Day: July 17, 2020

Consumer complaints to the CFPB are skyrocketing as the coronavirus outbreak continues

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Americans filed a record-breaking number of complaints to the Consumer Financial Protection Bureau in March as the coronavirus pandemic started flooding hospitals and sending unemployment rates soaring.

Every month since, consumer complaint numbers have been breaking record highs set the previous month, according to a Friday report from the consumer advocacy group U.S. PIRG and the Frontier Group, a left-leaning think tank.

The CFPB received 29,494 complaints in March about various sorts of alleged consumer mistreatment — that number climbed to 37,926 by June.

In one complaint last month, a homeowner talked about entering a mortgage forbearance agreement with their loan servicer because of the outbreak. “Now, they are requesting a balloon payment, which I am unable to make. I’ve been in my home for 16 years,” the person wrote in their complaint.

In another complaint last month, the consumer described dealings with an auto lender that was insisting on payment. “This is a horrible company that says they love and honor veterans, however only the ones who have no financial issues. They harass and don’t care about those of us on hard times, and many will soon know,” the borrower wrote.

The Trump administration “doesn’t want to admit how bad the economy is, just like they don’t want to admit how bad the pandemic is,” said one of the report’s authors, Ed Mierzwinski, senior director, federal consumer program at U.S. PIRG.

Rising complaint totals contradict the administration’s public assertions about the economy, Mierzwinski said. “The database is like a canary in the coal mine. The fact is, there should be more being done at the bureau.”

The consumer watchdog agency has been taking the opposite approach, Mierzwinski said. For example, he pointed to the CPFB’s final rule, issued earlier this month, that revoked a payday lender’s requirement to verify a person could pay back a loan.

The new report comes less than a month after the U.S. Supreme Court decided the agency, created during the Obama administration, could continue to operate. The president can remove the director at will, the high court said.

Consumers can complain to the CFPB about alleged errors on credit reports, debt collection practices, student loans or problems with their bank and credit card company. Alleged credit reporting problems have been the largest complaint category since the database launched in 2012.

The trend has strengthened during the pandemic, the U.S. PIRG report noted. Between March and June, consumers sent in 85,185 complaints about credit reporting, credit repair services and other types of personal consumer reports. That’s an 86% increase from the 45,722 complaints filed on credit reporting in the same four-month period last year.

Don’t miss:How to protect your credit score during the coronavirus pandemic

Cash-strapped consumers may be complaining about their credit reports more than ever, Mierzwinski said, because they are finding problems in their report after getting turned down for a loan.

Despite efforts from consumer advocacy groups, the $2.2 trillion stimulus bill passed in late March didn’t ban negative credit reporting, he said.

See also:5 questions to ask if you’re considering a personal loan in a crisis

The CFPB pushed back Friday on the idea it wasn’t doing enough for consumers. “The recent report is based on a false narrative and doesn’t represent a reflection of a CFPB hard at work, which is the ground truth,” said spokesman Matthew Leas. “The bureau has aggressively utilized our tools of regulation, supervision, consumer education and enforcement to protect consumers.”

Consumers have sent in approximately 187,000 complaints this year and approximately 8,000 of those have referenced the outbreak, he said.

Many consumers end with “positive outcomes” after they file a complaint, Leas said, noting those complaints are reviewed internally and shared with various federal and state authorities.

“The agency, as always, will continue to address complaints as they arise and continue our strong record of protecting consumers,” he said.

The agency also recently showed how much the outbreak is impacting consumers. Roughly 20% of complaints related to mortgages, credit cards and credit reporting include coronavirus-related keywords, it said.

In more than half of the mortgage complaints discussing the outbreak, the CFPB said consumers noted they were having problems paying their bills.

The CFPB has handled more than 2.3 million consumer complaints since its 2011 launch.

Sen. Elizabeth Warren, a Democratic senator from Massachusetts who initially proposed the CFPB, said Friday the consumer complaint database was a critical part of the agency.

