Investing

A pedestrian passes a Wall Street subway station near the New York Stock Exchange (NYSE) in New York, U.S., on Monday, June 27, 2022. Money managers betting on a sustained global rebound will be left sorely disappointed in the second half of this crushing year as a protracted bear market looms, even if inflation cools. Photographer: Michael Nagle/Bloomberg via Getty Images
Bloomberg | Bloomberg | Getty Images

With the importance of socially responsible investing strategies increasingly ubiquitous, advocates are turning their attention to an area they see as less understood.
The social pillar of the environmental, social and corporate governance investing framework — known as ESG in short — has been dubbed the “middle child” largely due to data challenges. As ESG has reached new heights in terms of broad awareness on Wall Street and Main Street, those in the space now see an opportunity to better define and quantify the “S” pillar. 

“There’s been quite a bit of growth,” said Michael Young, director of education and programs at the Sustainable Institute Forum. “But amongst the three, it’s definitely sort of the latest to be included in an investment process. And not everybody will use it the same way.”
For years, the social pillar has been considered relatively nebulous and hard to quantify. BNP Paribas found in 2021 that more than half of the 350 institutional investors around the globe surveyed believed the “S” was the most difficult to analyze and integrate.
At the same time, the climate and corporate leadership themes have garnered growing interest. That came in part as climate change and racial justice have gained more awareness in recent years, pushing investors and company leadership to pay more attention to how corporations perform in these categories. And it comes despite the fact that the ESG investing framework has found itself in hot water politically.
Now, investors are left trying to understand what the “S” means to them and how best to analyze corporate efforts in the space.

Defining and quantifying the ‘S’

The elevator-pitch definition for the social pillar usually goes something like this: It’s how companies interact with their communities, both in terms of their work forces and the locations their business operates in.

While data around human capital and diversity has improved over the past several years, investing professionals still see a lack of standardized information that can make social themes harder to integrate. The patchwork of data can also make apples-to-apples comparisons between competing companies more difficult.
Looking ahead, Young said a potential human capital disclosure rule from the Securities and Exchange Commission is being watched by advocates. They’re hoping the rule will lead to a database of information from companies given to the Equal Employment Opportunity Commission made publicly available.
“That would be a huge catalyst,” he said. “It would be the very first ‘S’ disclosure rule in the United States.”
In the absence of enough standardized data, some have gotten creative.
Marian Macindoe, head of ESG stewardship at Parnassus Investments, said data on the share of part-time versus full-time workers, benefits for contract workers and evidence of hiring best-practices are all things to consider. She said Parnassus will often ask for engagement data from companies, while admitting it is an imperfect way to measure performance.
When looking for information on a company, her team will check for publicly available fines or lawsuits against a company. Even reviews on Glassdoor or memes posted to social media platforms that touch on common themes can offer user insights, she said.
The firm wants companies to know: “This stuff matters – and you should be held accountable for it,” she said.
Harbor Capital and Irrational Capital partnered to build exchange-traded funds centered thematically on employee satisfaction: They include the Harbor Human Capital Factor US Large Cap ETF and the Harbor Corporate Culture Small Cap ETF.
Fittingly, the funds trade under a variety of tickers — like HAPI and HAPS — that use the same first three letters as the word “happy.”

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The large-cap vs. small-cap fund this year

The funds use data collected by Irrational of more than 15 million employees across several thousand companies. That useful because the firm believes that strong employer-employee relationships can drive better business performance and, thus, boost shares.
Big technology names such as Microsoft, Apple, Alphabet and Meta were some of the biggest positions in the large-cap fund as of mid November. Meanwhile, Insperity, H.B. Fuller, Apple Hospitality and Evercore are among the biggest holdings in the small-cap version.
Elsewhere, socially responsible investors see companies’ roles in the communities they operate in as part of the “S.” Macindoe said companies can sometimes mistake this for just doing charity work rather than being active members of the community.
“Charitable contributions and philanthropy are really great, but that’s not the ‘S’ of ESG,” she said. “The ‘S’ in ESG is about taking care of the people that rely on you and that you rely on when you plan your business strategy and operations.”
There can also be overlap between environment and social themes that can sometimes drive confusion, according to Yijia Chen, vice president at Calvert Research and Management, a firm that was an early proponent of socially responsible investing. In these cases, she said the social pillar comes into play in ensuring a carbon transition is equitable and just.

A fraught environment

Globally, it appears social themes will become more clear and important to investors over time. 

