charles Rotblut, CFA
Editor, AAII Journal