Those complaints serve as a real-time “heat map” to spot emerging problems, she said during a panel hosted by Americans for Financial Reform, a left-leaning consumer advocacy coalition. The complaints are also important because they give consumers a voice, Warren added.

The senator and onetime presidential candidate said she often meets people who tell her they’ve lodged CFPB complaints about credit card disputes and other matters.

“They have the whole story to spin out,” Warren said. “It was [their] way to say, ‘Listen, buster, you cheated me and I want a public record.’”

Like Mierzwinski, Warren was critical of the agency under the Trump administration. “What they mostly have done is sit on their hands. Wall Street knows it. Scammers know it.”

CityWatch: Mass evictions: The next crisis that could hit New York City

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An economic crisis caused by a global pandemic, an inconsistent government response and a precarious social safety net has culminated in the prospect, community groups say, of some 50,000 New Yorkers losing their homes.

“This crisis existed before COVID-19,” said Cea Weaver, the campaign coordinator for Housing Justice for All, an advocacy organization in the city. “Millions of people who have lost income were already living in unaffordable apartments. Rent was already a struggle.”

But the coronavirus has exacerbated the situation. An estimated 735,000 households in New York City have lost employment income as a result of COVID-19, according to the NYU Furman Center, a group that advances research and debate on housing and urban policy. Black and Hispanic households in the city have been particularly hard hit. 

Approximately 58% of Hispanic wage-earning households and 38% of Black wage-earning households worked in industries that were vulnerable to disruption from coronavirus, like hospitality, according to an analysis from the group. Community organizations say that as a result, an estimated 50,000 renters could face eviction proceedings when the housing courts fully reopen. 

Samuel Himmelstein, a partner at the law firm Himmelstein, McConnell, Gribben, Donoghue & Joseph, who focuses on tenants’ rights litigation, said that since March, his office has been inundated by New Yorkers who lost their jobs.

“I and the firm have been overwhelmed with inquiries from people who are basically saying, ‘I can’t afford my rent, I’m running out of money. What are my options?’” Himmelstein said. “I’ve been practicing for 40 years and I’ve never seen anything like this.”

Meanwhile, housing courts in New York City have reopened their brick-and-mortar locations for current litigants to drop off filings. They are also hearing cases virtually in which both the plaintiff and defendant have an attorney, and setting up remote conferences to move them forward or settle. 

Also read: New York culture creaks back to life, COVID-style

Landlords can also begin new cases by mail, and some tenants have started getting served with those cases. How post-pandemic cases are going to be processed after they are initiated through mail, however, is unclear. There are still no required in-person appearances for those cases, and no trials taking place.

“I personally can’t imagine the courts reopening physically until there’s either a cure or a vaccine,” Himmelstein said. “That court is a disease cesspool when it’s functioning normally…and I’m not saying that because of the people that are there, I’m saying that because of the facility,” he added, referring to the cramped quarters of Brooklyn Housing Court, originally a commercial building. 

All the while, Judith Goldiner, who runs the civil law reform unit for The Legal Aid Society, a social justice law firm, has taken part in around 10 virtual town halls to let people know their rights and what’s going on with housing. 

“People are pretty scared, pretty desperate,” Goldiner said. “We’re just going to be trying to hold the line until we can get some money from Congress.”

Many are hoping that the proposed $3 trillion Heroes Act coronavirus relief bill, currently stalled in Congress, or some other aid will provide rent relief on a scale of magnitude that only the federal government can provide. 

See: Renters face financial cliff ahead as eviction moratorium ends July 25

“It’s almost unthinkable that there wouldn’t be some sort of intervention given where we are,” said Matthew Murphy, the executive director of the NYU Furman Center. “Otherwise, you’ll see consequences across the entire industry, both on the tenant side, additional eviction filings and nonpayment cases; and then on the landlord side, mortgage foreclosures, defaulting on loans, not paying property taxes.”

On the local level, the state’s Tenant Safe Harbor Act, passed on June 30, extended certain protections, prohibiting courts from evicting residential tenants for nonpayment due to coronavirus, though a landlord can still try to get a money judgment against a tenant.. 

