Know These 4 Economic Terms to Sound Like an Economist
Do you want to better understand what is happening in the economy and sound extra smart? Here are 4 terms you should know and understand.
Inflation: Inflation is the decrease of purchasing power of your money. What used to cost $10 now costs $12 because your money is not as valuable. Good economists know that inflation is caused by a growth in the money supply.
Money supply: This is the amount of money in circulation. For example, if more money is “printed” then this will increase the supply of money and increase inflation. There are also other ways to increase the money supply by having the Fed buy government securities.
The Fed: The Fed is short for the Federal Reserve System. This is the central banking system. The Fed has the power to set interest rates, more specifically the federal funds rate, which is the rate at which banks lend to each other overnight.
Unemployment: You probably already know this one, but you should know how it is measured. Technically, to be considered unemployed, you have to not have a job, have not actively looked for work in the past 4 weeks, and are currently not available for work. Technically, unemployment can go down while less people are working.
And here’s a bonus term:
Stagflation: This is a period of high inflation and slow economic growth.
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How Many Returns Are Unprocessed by the IRS?
Can you guess how many tax returns are unprocessed by the IRS as of the middle of March?
The number is 7 million unprocessed individual returns. It is taking the IRS more than 21 days to issue any related refunds and in some cases it can take 90 to 120 days. If there are any issues related to items such as the Recovery Rebate Credit or Child Tax Credit, the IRS will send taxpayers an explanation. You can also view the Where’s My Refund tool at the irs.gov website.
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How Does the Recovery Rebate Credit Work?
The recovery rebate is a credit for taxpayers who either did not receive or received less than the full amount of their Economic Impact Payments. Here’s how it works for the 2021 tax year:
Economic Impact Payments and plus-up payments were issued during 2021 from March through December. If you received the full amount of the third Economic Impact Payment, then you do not need to include any information about this when you file your return.
However, if you didn’t qualify for the payment or received less than the full amount, then you can claim this as a credit on your 2021 tax return.
If you are missing any of the first and second stimulus payments, then you will need to claim this as a credit on your 2020 tax return.
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Tax Deadline & Updates
You may have heard that the IRS extended the individual tax deadline by one month to May 17th, but there are important updates to know as follows:
- The deadline to file corporate taxes has not been extended and is still April 15th
- States are expected to extend their deadline, but we’ll have to wait and see
- Tax payments for the year 2020 are now due on May 17th
- The extension does not apply to first quarter 2021 estimated tax payments, which are still due on April 15th
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PPP Deadline Approaching
The deadline for the PPP loan is March 31st, so do not wait to apply if you qualify. Some tips are as follows:
- Apply through your existing bank
- You must have 300 or fewer employees
- Have already used or plan to use your original PPP funds
- Can demonstrate at least a 25% reduction in revenue during a least one quarter of 2020 when compared to 2019.
Is there a possibility of extension? Possibly, but if you qualify, why take the chance?
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Possible Extensions
There have been major challenges with being able to file tax returns, especially business returns, which are due soon on March 15th for s-corporations and partnerships. This relates to new tax laws, loan forgiveness, and delays with states approving tax forms and software. Additionally, New Jersey has new complexities with its new BAIT (Business Alternative Income Tax) forms.
We may have to file extensions for your business and possibly individual returns due to these delays.
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IRS Delays Tax Season Plus Important Deadline Reminders
With all of the last minute tax law changes the IRS needs more time to program their systems. Here are important filing dates:
February 12th: IRS begins 2021 tax season. Individual tax returns begin being accepted and processing begins.
February 22nd: Projected date for the IRS.gov Where’s My Refund tool being updated for those claiming EITC and ACTC, also referred to as PATH Act returns.
First week of March: Tax refunds begin reaching those claiming EITC and ACTC (PATH Act returns) for those who file electronically with direct deposit and there are no issues with their tax returns.
March 15th: Deadline for filing S-corp and partnership returns
April 15th. Deadline for filing individual and corporate tax returns.
May 15th. Deadline for filing exempt organization returns.
September 15th. Deadline for filing extended S-corp and partnership returns
October 15th. Deadline for filing extended individual and corporate returns
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5 Black Friday Mistakes I Made in the Past
Today is Black Friday and there are sales on virtually everything. It can be both a fun and stressful experience, and there are some mistakes I made in the past:
- Allowing myself to be convinced to wake up at 5:30 AM or was it 4:30 AM?. Waking up early does not bring out my “best” self.
- Not having a plan of which items to purchase or at least having a budget. This relates to shopping the old-fashioned way and online.
- Almost getting into a physical confrontation with someone 3 times my size because he thought that I cut in line. I like challenges.
- Not enjoying the experience, especially if it wasn’t your idea. Don’t fight over parking spots, run or walk quickly, complain, cut in line, be rude, or put on a frown.
- Remember these mistakes for next year!
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4 Business Ideas During These Times
What are some business ideas that you can implement and that should thrive during these times and in the future? Here are 4 to choose from:
Marketing Services
This includes web design, social media marketing, and developing content for your customers. The online marketing trend should continue and there will be a demand for this service to be outsourced.
Pest Control
With people spending more time at home they will notice more of the creepy crawlies around the house. If you’re spending more time inside your home then you are probably making more of a mess with food and inviting opportunities for pests.
Virtual Services
Although this is a huge market, there is a growing trend for services to be delivered online. Examples include: training videos, consulting services, and learning about various topics from personal to business knowledge.
Online Product Sales
Unfortunately, most online sellers do not do this one correctly and would be better off getting a minimum wage job. However, if you focus on a niche product or line of products that you can easily manage and that have a large enough profit margin, then you can do very well. Options include selling directly though your website or through online marketplaces like Amazon.
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5 Risks to be Aware of that Will Hurt Your Finances
There are ups and downs in life, good times and bad, and everything in between. Unfortunately, some events can hurt your finances in a significant way and may even be beyond your control. What are some of these risks to be aware of and what can you control?
Health Issues
As we become older, there are more chances of having a serious health issue. What is not commonly thought of is that family members, such as spouses, elderly parents, and children can develop health issues, both physical and mental. We have a responsibility to take care of our family, and the time spent will take time away from our job or business, which will eventually lower our earnings. While you cannot control the health of others, you can take charge of your own health and that of your children by living a healthy lifestyle.
Addictions
Do not think that you are immune to addictions. Aside from alcohol, illegal drugs, and gambling addictions, there are other destructive addictions that will ruin your finances such as prescription drugs, video games, and pornography/sex. The statistics on who has these addictions, how they start, age groups, and the impact on your brain are alarming. Be aware of these addictions and do your best to stop them before they start.
Divorce
Aside from paying legal fees, there are statistics that show that divorced women experience a prolonged loss of earnings and lower standard of living after divorce, even though various studies show that approximately 70% of women initiate divorce. Surprisingly, statistics show that a man’s earnings increase significantly after divorce. Focus on a healthy marriage and your finances will be stronger, plus some studies show that divorce does not lead to a better life.
High Income then Low Income
Inconsistent income patterns can hurt your finances in multiple ways. The first is that if your income is very high in one year, then your spending will probably increase, and once your income drops, your spending will probably not drop as quickly, if at all. Second, if you have a very good year in your business and don’t set aside a reserve for taxes, then you won’t have the money to pay your tax bill, especially if your income is lower in the following year. I have seen this situation happen repeatedly.
Expense Creep
Expenses have a way of increasing faster than your income and are hard to lower once they do. A good rule is to increase your savings in the same proportion as your income, and do not incur additional debt. This way, it does not really matter what you spend, and yes, I really did say that, because mathematically it does not matter. It’s putting first things first.
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