Crypto Is Down, But It’s Not Out

It is no secret that the cryptocurrency sector took a hit in recent months.  In November of 2021, Bitcoin reached a new record price of just over $67,500.  Now, it sits around $20,000.  Likewise in that same time frame, Ethereum also reached an all-time high of around $4,800 yet now trades around $1,300.  Ouch!  Bitcoin and Ethereum aren’t the only cryptos experiencing this major volatility either.  The same story can be told for many others.  The price decline might lead one to speculate that cryptocurrencies are a thing of the past.  Before we go any further down this road, let’s bring in some contextual information.

The Economy:

The Consumer Price Index for American goods is showing an inflation rate of over 8%.  The average 30-year mortgage rate is approaching 7% (last year it was 3%).  Gasoline prices at the pump are too painful to talk about. The Fed is signaling yet another 0.75 basis point increase in the federal-funds rate.  The U.S. national debt has increased over $3 trillion since January 2021 and now sits at over $30T.

The Stock Market:

One year ago, the S&P 500 sat at around 4,700.  It now sits close to 3,700 which is about a 21% decline.  The NASDAQ fell from 16,000 to 11,100 which is almost a 31% drop.  Because of the rising interest rates, bonds aren’t doing well either.

It’s easy to isolate crypto and sound the alarm on falling prices; however, when viewed through the lens of the whole economy, the recent price adjustments start to make a little more sense. I hesitate to insinuate that the Bitcoin price decline is ‘no big deal’ – rather, consider this: the crypto crash did not happen in a vacuum. The entire economy is struggling but this realization can bring an encouraging perspective to the world of cryptocurrency. For example, since crypto is very speculative, it tends to attract investors who have high risk tolerances.  These types of investors tend to also hold high risk positions in other asset classes.  When the market turns sour, these investors can experience a “margin call” on their leveraged positions (if they have any).  When this happens, they may have no choice but to liquidate their crypto holdings to meet this margin call.  This alone would start driving the crypto market down.  If this price decline picks up momentum, it may in fact start a price avalanche.  This is a likely factor in crypto’s most recent sell-off (as it has also been in the past).

Aside from the overall economy, there is another factor worth considering.  This isn’t the only time crypto has “crashed.”  This is a scenario we’ve seen several times before (and one we will likely continue to see in the future).  Like the business cycle, this “crypto cycle” can be quite beneficial because it helps weed out the junk coins.  When market demand returns, the coins that remain therefore should have on average a higher value proposition for the future.

It’s worth noting that this increase in value proposition happens by more than just chance.  Even in down markets, cryptocurrencies are continuing to improve and adapt.  For example, one of the most notable improvements in this space happened just a few weeks ago on September 15, 2022.  On this date, Ethereum successfully transitioned from a proof-of-work consensus to a proof-of-state consensus.  This is a significant change that has ramifications far beyond the scope of this article.  The further one dives into the crypto community the more it becomes apparent that innovation is continuing to happen at a fast pace.  There are countless examples of protocol improvements coming down the pipeline for a variety of coins.  Looking solely at this, one might not even suspect that demand has taken a temporary hiatus.  There is passion in this sector which should not be underestimated.

Finally, we must consider the blockchain. The price of crypto has dropped significantly but that is largely due to external factors, not the technology itself.  The blockchain still remains incredibly secure and the technology continues to be implemented into an increasing number of businesses worldwide.  So even though the demand has slowed, the technology adoption has not.

Nobody knows what the future holds, which is why investors need to rely on the best data available at any given time to use in their analysis.  Current data overwhelmingly suggests that not only is crypto and blockchain here to stay, but the future for this technology could be bright.

This article first appeared in the November 21, 2022 edition of the Lehigh Valley Business Journal.

Shapowal, Andrew

 

 

Andrew Shapowal, CPA, AIF® is a Senior Accountant / Digital Asset Specialist here at Canon Capital Wealth Management.

 

Fortify your savings with I-Bonds

Canon Capital Wealth Management would like to share an opportunity where you can purchase Series I Savings bonds directly from the U.S. Treasury as an additional savings vehicle.

