The Finatical
Week of July 26th, 2022 - Tax Deductibles, Interest Rate Hikes, Netflix Subscriber Loss
Topic Breakdown - Learn about Tax Deductibles
Introduction
A tax-deductible is considered an expense that businesses, or even individuals, can “deduct” from adjusted gross income (Investopedia). A tax deduction decreases your taxable income, lowering your tax payment. You subtract the amount of your tax deduction from your income, lowering your taxable income. Your tax bill will be lower if your taxable income is smaller. Deductions are beneficial since they reduce your taxable income. They'll assist you in saving hundreds, if not thousands, of dollars on your tax bill. Simply put, a tax deduction is an item or expenditure that can be deducted from your income to lower the amount of tax you pay.
Your Options
We will also discuss some common tax deduction options that you might be eligible to claim if you itemize (we will talk about itemizing in the last paragraph). One of these deduction options is the Child Tax Credit: this has gotten people up to $3,600 per child in 2021. The American Opportunity Tax Credit “lets you claim all of the first $2,000 you spent on tuition, books, equipment and school fees — but not living expenses or transportation — plus 25% of the next $2,000, for a total of $2,500” (Nerdwallet). Also, the Medical Expenses Deduction means that in general, you can deduct qualified, unreimbursed medical expenses that are more than 7.5% of your adjusted gross income for the tax year. There are many more types of deductions that you might be eligible for, so it is important to explore these options!
Itemized vs. Standard Deductions
Finally, we will cover how to claim a tax deduction once you know you are eligible for one. There are two methods to claim tax deductions: take the standard deduction or itemize deductions. You have to choose one of the two options. Basically, the distinction between the standard deduction and the itemized deduction is basic math. The standard deduction reduces your income by a certain, fixed amount. Itemized deductions, on the other hand, are made up of a list of deductions you might be eligible for. You should claim whatever reduces your tax liability the most. Your filing status (information about you) determines how much you can get back with a standard deduction. The dollar amount of itemized deductions, unlike the standard deduction, varies from person to taxpayer. This is because different people have different applicable deductions they might be eligible for (we discussed some of these deduction options in the second paragraph).
Financial Trends
Interest Rate Hikes
As of late, the interest rates on loans are increasing at rapid rates. The Federal Reserve Governor, Christopher Walker, has mentioned that he is willing to consider making aggressive interest rates hike in decades during the central bank meeting this month. Currently, the basis point hikes are at 75 and Waller supports it for now but will be watching financial data along with keeping an open mind on different ways that the Fed can control inflation. If the Fed decides to increase the interest rates and basis points to 100, then it would mark the largest one-month increase in basis points since the early 1980s, when the central bank was attempting to control runaway inflation.
The Fed's main goal right now to tackle inflation is getting the prices of goods and services lower for the general public. Despite this, Waller expressed his concern with the inflation occurring in the U.SHe is optimistic about the nation’s economy. The strength of the job market sustaining through the first half of 2022 and the U.S. economy not falling under a recession are enough for Waller to feel confident that economic expansion will continue and a recession will not occur. Waller mentions the details of his plan to tackle inflation: “I think we need to move swiftly and decisively to get inflation falling in a sustained way, and then consider what further tightening will be needed to achieve our dual mandate.
Netflix Subscriber Loss
Recently, Netflix has been losing a lot of its subscribers in 2022 due to its high subscription prices and additional fees for password-sharing. Netflix has already notified its investors that the company is looking to lose 2 million subscribers during the second quarter of 2022, after losing 200,000 subscribers in the first quarter. If Netflix were to mention to their investors that they are continuing to lose a large number of subscribers in the third and fourth quarters, then the company’s stock could start to fall drastically. However, there is some good news for the company as in the third quarter, Netflix is projected to add a net of 1.8 million new subscribers additions. This is because Netflix has claimed that it has a strong collection of continent releases in the second half of 2022, along with some price increases, causing many people to end their subscription at the start of the year.
Additionally, Netflix is also planning to launch a cheaper-ad supported subscription as an attempt to lure previous customers and potential new ones. There has been no set date established for this service released by Netflix yet, but their standard plan across the U.S. is $15.99 monthly, making it pricier than other streaming services. There is a consensus amongst analysts that Netflix will be able to have 1.81 new subscribers in the third quarter, but in the meantime, stockholders are hedging the stock as the stock has been downgraded as of late.
Financial Guidance
“Timing, perseverance, and 10 years of trying will eventually make you look like an overnight success.” ― Biz Stone (Co-Founder of Twitter)
It may seem like there are people who become instant success stories overnight; what most people fail to see is the years of dedication and perseverance that lead up to that moment of breakthrough and achieving success.
Term of the Week
Interest rate - Amount of additional money owed as a proportion of the money lent or owed per period. For example, let’s assume that you borrow $100 with an annual interest rate of 2%. This means that at the end of the first year, you will owe your lender $102 (100 x 1.02 = 102). Depending on whether the interest rate is compounded or simple, the amount you owe the following years will differ.
Compounded: Let’s keep the annual interest rate of 2% as mentioned in the above scenario. This means that the amount you owe will increase by 2% of what is left every period. For example, if you owe $102 by the end of the second year, the amount you owe will become $104.04. This pattern will repeat until you pay off all your loan before the end of the year.
Simple: This means that the amount you owe will increase by a fixed amount, which is the interest rate times the principal (initial amount of money borrowed) every period. For example, since 2% of $100 is 2, this means that the amount you owe the lender will increase by $2 every period.
Interest rates can also be fixed or variable, meaning that the interest rate is either constant or changing. To decide on which type suits you better, it is critical to look at the overall trend of the economy. For example, a fixed variable rate is better suited if inflation is expected, as it will stay constant regardless of the economic state.