Audit Triggers to Watch

We are now heading full-speed into tax-filing season, although it could have a long way to go yet, especially for people who run into an audit situation. In its latest issue, Investment News detailed the factors that are most likely to trigger an audit. Among the things to be aware of:

• High income The $200,000 income threshold is generally considered when one reaches audit territory.
• Tax strategies Charitable donations of stock are one common trigger.
• Deductions The IRS looks at the level of deductions compared to earned income.
• Charitable donations Make sure you get a receipt for everything you donate.
• Entrepreneurs Home-based businesses always get extra scrutiny, as do small-business owners.
• Real estate One of the most common triggers: Vacation homes that get rented out. 

More and More Credit Cards

It looks as if banks are starting to loosen their credit standards enough to make a bit of a difference in Americans' wallets. In the fourth quarter of 2013, the number of new credit accounts opened rose by 2.8 percent, according to the Federal Reserve - despite the fact that consumers' creditworthiness didn't increase at all.

That puts the number of credit card accounts hold by Americans at a staggering 399 million. That's the most credit cards we've collectively held since the third quarter of 2009.

Even though we have more charging power in our wallets, Americans aren't running up significantly more debt. The upshot of all these new credit cards: Our outstanding balances increased by just 1.6 percent in that fourth quarter. But the fact that we have the ability to spend more is a good sign for the economy.

Upheavals of the Machine Age

There's a new book out, The Second Machine Age, that takes a penetrating look at how technology has affected modern American life. Although American wealth has generally increased over the course of our nation's history, so far, the peak year for inflation-adjusted American household income was 1999. The median household income that year reached $54,932.

By 2011, though, that figure had fallen to $50,054 per household, a drop of nearly 10 percent. Over that same time frame, though, GDP and productivity were increasing. The increasingly automated economy has hit the middle class particularly hard.

The other side of this is the top of the economic pyramid is getting wealthier. In 2012, the top 10 percent of Americans earned more than half the nation's income. That's the first time that had happened since before the Great Depression.

Europe Bounces Back

There was some important good news out of Europe on Friday, when the eurozone reported its GDP figures for the fourth quarter of 2013. Many euro-watchers were worried that Europe might be slipping back into recession, but the numbers were quite good.

The eurozone as a whole expanded by 0.3 percent, which isn't great but is in positive territory, and higher than most economists expected. France and Austria both reported 0.3 percent growth, while Germany was at 0.4 percent and the Netherlands 0.7 percent. Portugal, which many economists feared might be the next nation to collapse a couple of years ago, had solid 0.5 percent growth.

The one European nation whose economy is still contracting is Greece. But Italy, which hadn't seen expansion since early 2011, reported growth of 0.1 percent. It looks as if Europe may finally be in the clear.

The High Cost of Love

If you bought that special someone roses for Valentine’s Day this year, you might have noticed that they were more expensive than usual. Or maybe you didn’t: Florists expect that many of their customers buy roses only for Valentine’s Day, and at no other time of the year.

So it's very easy for them to hike their prices. According to a florists’ clearinghouse called BloomNation, a wholesale rose costs a florist in New York City about $1.50 per stem during most of the year. In the middle of February, that rises to about $2.50 per stem. The retail flower shops, not surprisingly, pass that increase along to their customers – and then some. A rose that costs $5 the rest of the year costs more like $8 on Valentine’s Day.

That’s not the only way flowers get more expensive this week. Most delivery services raise their delivery price by four or five dollars for Valentine’s Day too. No one ever said true love would be easy.

Another Way of Paying for College

Here’s one sign of a resurgent economy: Donations to U.S. colleges and universities  for the year that ended last June set a new record at $33.8 billion. That number, up 9 percent from the previous year, topped the old mark of $31.6 billion that was reported back in 2009.

The leader among schools was Stanford, which has been the leading money-raiser for a decade now. The California university raised $931.6 million in donations - which was actually down from 2012, when it collected more than $1 billion. Stanford has topped this list for a decade now. Harvard finished second by raising $792.3 million, but it’s already the world’s wealthiest school with a $32.7 billion endowment.

Alumni giving increased 17 percent to $9 billion last year, up from $7.7 billion the year before. But there are fewer people giving: The percentage of alumni making gifts fell to 8.7 percent from 9.2 percent a year earlier.

Are Bonds Back?

Along with the erratic nature of the stock market in the early part of 2014, there has been an unsurprising movement of investor money into bond funds. In 2013, bond funds suffered their first net outflows in nine years, with some $177 billion coming out of those funds. But in in the first two weeks of this year, bond funds saw their first net inflows since September of 2013.

 

That could be a bit deceptive, though, because bond funds always do well in January. Last year, the biggest month for bond funds was January, when some $32 billion flowed into them.

 

And equity funds are still doing quite well. After $20 billion flowed into them in 2013 – the first positive year for those funds in eight years- there has been another $8 billion come into them so far in 2014. It looks as if fund investors still believe in this market.