With the stock market down and inflation up, I-Bonds are becoming a very popular savings vehicle due to the high-interest rate being offered.  The current interest rate is a whopping 9.62% and savers can lock in this rate for a 6-month period if they purchase on or before October 28, 2022.  Here are the details:

Series I savings bonds (AKA “I-Bonds”) are issued by the U.S. Treasury and have an interest rate that’s meant to move in a correlated fashion with the rate of inflation.  This rate is a combination of two different rates: a fixed rate and an inflation rate. The fixed rate remains the same throughout the bond’s life.  The inflation rate however changes every 6 months to make sure it accurately reflects the current inflationary environment.

The current rate that these bonds are paying is 9.62%, but the rate for the next 6-month period will most likely be reduced closer to 6-7%.  However, it’s not too late to get the higher rate.  For anyone who purchases I-Bonds by October 28, the 9.62% rate will be locked-in for 6 months and will automatically adjust for the following 6 months.  If the rate is around 6.5% as expected, that would effectively be an 8% annualized return over a 12-month period.

It’s worth noting a few drawbacks to I-Bonds.  First, they can only be purchased directly by the individual at the TreasuryDirect website after creating an account.  Second, the maximum amount that you can purchase through the website is $10,000 per year per entity (i.e. an individual, business).  A married couple could therefore purchase $20,000 between the two of them.  Third, there is a holding period requirement of at least 1 year.

For a more complete list of features, click here to be directed to the U.S. Treasury’s page on I-Bonds.

For those individuals who are interested in purchasing, click here for a step-by-step guide on how to get started.

If you are interested in exploring how I-bonds can be integrated into a wholistic financial plan, we would be happy to help.  Please give us a call at 215-723-4881 and we will help you navigate these troubling financial times.

Pennsylvanians Receiving Property Tax/Rent Rebate Payments in 2021 to Receive Bonus

If you are a Pennsylvanian who receives the annual Property Tax/Rent Rebate payment, you are receiving a one-time bonus for 2021 that is equal to 70% of your original rebate amount. This is due to the passing of Act 54 calling for use of funds from the federal American Rescue Plan Act (ARPA) to provide additional support to Pennsylvanians who receive these annual rebates.

Learn more.

The Inflation Reduction Act of 2022: What It Means for You

On August 16, 2022, President Joe Biden signed into law the $739 billion Inflation Reduction Act of 2022 (IRA).  This new law is a budget reconciliation bill that projects to raise $739 billion in revenue from tax increases to cover $369 billion in increased climate spending, $64 billion in increased health care spending, and approximately $300 billion in deficit reduction.

The key new taxes included in the law are a 15 percent minimum tax on certain corporations, a one percent tax on stock repurchases, and an extension of the IRC Section 461(l) excess business loss limitation. The Act also includes an $80 billion increase in Internal Revenue Services (IRS) funding, including $45 billion for enforcement and audits. The law also includes new and enhanced energy credits for individuals and businesses.

The major tax provisions include:

INDIVIDUAL TAX PROVISIONS

Affordable Care Act – Premium Tax Credit (PTC)

American Rescue Plan Act (ARPA) beneficial rules extended to apply for 2023-2025 (Increased PTC credits and availability to families over 400% of the poverty line)

Excess Business Losses

Extended two more years, now expires for tax years ending before 1/1/2029

IRS FUNDING

Approximately $80 billion in total, with $45 billion for enforcement and $25 billion for operations support. Treasury Department officials have said they do not plan to increase audits on small businesses or households making under $400,000 a year. However, we believe that they will be targeting S-Corps and smaller partnerships much more than they have in the past.

HIGHLIGHTED ENERGY TAX CREDITS AND DEDUCTIONS

Nonbusiness energy property credit (12/31/22)

  • Credit increased from 10% to 30% of the amount paid by the taxpayer for qualified energy efficiency improvements (doors, windows, skylights, insulation, heat pumps, water heaters, furnaces, water boilers, etc.)  Roofs are no longer qualified property.
  • Repeals the $500-lifetime limit and now has a $1,200 annual limitation instead

Residential energy efficient property credit (12/31/22)

  • Increases credit for qualified expenditures made by a taxpayer for residential energy efficient property (solar electric, solar water heating, fuel cell, small wind energy, geothermal heat pump, biomass fuel, and battery storage technology).  The credit is extended through 2034.