Also, Gov. Andrew Cuomo on Tuesday announced a new coronavirus rental assistance program. Successful applicants will receive a one-time subsidy, paid directly to their landlord that would cover the difference between the percentage of their gross income spent on rent on March 1, and whatever that percentage became during the following months. For example, if a household spent 35% of their gross income on rent on March 1, and are now spending 50% on rent, this program would cover the 15% difference. Applicants must be under a certain income threshold, pay more than 30% of their gross monthly income in rent, and must have lost income between April 1 and July 31. Renters can apply for assistance within a two-week period beginning Thursday, July 16.

Related: More than 20 million Americans may be evicted by September

There is a state executive order for 60 days starting June 20 that halts the enforcement of a foreclosure against owners of a commercial or residential property who are facing financial hardship as a result of the coronavirus.

“When that moratorium is lifted, the moratorium on mortgage payments, that is when we’re going to see the real impact of this Covid situation, when the banks start becoming aggressive and trying to collect the mortgage payment,” said Richard St. Paul, the executive director of the New York Small Housing Association, a group for landlords who own between one and five rental units in a home. 

On a grassroots level, rent strikes and housing protests have sprung up around the city this summer to raise political awareness and keep people in their homes.

Holden Taylor is on the organizing committee of the Crown Heights Tenant Union, a group made up of different tenant associations in the neighborhood.

“We’re on the precipice of absolute crisis,” Taylor said. 

Top Ten: Weekend reads: Tesla’s earnings report is next moment of truth for bulls and bears

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Tesla stock had a wild week, even by Tesla standards. It soared 16% at one point intraday before ending down 3.1% — and that was just Monday. It’s flattish for the week.

Analysts weighed in, mostly with upgrades to their price targets, though Citibank reaffirmed its sell recommendation and said there’s a “lack of evidence” to support the 50% surge over the past month.

CFRA joined the sellers on Friday, saying shares “have gotten ahead of underlying fundamentals and do not appropriately reflect” risks.

So watch when Tesla TSLA, +0.18% reports earnings on Wednesday. Analysts are predicting a quarterly loss, but a surprise profit could put the car maker on track to join the S&P 500 index, possibly by the end of the year.

More on Tesla this week:

• Michael Brush looks at seven risks for Tesla’s stock.

• Tesla is like a SpaceX rocket to stock investors, but the car maker’s bond holders are more down to earth, writes Vitaliy Katsenelson

• Auto icon Bob Lutz once predicted Tesla was headed to the ‘graveyard’ — 430% later, he’s not so sure

• Longtime Elon Musk critic has a strong message for investors looking to bet against Tesla

Other electric vehicle companies make news too

Fisker is going public. Here are five things to know about it ahead of its IPO.

Nio’s stock NIO, -14.55% dives after Goldman Sachs turns bearish on valuation concerns.

Nikola’s stock NKLA, -6.32% falls after Deutsche Bank analyst talks bullishly but doesn’t recommend buying

Volunteers distribute food to people in need.

AFP via Getty Images
Will there be more government stimulus money?

Or is it just a question of how much?

Congress heads back to work on Monday, less than two weeks before that extra $600 a week in extra unemployment benefits runs out. The Trump administration has said it wants another round, just not at the same level.

Treasury Secretary Steven Mnuchin said he backs extending the Paycheck Protection Program but targeting it at ‘smaller companies’ and restaurants, hotels. He also expressed support for some blanket forgiveness of some of the $670 billion in loans granted that way. (A reminder: Over 500,000 businesses got PPP loans but are listed as retaining zero jobs, according to Treasury Department data.)

One Wall Streeter is skeptical of a deal:Congress won’t pass a new stimulus package, and that will crush the S&P 500

Meanwhile, the Federal Reserve has added nonprofits to its Main Street lending program meant to help businesses survive COVID-19.