This year, BNP Paribas found investors around the globe said that a company’s commitment to workers’ issues would become more of a priority when proxy voting or making investment decisions in the next two years. (BNP Paribas specifically gauged topics like fair pay and equal treatment. The firm also asked about how investors view the importance of a company uplifting of diversity, equity and inclusion efforts, known in short as DEI, in the workplace.)
But North American investors showed a reverse trend, with the survey finding these issues will lose priority over the next two years. That comes as ESG and DEI have become politically divisive and spurred debate among lawmakers over the past year.
Meanwhile, backlash toward Target’s Pride collection and Anheuser-Busch’s Bud Light campaign with a transgender influencer have become symbols of how these so-called culture wars have bled into corporate America. RBC Capital Markets found that U.S. corporations have increasingly turned to terms like sustainability rather than ESG when discussing social responsibility on earnings calls.
While the ESG landscape has grown politically fraught, some investors caution against reactionary moves like divestment when they don’t see a company living up to socially responsible values.
Instead, they argue they can make a better impact by using their power as active investors to advocate for better policies. Many point to materiality and risk reduction as recurring reasons they bring up to companies for why they should care about ESG issues.
Han Yik, a senior advisor for the New York State Teachers’ Retirement System pension, told attendees of an ESG conference last month to think about the decision to divest like how to handle trash in a backyard. The trash can be moved to a neighbor’s yard, or can be dealt with for the betterment of all.
“We’re not a fan of divestment,” Yik said. “We think that we can have more influence as owners of the companies than if we were to sell them to someone else.”
Though ESG experts contend with data challenges and broader confusion around the social pillar, they say its importance shouldn’t be a particularly hard sell.
“If you’re a business and you don’t take care of the natural human capital in which your business relies, you will not be successful in the long term,” Macindoe said. “It’s just about scanning your landscape and making sure that you’re going to thrive in it for the long term.” More

Renown short seller Jim Chanos is converting his hedge fund to a family office.
He will no longer be running a limited partnership or an offshore fund, and he will be returning external capital to investors, CNBC has learned.
The move occurs as the S&P 500 is up nearly 18% year to date and has gained more than 7% in November alone.

Jim Chanos, Chanos & Company, at CNBC’s Delivering Alpha, Sept. 28, 2022.
Scott Mlyn | CNBC

Renown short seller Jim Chanos will be converting his hedge fund Chanos & Co., to a family office and advisory business, CNBC has learned.
The investor, best known for his bet against Enron before its bankruptcy in 2001, will no longer be running a limited partnership or an offshore fund and will be returning the external capital to investors, Chanos told CNBC’s Scott Wapner.

Assets managed by Chanos & Co. have come down significantly, declining to a level below $200 million, compared to $6 billion in 2008, according to The Wall Street Journal, which first reported on the short seller’s move.
Chanos is moving to the family office model as the stock market has rallied in 2023. The S&P 500 is up nearly 18%, and the broad-market index is on pace for a 7.6% gain in November.
Chanos is notable for shorting Enron a year before its collapse. As recently as January of this year, he also had short bets on Tesla, pointing to rising competition in the electric vehicle market. At the time, he noted that China is the weakest market for the EV maker.
“You have repatriation of capital risk. You have [Chinese automaker] BYD and others just taking massive market share,” Chanos said. “Tesla trades at a premium to those companies who are growing faster than they are in China. So if you want to play all these things, there are now lots of ways to do it.”
Indeed, throughout 2023, Tesla made price cuts on its S and X models in China, and it rolled out lower cost versions of the vehicles in the U.S. as competitors ramped up in the EV market.

Still, Tesla shares have rallied 90% this year as investors crowded into the so-called Magnificent 7 tech stocks.

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Tesla, year-to-date

Stocks have rallied forcefully in November on the hope that the Federal Reserve will start cutting interest rates in 2024.
Chanos told CNBC last year that investors shouldn’t count on the Federal Reserve to always bail them out.
“The idea of a Fed put and that the Fed is always going to be there to bail out my bad investment decisions is really not cogent investment policy to hold onto for a long time,” Chanos told CNBC’s “Halftime Report” in January 2022.
-CNBC’s Yun Li contributed reporting. More

Year-end Planning

If you own cryptocurrency for more than one year, you qualify for long-term capital gains tax rates of 0%, 15% or 20%.
In 2023, single filers can earn up to $44,625 in taxable income — $89,250 for married couples filing jointly — and still pay 0% for long-term capital gains.
This could be a chance to harvest crypto gains or sell and immediately repurchase for a “step up in basis,” experts say.