New qualified plug-in electric drive motor vehicles credit (12/31/22)

  • Credit amount – $3,750 for meeting the critical minerals requirement and $3,750 for meeting the battery component requirement. AGI limitations apply.
  • Repeals manufacturer limitations so additional vehicles qualify.  The vehicles that qualify must now be assembled in the US.  Vehicles that now qualify changed effective with the signing of the bill.  There is an exception for a contract entered into prior to 8/15/22 for a vehicle that no longer qualifies.

Credit for previously owned “clean” vehicles (12/31/22)

Possible credit amount – lesser of $4,000 or the amount equal to 30% of the sale price with respect to such vehicle. AGI limitations apply.

New §45W Qualified Commercial Credit Clean Vehicle Credit

Starting in 2023, the commercial vehicle credit is a great option for a business, especially for a business owned by a higher-income individual, as there are no income limits for this tax credit. The maximum credit amount is $7,500 for vehicles weighing less than 14,000 pounds, and $40,000 for all other vehicles. It qualifies as a business vehicle by being subject to depreciation.

Energy efficient commercial building deduction (section 179D) (12/31/22)

Now uses an applicable dollar value (ADV) multiplication formula to calculate a potentially higher deduction amount.

CORPORATE TAX PROVISIONS

New 15% Corporate Alternative (“Book”) Minimum Tax (12/31/22)

  • Only about 150 companies expected to be impacted
  • Applies if the average adjusted financial statement net income for the past three years exceeds $1 billion (aggregation rules apply)
  • Effective for tax years beginning after 12/31/2022

New 1% excise tax on the repurchase of corporate stock (12/31/22)

  • Impacts “covered” corporations whose stock traded on an established security market
  • Applies to the fair market value of stock repurchased during the entire tax year
  • Exceptions for tax-free reorganizations, repurchases of $1 million or less, ESOPs, RICs, REITs, dividends

MODIFICATION OF EXISTING Research CREDIT

For tax years beginning after December 31, 2022, the §41 research credit allowed against payroll tax liabilities for certain start-up businesses increases from $250,000 to $500,000.

While much of the above new law is not specifically tax related, there are pieces of this legislation that will affect you as taxpayers. We will stay on top of this legislation and make sure you are taking advantage of any benefits you are eligible for in the coming months. If you have any questions please call us at 215-723-4881 or contact us online.

New Pennsylvania Overtime Rules in Place for Salaried Employees Starting August 5, 2022

Ever since it was last amended in 2006, the Pennsylvania Minimum Wage Act established a fixed overtime rate for all salaried, non-exempt employees in Pennsylvania. That will change starting August 5, 2022, when Pennsylvania’s overtime regulations for salaried, non-exempt employees will better align with the Federal Fair Labor Standards Act (FLSA).

What does this mean? Rather than using the “fluctuating workweek” calculation for the overtime pay for salaried, non-exempt employees, Pennsylvania employers will be required to base overtime pay on a 40-hour work week, no matter how many hours the employee works in each week or the amount they are paid. Under this new rule, overtime pay is calculated by taking the total of the employee’s pay for that week and dividing it by 40 hours. The employer must then pay 1.5 times that rate for any time worked beyond 40 hours. This new overtime pay calculation will also apply to hourly employees.

Employee classifications that continue to be exempt are executives, administrative personnel, and professionals.

If you would like to discuss what this means for you and your business, call us at 215-723-4881 or contact us online.

New Compensation Rules for Pennsylvania’s Tipped Workers Take Effect August 5, 2022

Change is on the way in the Commonwealth of Pennsylvania for employees who receive part of their compensation in tips. Starting August 5, 2022, a new set of rules will bring changes to minimum wage, tips subject to credit card deductions, tip pooling, and compensation related to service charges.

To start, the rules define a “tipped employee” as a person “who works in an occupation that ‘customarily and regularly’ receives tips” such as hospitality, catering, restaurant, bartending, and salon employees.

What do these rule changes mean for the tipped employee, their employer, and the employer’s patrons?

Minimum Wage

Under these new rules, Pennsylvania employers are required to ensure that the base hourly wage plus tips equals at least $7.25 per hour, since $7.25 is the current minimum wage in the Commonwealth.