And:‘My PPP loan allowed me to reopen, but it is not going to allow me to stay open’ — restaurant owner lobbies Congress for $120 billion relief fund

When will we have a coronavirus vaccine?

As the number of coronavirus cases in the U.S. continue to set daily records, Moderna’s stock price MRNA, +12.19% soared on results of a Phase 1 clinical trial for a COVID-19 vaccine candidate. A Phase 2 trial has already begun, and the company is expected to proceed to a late-stage randomized, placebo-controlled clinical study on July 27.

There’s obviously still much we don’t know. This new study shows how well a coronavirus vaccine must work before we can stop social distancing.

Also:Should Black and Latino people get priority access to a COVID-19 vaccine?

Get the latest coronavirus news on MarketWatch here.

I filed a paper tax return. Where’s my refund?

It’s one of the 12.3 million pieces of correspondence that had piled up at Internal Revenue Service offices as of late June.

A new option for streaming
Peacock

NBC’s Peacock joins the streaming wars — how does it compare to Amazon, Netflix NFLX, -7.02%, Disney DIS, -0.98%, Hulu, HBO Max and Apple?

Two factors that could hit tech companies

Tech stocks have been among the year’s big winners, as investors know.

But an obscure court ruling could play havoc with those companies’ earnings. Facebook FB, +1.11% has already written a fat check, and Alphabet GOOG, +0.15% GOOGL, +0.29% has reversed what was previously a tax benefit tied to this case, which sought to challenge a ruling upholding U.S. tax regulations that define how companies can split costs with foreign units.

Will there be more? At least 50 companies have mentioned the tax case in regulatory filings as potentially material to their finances.

Then there’s a virtual July 27 hearing before the House Judiciary Antitrust Subcommittee, which has been looking at whether existing antitrust laws and enforcement are adequate given the dominance of a handful of digital platforms. The CEOs of Apple AAPL, -0.09%, Amazon AMZN, -0.77%, Facebook and Alphabet will be testifying.

Red Cliffs National Conservation Area outside St. George, Utah.

Greater Zion Convention and Visitors Bureau
Planning for retirement

First, there’s sorting out the finances. Here’s one aspect: I’m retired, my wife isn’t — how should we pay off our $60,000 mortgage before she retires? Alessandra Malito offers a thoughtful reply, and readers also had plenty to say.

Also:I want to take money out of my Roth IRA tax-free — when can I do that?

Then there’s finding your dream retirement spot. Check out the answers to a reader who writes: I want year-round outdoor living — dry summers and no snow — on $4,000 a month. Where should I retire?

Perhaps more important, how will you live your retirement? Try summing up your retirement motto in just 7 letters, then see what readers came up with.

Want more from MarketWatch? Sign up for this and other newsletters, and get the latest news, personal finance and investing advice.

Retirement Weekly: News and analysis for those planning for or living in retirement

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From MarketWatch:

I’m retired, my wife isn’t — how should we pay off our $60,000 mortgage before she retired?: Paying off the mortgage before retirement is often a goal for Americans, but how quickly do you need to accomplish this goal? And at what cost?

Why isolating the older population won’t work, and would do more harm than good: Older Americans are at a higher risk of suffering from loneliness or falling into a depression, making the COVID-19 crisis even more problematic for this demographic.

This…

Retirement Weekly: Some boomers just made the biggest retirement mistakes in the book

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Remember that 1980s Pat Benatar anthem “Love Is a Battlefield”?

Well, someone ought to cover it and change the lyrics to “Retirement Is a Minefield.”

That’s what many baby boomers are learning or relearning the hard way. Already out of the workforce or on the brink of retirement, these folks have been hit by the triple whammy of the coronavirus…

Retirement Weekly: How much more you’ll get if you delay Social Security to age 70

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I’m devoting this week’s column to a Q&A about waiting until age 70 to begin receiving your Social Security benefits.