After a more than 80% jump in bitcoin’s price in the first half of 2023, crypto market watchers gave CNBC their expectations for how the cryptocurrency will perform in the latter half of the year.
STR | NurPhoto via Getty Images

As investors weigh year-end tax moves, there may be a lesser-known savings opportunity for certain cryptocurrency investors, experts say.
After the crypto industry lost nearly $1.4 trillion in 2022, many investors leveraged tax loss harvesting, which uses losses to offset profits. But after a rally in 2023, you may consider strategically selling profitable crypto held in brokerage accounts, known as “tax gain harvesting.”

The strategy works for investors in the 0% long-term capital gains bracket who have owned digital assets for more than one year, according to certified public accountant Tom Wheelwright, CEO of WealthAbility.

More from Year-End Planning

Here’s a look at more coverage on what to do finance-wise as the end of the year approaches:

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As of November 17, the price of bitcoin has more than doubled since the beginning of 2023, and some investors now have “built-in gains,” Wheelwright said.
Those in the 0% long-term capital gains bracket can “sell it, recognize the gain and buy it back immediately” because there’s no so-called wash sale rule for gains, he said.
You calculate gains by subtracting the asset’s sales price from the “basis” or original cost. But when you repurchase the currency, the basis adjusts to the new purchase price, known as a “step-up in basis.”
If prices continue to climb and you sell the asset again later, the higher basis means future profits will be smaller.

Investors “really ought to be paying attention” to tax-free opportunities to harvest crypto gains, according to Wheelwright. Of course, the decision to repurchase crypto depends on your risk tolerance and goals.

Why it’s a ‘wiser strategy’ to harvest gains

If you fall into the 0% bracket, crypto tax-gain harvesting is a “wiser strategy” than harvesting losses, especially when immediately buying back the asset, explained Andrew Gordon, tax attorney, CPA and president of Gordon Law Group.
Tax-loss harvesting has been popular among crypto investors because of a wash sale loophole. The IRS disallows a loss for other assets if investors buy a “substantially identical” asset within the 30-day window before or after the sale. The wash sale rule doesn’t apply to crypto losses or gains for any asset.
Still, the tax gain strategy allows you to sell at a gain and pay no tax, whereas “tax loss harvesting defers future tax,” Gordon said.

How to know your capital gains bracket

For 2023, you may fall into the 0% long-term capital gains rate with taxable income of $44,625 or less for single filers and $89,250 or less for married couples filing jointly.
That’s based on “taxable income,” which is significantly lower than gross earnings. You calculate taxable income by subtracting the greater of the standard or itemized deductions from your adjusted gross income.

For example, if your 2023 salary is $60,000 and you make $5,000 in pre-tax 401(k) contributions, that brings your W-2 earnings to $55,000. Your taxable income could still fall below $44,625 after subtracting the $13,850 standard deduction for single filers.
The 0% long-term capital gains brackets are even higher for 2024, with taxable income of $47,025 or less for single filers and $94,050 or less for married couples filing jointly. More

It’s almost peak engagement season for couples in the U.S.
Consumers on the market for a diamond engagement ring should look at a few considerations on what sort of jewels to invest in: either lab-grown or natural diamonds.
While shoppers should keep in mind that traditional mined diamonds are not a practical purchase, their supply may soon start to dwindle, said New York-based Paul Zimnisky, a financial and diamond industry analyst.

Engaged couple embrace.
Bryan Miguel | Moment | Getty Images

Holiday gifts aren’t the only pricey thing on shoppers’ lists right now.
We’re also approaching peak engagement season for couples in the U.S., or the time between Thanksgiving and Valentine’s Day, according to wedding site The Knot.

Consumers in the market for a diamond engagement ring have an early decision to make: Whether to pick lab-grown or natural diamonds.
While shoppers should keep in mind that traditional mined diamonds are not a practical purchase, their supply may soon start to dwindle, said Paul Zimnisky, a financial and diamond industry analyst based in New York City.
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“People don’t buy them because they’re cheap; they buy them because it makes them feel good, it’s an emotional purchase, a financial sacrifice,” he said.

The rise of lab-grown diamonds

Global sales for lab-grown diamonds increased to $12 billion in 2022, up 38% year over year, per an analysis by Zimnisky.