If a tip-credited employee earns less than $7.25 per hour, including their base hourly wage plus tips, the employer must make up the difference as required by the Pennsylvania Minimum Wage Act so that their hourly earnings (base hourly wage plus tips) equal at least $7.25 per hour. Up until these new rules, the base hourly wage for tipped workers was always $2.83.

The new regulation states that employers can only take a tip credit for employees that make $135 per month in tips (Under federal law and previous Pennsylvania law, that rate was $30 a month.). Because $135 is a higher standard than the federal threshold, the Pennsylvania requirement applies.

If an employee does not meet the definition of a “tipped worker” and does not receive $135 per month in tips, the worker does not qualify for the reduced $2.83/hour minimum wage.

80/20 Rule

The long-followed standard of the 80/20 rule is now a regulation in Pennsylvania and as such better aligns with federal regulation on tipped worker duties.

This regulation permits employees to be a “tipped employee” if that employee does not spend more than 20% of the 7-day previously established workweek performing duties that do not directly generate tips.

Tip Pooling

Employers are not required to use tip pooling but they are permitted to do so, as long as they make sure that all tipped workers are aware that the system is in use. Both tipped workers and non-tipped workers can be included except for:

  • Individuals with ownership or partnership interest in the business.
  • Employees who meet any part of the executive employee duties test in federal code 29 C.F.R. Part 541.100(2)-(4).
  • If an employer takes a tip credit, it must exclude any employee who does not spend at least 80% of their daily work performing duties that customarily or regularly generate tips.
  • If an employer pays everyone in the tip pool the minimum wage, it may include employees who do not spend at least 80% of their daily work performing duties that customarily or regularly general tips.

Credit Card Deductions

Patrons may not realize this, but credit card tip deductions are common in the hospitality industry. That is until now. Under these new rules, if a customer adds the tip to their check and pays for the entire amount with a credit card the employer may no longer deduct the credit card transaction fee from the tip.

Service Charges are Now Regulated

There are times when a hospitality business will add a “service charge” to a bill. These service charges are not tips, they are sometimes used for administrative purposes and in some cases do not even go to the employees.

Pennsylvania’s new rules require that an employer charging a service fee for administration of a banquet, special function, or package deal must notify the patrons of the charge:

  • Stating this policy in the event contract or on the menu used by the patron.
  • The statement must advise that the service charge is for administration and does not include a tip to be distributed to the employee(s).
  • The final bill provided to the patron must contain a separate line item for tips.
  • The employer is permitted to distribute service charges to their workers but not in the form of a tip.

If you have questions about how this will affect your hospitality business, we’re happy to help. Call us at 215-723-4881 or contact us online.

Andrew Shapowal Earns Accredited Investment Fiduciary Designation

Please join us in congratulating Andrew Shapowal on earning the designation of Accredited Investment Fiduciary (AIF®). This designation assures clients that those responsible for managing or advising on investor assets have a fundamental understanding of the principles of fiduciary duty, the standards of conduct for acting as a fiduciary, and a process for fulfilling fiduciary responsibility. This AIF® certification demonstrates that Andrew has met the requirements to earn and maintain this widely respected credential.

Andrew, a Certified Public Accountant, began working at Canon Capital in 2021. In 2022, he began working in our Wealth Management division as part of a long-term transition into the field. In addition to earning his AIF® designation, he is currently pursuing the Personal Financial Specialist (PFS) credential. He also holds a Certificate in Blockchain and Digital Assets.

If you have any current needs regarding your investment or retirement plans, please feel free to contact our Wealth Management department via phone at 215-723-4881 or online.

35 Years of Service

From our clients who entrust us to serve them to our incredible team, we are filled with gratitude as we celebrate 35 years of Canon Capital Management Group. We look forward to many more years of serving our clients and community.

City of Philadelphia Wage Tax Decrease Effective July 1, 2022

Effective July 1, 2022, the Philadelphia City Wage Tax will decrease for both residents and non-residents:

  • Wage Tax for Residents of Philadelphia: 3.79% (.0379)
  • Wage Tax for Non-residents of Philadelphia: 3.44% (.0344)

The non-resident City Wage Tax applies to those employed by a Philadelphia-based entity.

This change must be in place for all paychecks dated after June 30, 2022.

Please contact us at 215-723-4881 with any questions.