The almost universal advice from financial planners, of course, is to wait, since your monthly benefit at age 70 will be 32% higher in inflation-adjusted terms than if you claimed at age of 66. But, as some of you have recently written to me to ask, this general advice leaves a number of specific questions unanswered. For example, is this larger benefit at age 70 dependent on continuing to work and pay Social…

Defiant Fauci tells InStyle: ‘I don’t regret anything I said’ — and talks about being ‘persona non grata’ in Trump’s White House

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Anthony Fauci is on a mission to get more Americans to take COVID-19 seriously.

In an interview with InStyle magazine, in which he posed in Stars and Stripes socks and sunglasses, Fauci said this of his original advice to not wear face masks, “I don’t regret anything I said then because in the context of the time in which I said it, it was correct. We were told in our task-force meetings that we have a serious problem with the lack of PPEs and masks for the health providers who are putting themselves in harm’s way every day to take care of sick people.”

‘By the beginning of the year we should have the first tens of millions and then hundreds of millions of doses.’

— Anthony Fauci speaking about his hopes for a vaccine in early 2021

“When it became clear that the infection could be spread by asymptomatic carriers who don’t know they’re infected, that made it very clear that we had to strongly recommend masks. And also, it soon became clear that we had enough protective equipment and that cloth masks and homemade masks were as good as masks that you would buy from surgical supply stores,” he told InStyle, adding, “But our knowledge changed and our realization of the state of the outbreak changed.”

The director of the National Institute of Allergy and Infectious Diseases for three decades continues to take a polar opposite approach to the coronavirus pandemic than that taken by the Trump administration — which has called for schools to reopen — and state lawmakers — who have enacted a patchwork of policies, including opening up their economies and refusing to introduce mandates to wear face masks, despite a surge in new cases in their states.

He is optimistic on a vaccine. “If all goes well and there aren’t any unanticipated bumps in the road, hopefully, we should know whether the vaccine is safe and effective by the end of this calendar year, or the beginning of 2021,” he said, adding, “By the beginning of the year we should have the first tens of millions and then hundreds of millions of doses.” On his role at the NIAID, he said, “I don’t see any termination within the near future because I judge [my career] by my energy and my effectiveness.”

Norah O’Donnell, managing editor of CBS VIAC, -0.98% Evening News, asked Fauci about media restrictions and being “persona non grata” in the White House. “Sometimes they don’t allow you out regardless of what administration you’re in.” On the chilly reception from the White House, he said, “Well, you know, that really changes week to week and month to month. Sometimes you say things that are not widely accepted in the White House, and that’s just a fact of life.”

Anthony Fauci told InStyle magazine: ‘With all due modesty, I think I’m pretty effective.’

MarketWatch photo illustration/Getty Images, iStockphoto

Trump recently upped the ante in the White House’s war of words with Fauci, and took aim at the doctor’s early response to the pandemic. “Dr. Fauci’s a nice man, but he’s made a lot of mistakes,” the president said on Sean Hannity’s Fox News show. “Like you don’t have to ban them coming in from very infected China. I did it anyway and we saved hundreds of thousands of lives. I banned Europe from coming in when Italy and France and Spain were having all the problems.”

‘I certainly am energetic. And I think everybody thinks I’m doing more than an outstanding job.

— Anthony Fauci on his effectiveness in his job as the nation’s top infectious-disease doctor

“They’ve been wrong about a lot things, including face masks,” Trump added. “Maybe they’re wrong, maybe not, but a lot of them said don’t wear a mask, don’t wear a mask. Now they are saying wear a mask. So a lot of mistakes were made — a lot of mistakes.” Trump has rarely worn a mask in public and has not said Americans should wear masks. In a break with his tradition of eschewing any face covering, he wore one this past weekend while visiting Walter Reed National Military Medical Center.

Trump himself has resisted wearing a face mask, and recently held a rally in Tulsa, Okla. where most people did not wear any face covering. On April 3, the administration and the Centers for Disease Control and Prevention reversed their policies on masks, and said everyone — not just medical workers — should wear face coverings. Trump cited “recent studies” of asymptomatic transmission, but still remained sanguine on the issue: “You don’t have to do it. I’m choosing not to do it.”