Ring shoppers often opt for these gems — created by subjecting pure carbon to extremely high heat and pressurization by machine — over mined diamonds because they are visibly and chemically identical but cost way less, as well for ethical purposes.
“There’s a lot of consumers that would love to buy diamond jewelry but maybe cannot afford it at $1,000 price points but can afford it at $100 price points,” Zimnisky said.
However, unlike natural diamonds, lab-grown stones don’t increase in value at all.
“It’s very difficult to resell a lab diamond, and as the price gets lower, I don’t think there’s going to be a resale market for lab diamonds,” Zimnisky said.

Natural diamonds were ‘a winner’ during the pandemic

Man proposing to his girlfriend on Christmas Eve.
Martin-dm | E+ | Getty Images

During the Covid-19 pandemic, experts say, some consumers used savings from federal stimulus money on hard luxury goods like diamonds as travel and dining were still restricted due to lockdowns and other regulations.
“Diamonds were kind of a winner during the pandemic,” Zimnisky said.
The pandemic brought on a different challenge for natural diamonds: a sharp decline in dating, leading to a drop in engagements.
Engagements typically occur within three years of a first date, per Signet Jewelers, the largest diamond conglomerate in the U.S. and parent company of retailers Kay Jewelers and Zales.
As fewer couples went out on dates in 2020, fewer got engaged in the last two years, according to data from Signet Jewelers. However, the company expects engagements to rebound in the coming years.
“We will see a material uptick in engagements and weddings in the coming years,” said Zimnisky, as the wedding industry’s the cyclicality impacts the demand for natural diamonds.
Shoppers will also need to consider that the supply of natural diamonds is declining as the world runs out of resources, he added.
“We’re going to continue to see supply contracting and I don’t think demand for natural diamonds is going to go away anytime soon,” Zimnisky said.
As the price for natural diamonds remains relatively low compared to the last decade, now may be “the best time to buy a natural diamond,” he said, as prices may spike from mid-2024 onwards.

‘Lab diamonds will be their own market’

The man-made diamond market is forecasted to reach $18 billion in total value by 2024. But as prices for man-made diamonds continue to decline, the industry is going to attract a different consumer.
Man-made diamonds might come to be considered “costume jewelry” in the future, said Benjamin Khordipour, manager of Estate Diamond Jewelry in New York.
“Lab diamonds will be their own market and there’s going to be consumers who buy those for different circumstances,” said Zimnisky. “People looking to buy an engagement ring or a piece of fine jewelry are going to continue to want natural diamonds.”

If you opt for a lab-grown diamond, go into the store with the expectation that it — unlike a mined diamond — probably won’t have any resale value.
“I know most consumers aren’t thinking about that when they’re getting an engagement ring, but that’s just the big takeaway,” Zimnisky said.
On the other hand, if you’re planning on investing in a natural diamond, be very realistic with your budget, Khordipour said. Come to a realistic price point you can afford with your lifestyle.
While financing options such as wedding loans exist, it may be in your best interest to avoid going into heavy debt for a ring, he said.
If you don’t have enough savings for the ideal ring, adjust to something smaller and upgrade to a grander gesture in 10 years, Khordipour suggested.
In the end, make sure you have the discussion with your loved one and come to an agreement that makes the most sense for your preferences and financial goals. More

Year-end Planning

In 2024, employers will be required to give more long-term part-time employees access to contribute to their company 401(k) or 403(b) plan.
Two thirds, 66%, of private-sector workers in the U.S. have access to an employer defined contribution plan, according to the U.S. Bureau of Labor Statistics. 
A strong labor market, along with changes in federal and state law are having many businesses re-evaluating their retirement plans. 

Like many workers, saving for retirement wasn’t a priority for Mark Zimmermann. The 72 year old thought he’d always run the family dairy farm in Wisconsin, but that didn’t go as planned.
“I struggled farming, I had too many disasters and was never able to put any money away,” Zimmermann told CNBC, speaking from an office at his current employer.

He’s now working in the manufacturing industry, maintaining equipment and setting up the sizing for customized metal parts. On his feet at the machines on the factory floor is physically demanding so Zimmermann works part-time.

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His employer, Mitchell Metal Products, has fewer than 100 workers and lets its part-time employees participate in the 401(k) plan.
“I really appreciate being able to [participate in the plan],” Zimmermann said. “I don’t have a lot of savings built up right now, not compared to what I’m going to need and with inflation with the way it is.”
The Merrill, Wisconsin-based manufacturer offers part-time workers access to the company 401(k) retirement plan as a way to attract and retain workers.
“Whether someone’s working full time or part time, we view them as our most valuable assets,” said Tim Zimmerman, president of Mitchell Metal Products, noting that 84% of his employees participate in the company retirement plan. 