Fauci recently said that the U.S. government had not been doing well with contact tracing, the process of tracing people who have been in contact with someone identified to have the virus, instructing them to stay home, and connecting them with the resources they need to do so. “I don’t think we’re doing very well, for a number of reasons, and not all of which is the fault of the system,” he said in an interview last month with CNN T, -0.05%

As of Friday, COVID-19, the disease caused by the virus SARS-CoV-2, had infected at least 13.8 million people globally and 3,576,221 in the U.S. It had killed 590,845 people worldwide and 138,384 in the U.S., according to Johns Hopkins University’s Center for Systems Science and Engineering. On Thursday, the U.S. recorded more than 70,000 new cases of COVID-19, up from 20,000 a day in June, according to data aggregated by Johns Hopkins, and other independent sources.

Fauci, meanwhile, took a defiant tone with InStyle, “With all due modesty, I think I’m pretty effective. I certainly am energetic. And I think everybody thinks I’m doing more than an outstanding job.”

Related: Here’s one ‘remarkable’ difference between COVID-19 and the 1918 Spanish flu

How COVID-19 is transmitted

CityWatch: New York culture creaks back to life, COVID-style

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It was fun while it lasted. But New York isn’t New Orleans, and the go-cup is gone.

The drinkers up here just couldn’t handle it, turning city sidewalks into raucous block parties, forgetting their masks, forgetting their manners, forgetting the six-feet rule, and most of all, forgetting how hard everyone has worked for the past four months to tame the deadly pandemic and turn this former hot spot into a cool zone.

What, and have a bunch of sloppy drunks make the virus explode again? Not as long as Andrew Cuomo is still in the governor’s office. Nobody wants a second wave of COVID-19, least of all the man who navigated the state out of the first one, however imperfectly.

“We are having issues of compliance, especially in New York City, especially around bars and restaurants,” Cuomo said from Albany late Thursday, as he weighed whether to proceed with the Phase 4 reopening currently set for Monday. 

“I am going to limit it if we do it,” he said. “Only outdoor activities, which means malls don’t open and cultural institutions can open but only outdoors. No indoor activities.” 

And then there are the bars and restaurants, fighting desperately to stay alive without infecting the people who patronize them. “What you see in New York City is these outdoor block parties selling alcohol. And you have large congregations. That is not what we anticipated. We have to be careful about that. We are going to add additional regulations.”

The upshot: No more walk-up beer, wine or cocktails. No booze without food. From now on, if you want to get sloshed in New York City, then plop into a chair at a sidewalk table and order something to eat. And for establishments that flagrantly violate the new regs—oh, the State Liquor Authority has a special deal for you. It goes by the name Three Strikes and You’re Closed.

Such are the New York culture wars of today.

Also read: You can sip a canned cocktail and save the bees at the same time

High, low and in between, almost all the things that make New York exciting are closed, canceled, suspended or being live-streamed from empty venues. The comedy clubs are dark. The live-music joints are quiet. The nightclubs are ancient memories. Thankfully, the entertainment news isn’t entirely bleak.

Opening day for the Yankees and Mets is set for next week. Playing in April’s usual position is July. The Brooklyn Nets are sealed in a bubble at Disney World DIS, -1.38% , practicing for nobody-quite-knows-what. That still puts them ahead of their crosstown cousins, the Knicks, who are in the NBA equivalent of the witness protection program. But don’t hold your breath on Broadway. It’s done for the year.

See: Closed attractions and travel restrictions put New York City’s $70 billion tourism industry on hold indefinitely

“We’ll be back, and we have so many more stories to tell,” Broadway League president Charlotte St. Martin said valiantly, trying to put the best possible spin on things. The lights will brighten again, she promised, “as soon as it’s safe to do so,” but under no circumstances before Jan. 3.

The Metropolitan Museum of Art announced this week that the doors will reopen to visitors Thursdays through Mondays starting on Aug. 29.

“The safety of our staff and visitors remains our greatest concern,” said Daniel Weiss, the Met’s president and CEO, issuing the caveat that now precedes every such announcement. Then, with appropriate passion, Weiss made the case for why the Met’s reopening is so vital to New York. “The museum can serve as a reminder of the power of the human spirit and the capacity of art to bring comfort, inspire resilience, and help us better understand each other and the world around us.”

Who says we can’t use all of that just about now?

Still, Cuomo did not sound overly impressed when he heard about the museum’s big announcement—and not the least bit bound by it.

“What’s gonna happen Aug. 29?” he asked. “I don’t know. Nobody knows. I think they can plan to reopen, and then we’ll see what the facts say.”

To be fair, the Met has an easier path than Broadway does — and not just because some of the ceilings are so high the building might as well be considered outdoors.

Read: New York City’s 4,000 nail salons face uphill battle after reopening

Social distancing is a whole lot easier in a museum than in a theater, and the Met’s economics are far more forgiving. For one thing, there’s the museum’s $3.6 billion endowment. For another, the paintings and sculptures are on duty 24-7 whether the patrons show up or not.

Here’s hoping they can all reopen more quickly than New Yorkers expect them to. Just don’t try prowling the galleries with an open container in hand.

Ellis Henican is an author based in New York City and a former newspaper columnist.

What to Do With Your Crypto 1099?

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Crypto 1099

For those trading in cryptocurrencies, crypto trading platforms are required to provide you with a form 1099 for use on your taxes. When doing so, the IRS is also notified of the information contained on the tax form. And although you will receive either a form 1099-K or a 1099-B, it is not always clear what the information is saying. For example, a Form 1099-K will provide you with a list of cryptocurrency transactions and sales, but it will not tell you what your tax liability for those transactions is. Form 1099-B does provide more information, including your cost-basis, but many companies have not yet transitioned to the more descriptive form, and instead rely on the old 1099-K, which for many purposes is useless without a working knowledge of capital gains. You can find more information on the differences between Forms 1099-K and 1099-B, here.

So what exactly do you do once you’ve received one of these crypto 1099 forms?

What is a Cost Basis?

The term basis, as used in the Internal Revenue Code, refers to a person’s initial investment in a piece of property. For example, if you purchase something for $10, then your cost basis is $10. If you then sell it for $12, your cost basis is still $10, but your gain on the sale is $2. You are required to report and pay tax on the $2 gain, but not on the original $10 that you spent on the item. This holds true with your cryptocurrency holdings, though it can become much more complex as you likely hold more than $10 in crypto, and your holdings are likely diversified among different types of cryptocurrencies, which decrease and increase in value regularly.

The relevant governing statute for determining one’s basis, as well as gains or losses, can be found in IRC §1012. For the purposes of your cryptocurrency tax liability, you will likely not need to delve into the complexities of the Internal Revenue Code, which, unsurprisingly, is not very helpful to anyone who is not a tax attorney. You can find more information on how to determine your cost basis, here.

What Do I Do With My 1099?

As stated above, a crypto 1099 often comes in one of two forms: 1099-K or 1099-B, and understanding the information on those forms can save a lot of tax-related anxiety. Many cryptocurrency investors panic on receipt of a 1099-K form, as it only shows a list of crypto transactions and not a person’s actual tax liability. In order to determine your tax liability, we will need to refer back to the term “cost basis.” You can find more information on how to determine what is known as an adjusted basis, here.

It is always good practice to keep track of the initial purchase price of any cryptocurrency transaction you make. By doing this, you can keep track of your basis in the specific cryptocurrency holding. If you have not been keeping track, it is likely that your cryptocurrency management platform has.

In order to calculate how much you owe in taxes, all you need to do is look at the transactions listed on your Form 1099-K and subtract them from your initial cost basis of each transaction. The difference between the sale price and your cost basis is the amount realized, or what the IRS will consider your “gain.” You only need to pay taxes on realized gains, meaning if you currently hold cryptocurrency that you have not sold, you do not need to pay taxes on it until you sell it. This becomes increasingly difficult when making a lot of transactions, as each sale results in the need for a computation on gain, even if reinvested in a different cryptocurrency. This is why the Form 1099-K is helpful, as it lists all of the transactions.