More part-time workers to get 401(k) access in 2024

York, South Carolina, Now hiring, part time cooks sign posted outside Wing King Restaurant.
Jeff Greenberg | Universal Images Group | Getty Images

Just 66% of private-sector workers in the U.S. have access to an employer defined contribution plan, according to the U.S. Bureau of Labor Statistics. Tax breaks under recent legislation are aimed at making it easier for companies to offer the benefit. 
The incentives are among the sweeping changes to the laws governing retirement plans under the SECURE Act of 2019 and expanded under SECURE 2.0 at the end of last year. Also included are provisions to expand part-time workers’ access to retirement accounts. 
Under the original Secure Act, beginning in 2024, employers must extend eligibility for the company retirement plan to part-time employees who work at least 500 hours per year for three consecutive years. Starting in 2025, Secure 2.0 reduces the work requirement to two years. Companies already have been required to grant eligibility to employees who work at least 1,000 hours in a year.

Changes in the law, mandates in some states and the continued strong job market have many small businesses re-evaluating their retirement benefits.
“I think the real value is that we’re having conversations with plan sponsors,” said Eric O’Donnell, director of product strategy and marketing strategy for Sentry Insurance, which offers small and micro businesses retirement plan services.
Making part-time workers eligible for retirement benefits also opens up conversations about saving and investing with newly-eligible employees.
Such conversations, he said, helps them understand retirement plan investing “is for you, and it is something that you should be thinking about, it’s not for the wealthy, it’s for the everyday American.” More

Consumers eager to purchase last-minute holiday gifts may be more susceptible to fraud.
Plus, other scams tied to AI and gift cards may be more prevalent this year.

Mark Makela | Getty Images

Holiday shopping this year is expected to reach record spending levels, according to the National Retail Federation.
But as consumers open their wallets, they may also be making themselves vulnerable to potential fraud, particularly when shopping at the last minute.

“Procrastination is, quite frankly, one of the keys to success for crooks,” said Paul Fabara, chief risk officer at Visa.
“They assume that you’re going to fall for that last-minute offer that guarantees delivery of the product within 24 hours, or even the same day, at a discounted price,” Fabara said.

The first disappointment may be not receiving what you ordered. But that may be just the first part of a “double whammy,” according to Fabara.
The second part, “Now they use your card to do a whole bunch of transactions that have nothing to do with you as consumer,” Fabara said.
If you’ve been scammed, the first step is to contact your financial institution to let them know your account has been compromised, he said. A reputable organization should be able to monitor the transactions on your account for suspicious activity and let you know the next steps to take.

AI fraud risks pose a growing threat

This season, new risks tied to artificial intelligence should have consumers on high alert, Fabara said. That technology can easily impersonate your likeness. So if you use voice passwords for your accounts, that may be compromised.
To limit that risk, consumers should use multifactor authentication, Fabara said, a process that requires extra steps in addition to a password, such as a verifying a code sent by email or text, answering a secret question or scanning your fingerprint.
Consumers should also be on alert for other ways they may be compromised.
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Visa has identified five categories of fraud to watch for this season. Those are:

Digital skimming, where credit or payment card information is stolen from online stores.
Phishing and social engineering, where artificial intelligence makes it difficult for consumers to spot fakes or uses tactics like false websites or malicious advertising.
ATM or point-of-sale skimming schemes that steal personal identification numbers or other data.
One-time-passcode bypass schemes that send false prompts to try to access consumers’ accounts.
Physical theft at stores, malls and parking lots.

Gift card payment scams up 50%

The Better Business Bureau is also calling attention to gift card payment scams, where fraudsters seek those cards as payment, which have risen by 50% in the past year.
Unsuspecting consumers are prone to getting duped when it comes to the hot toy or item of the season, noted Melanie McGovern, spokeswoman for the International Association of Better Business Bureaus.
If a social media ad pops up showing the item available for an inexpensive price when it’s sold out everywhere else, be wary, she said.
Also be sure to check that the website and business are legit. Do a general internet search on a company to see what other consumers are saying about it, McGovern said. Also be aware that companies may be able to filter reviews on their own website.
The Better Business Bureau may also list a profile of a company and any complaints it may have against it.
Consumers should also double-check return policies before they buy, to ensure they can get a refund if they’re not happy with the product, McGovern said.
Other tips Visa is emphasizing this holiday season include making sure web addresses start with “https://” to make sure you have a secure connection; avoiding public Wi-Fi for shopping; and generally staying vigilant of deals that may be too good to be true.
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With more opportunities to tip and predetermined point-of-sale options for each transaction, gratuity has become less about rewarding good service.
Most consumers are dissatisfied with the current state of tipping.
“A lot of it has to do with being asked to give tips before service rather than after,” says tipping expert Michael Lynn.