For those with high volumes of transactions, it can be helpful to hire a tax attorney or CPA to help you file your taxes to ensure that you do it correctly, especially when determining the correct short-term or long-term capital gains tax, which operates differently than regular income tax.

Conclusion

Now that you have a basic understanding of what a cost basis is and what your crypto 1099 means, you can make your cryptocurrency trades with confidence, knowing that when you receive a Form 1099-K, you likely aren’t liable to pay taxes on the full amounts listed thereon, rather, you only need to pay taxes on your realized gains. And if you receive a Form 1099-B instead, your basis and gain should be clearly listed, for a much easier assessment of your tax liability.

Please See Disclaimer

Outside the Box: I want to take money out of my Roth IRA tax-free — when can I do that?

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Q: A friend of mine says that if you withdraw money from a Roth IRA within five years of putting it in, you’ll pay tax and a penalty. I started my Roth in 2018 when I turned 30 and thought I could get the $11,500 I have put in over the last two years out at any time without tax because I didn’t get a tax break when I made my deposits. What gives?

—Harry

A.: Harry, I think your friend is mixing a few things together. There are two “five-year rules” that come up often with Roth IRAs. One applies to conversions and the other to earnings. You don’t mention any conversions, so I’ll just address the five-year rule on earnings here. A significant difference between the two rules is that the rule affecting earnings only needs to be satisfied once in your lifetime whereas the rules affecting conversions apply to each conversion transaction separately before age 59½.

First, you are correct that the $11,500 in contributions can be withdrawn at any time. Those contributions were made with after-tax money and are not taxed again when distributed. In fact, due to the ordering rules, when you withdraw funds from a Roth IRA, the withdrawal is considered to be from contributions first before any other funds. If your account is worth $14,000 and you pull $8,000 out, no taxes are due. At that point, you have $6,000 left consisting of $3,500 in contributions and $2,500 in earnings.

It is the earnings that are subject to the one-time five-year rule. The five year earnings rule says that, with a few exceptions, in order for earnings in a Roth IRA to be withdrawn tax-free, the taxpayer must be 59½ years old AND it must be at least five years since the taxpayer funded their first Roth IRA even if that account no longer exists. Therefore, if this was your first Roth account, you should be aware of this rule because you are under 59½ and only in the second year after the year you opened the account.

If you were to now take the $6,000 left in our example, the first $3,500 is deemed to be contributions and the next $2,500 is earnings that will generate a tax bill. You will owe taxes on $2,500 of ordinary income. In addition, because you are under age 59½ a $250 early distribution penalty (10% of $2,500) is due.

This can get confusing, but it gets a little easier when you keep in mind that with respect to taking earnings out of a Roth IRA tax-free, the taxpayer need only satisfy the five year time frame once in their lifetime AND be over 59½ when they distribute earnings.

Harry, if you had funded a Roth IRA in 2015 or earlier and closed it, you would meet the five-year time requirement even though your current account was started in 2018. However, you would still face tax and penalty on distributions of earnings because you would not meet the age requirement.

If you were over age 59½ and withdrew the final $6,000 from the account from our example above in which we assume this is your first Roth IRA, you would meet the age requirement but not the five-year requirement so the $2,500 in earnings would be taxable. However, the 10% penalty would not apply because you would be over 59½.

This can trip up some retirees that convert or rollover 401(k)s, including Roth 401(k) accounts to their first Roth IRA. They are old enough to get to earnings tax-free but haven’t met the five-year rule for earnings.

If you have a question for Dan, please email him with “MarketWatch Q&A” on the subject line.

Dan Moisand is a financial planner with Moisand Fitzgerald Tamayo. His comments are for informational purposes only and are not a substitute for personalized advice. Consult your adviser about what is best for you. Some questions are edited for brevity.

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