Instacart operates similarly; shoppers see a list of batches that are available to them in their area, as well as the expected customer tip, and they may select the one they want to shop, according to the company.
Uber drivers may not see the expected tip in advance, but at one point they could see a rider’s tip history, or whether they were a “top tipper,” which may have factored into who drivers chose to pick up.
“It was a wonderful tool for a driver,” said Sergio Avedian, a driver and senior contributor at The Rideshare Guy, a blog aimed at helping rideshare drivers earn more money.
Uber phased out the top tipper rider designation earlier this year. The company did not immediately respond to a request for comment.
“Drivers depend more and more on tips these days,” Avedian said. Still, his tips average only about 12% to 13% of the fare, he estimated.

‘Tip fatigue’ is real

In most cases, consumers face more opportunities to tip for a wider range of services than ever before, a trend also referred to as “tip creep.” But recent surveys show shoppers are experiencing “tip fatigue” and starting to tip less — while resenting tipping prompts even more.
Two-thirds of Americans have a negative view of tipping, according to a report by Bankrate, especially when it comes to the predetermined point-of-sale options. 
“Consumers are dissatisfied with the current state of tipping, and a lot of it has to do with being asked to give tips before service rather than after,” Lynn said.
However, tipping in advance is not entirely new, he added. “People have long given bartenders generous tips as a bribe for future services, like getting a more generous pour.”
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Year-end Planning

It’s critical to run tax projections before enrolling in Affordable Care Act health insurance subsidies, experts say.
Popular moves like Roth individual retirement account conversions or selling assets to harvest capital gains can trigger a “phantom tax” for Marketplace enrollees.

d3sign | Moment | Getty Images

As millions of Americans compare health plans on the Affordable Care Act insurance marketplaces, experts say it’s critical to run projections and rethink popular tax moves before enrolling in subsidies.
Marketplace open enrollment typically runs from Nov. 1 through Jan. 15, but will extend to Jan. 16 because of a federal holiday in 2024.

It can be tough to gauge eligibility for subsidies and some popular financial strategies can create a “phantom tax” for marketplace enrollees, warned Tommy Lucas, a certified financial planner and enrolled agent at Moisand Fitzgerald Tamayo in Orlando, Florida.

More from Year-End Planning

Here’s a look at more coverage on what to do finance-wise as the end of the year approaches:

Marketplace enrollment has soared over the past four years, partially due to the expanded subsidies that were first enacted through the American Rescue Plan.
Some 91% of enrollees are receiving premium tax credits, which reduce or eliminate the cost of coverage for 2023, according to the Center of Budget and Policy Priorities. The average enrollee is paying premiums of $124 per month after the subsidies, which were boosted through 2025 via the Inflation Reduction Act.

How to know if you’re eligible for subsidies

When applying for marketplace insurance, you have to estimate your 2024 income to weigh eligibility for subsidies, which can be tricky.
Part of the calculation uses so-called “modified adjusted gross income,” or MAGI, which Lucas described as “the worst” because it includes more types of income compared to other versions of the formula.

You start with adjusted gross income, which is line 11 on the front page of your tax return and add back excluded foreign income, nontaxable Social Security benefits and tax-exempt interest, such as earnings from municipal bonds.  

If your actual income exceeds your estimates, you might be required to repay some or all of the subsidy.

Sean Lovison
Founder of Purpose Built Financial Services

“Accurate income forecasting is key when applying for ACA subsidies,” said Sean Lovison, a CFP with Philadelphia-based Purpose Built Financial Services. He is also a certified public accountant. “If your actual income exceeds your estimates, you might be required to repay some or all of the subsidy.”
The subsidy eligibility calculation also considers your location, family size and whether you spouse has available coverage.

‘You’re getting taxed in the background’

When weighing moves like Roth individual retirement account conversions or selling assets to harvest capital gains, it’s important to understand how these strategies may affect your eligibility for marketplace subsidies.  
“What you don’t know is you’re getting taxed in the background,” Lucas said. When clients took subsidies and had higher-than-expected income, he’s seen “horrible numbers” and an unexpected tax bill along with underpayment penalties. More