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An attorney friend recently asked me out of the blue about nonfungible tokens, or NFTs. What prompted his interest was the sale of a collage composed of 5,000 digital pieces, auctioned by Christie’s on March 11, 2021, for a remarkable US$69 million. Mike Winkelmann, an artist known as Beeple, created this piece of digital art, made an NFT of it and offered it for sale. The bidding started at $100, and the rest of the auctioning process transformed it into a historical event.
Similarly, it was hard to miss the news about the iconic GIF Nyan Cat being sold as a piece of art, Twitter’s founder transforming the first tweet into an NFT and putting it up for sale, or an NFT of a New York Times column earning half a million dollars for charity.
My friend’s questions were an attempt to understand where the underlying value of an NFT comes from. The issue is that perceptions of what the buyer is paying for are not easily framed in legal terms. NFT marketplaces do not always accurately describe the value proposition of the goods they are selling. The truth is that the value of any NFT is speculative. Its value is determined by what someone else is willing to pay for it and nothing else.
Turning something as ephemeral as a tweet into an item that can be sold requires two things: making it unique and proving ownership. The process is the same for cryptocurrencies, which turn strings of bits into virtual coins that have real-world value. It boils down to cryptography.
Cryptography is the technique used to protect privacy of a message by transforming it into a form that can be understood only by the intended recipients. Everyone else will see it as only an unintelligible sequence of random characters. This message manipulation is enabled by a pair of keys, public and private keys: You share your public key with your friend, who uses it to transform his message to you into an unintelligible sequence of random characters. You then use your private key to put it back into its original form.
The special mathematical properties of these two crypto keys are widely used to provide secrecy and integrity. Two crypto keys play the role of digital signatures and are commonly used in blockchain to enable both authentication and anonymity for transactions.
Blockchain is a crucial technology for creating NFTs. It uses cryptography to chain blocks into a growing list of records. Each block is locked by a cryptographic hash, or string of characters that uniquely identifies a set of data, to the previous block. The transaction records of a chain of blocks are stored in a data structure called a Merkle tree. This allows for fast retrieval of past records.
To be a party in blockchain-based transactions, each user needs to create a pair of keys: a public key and a private key. This design makes it very difficult to alter transaction data stored in blockchain.
Although blockchain was initially devised to support fungible assets like Bitcoin and other cryptocurrencies, it has evolved to enable users to create a special kind of crypto asset, one that is nonfungible, meaning provably unique. Ethereum blockchain is the basis for most of the currently offered NFTs because it supports the ERC-721 token standard, enabling NFT creators to capture information of relevance to their digital artifacts and store it as tokens on the blockchain.
When you pay for an NFT, what you get is the right to transfer the token to your digital wallet. The token proves that your copy of a digital file is the original, like owning an original painting. And just as masterpiece paintings can be copied and distributed as inexpensive posters, anyone can have a digital copy of your NFT.
Your private crypto key is proof of ownership of the original. The content creator’s public crypto key serves as a certificate of authenticity for that particular digital artifact. This pair of the creator’s public key and the owner’s private key is primarily what determines the value of any NFT token.
NFTs came to prominence in 2017 with a game called CryptoKitties, which enables players to buy and “breed” limited-edition virtual cats. From there, game developers adopted NFTs in a big way to allow gamers to win in-game items such as digital shields, swords or similar prizes, and other game collectibles. Tokenization of game assets is a real game-changer, since it enables transferring tokens between different games or to another player via NFT specialized blockchain marketplaces.
Besides gaming, NFTs are frequently used to sell a wide range of virtual collectibles, including NBA virtual trading cards, music, digital images, video clips and even virtual real estate in Decentraland, a virtual world.
NonFungible.com, a website that tracks NFT projects and marketplaces, puts the value of the total NFT market at $250 million, a negligible fraction of the total crypto coin market but still highly attractive to content creators. The contract behind the token, based on the ERC-721 standard for creating NFTs, can be set to let content creators continue to earn a percentage from all subsequent sales.
The NFT market is likely to grow further because any piece of digital information can easily be “minted” into an NFT, a highly efficient way of managing and securing digital assets.
For all the excitement, there are also concerns that NFTs are not eco-friendly because they are built on the same blockchain technology used by some energy-hungry cryptocurrencies. For example, each NFT transaction on the Ethereum network consumes the equivalent of daily energy used by two American households.
Security for most of today’s blockchain networks is based on special computers called “miners” competing to solve complex math puzzles. This is the proof-of-work principle, which keeps people from gaming the system and provides the incentive for building and maintaining it. The miner who solves the math problem first gets awarded with a prize paid in virtual coins. The mining requires a lot of computational power, which drives electricity consumption.
Ethereum blockchain technology is evolving and moving toward a less computationally intensive design. There are also emerging blockchain technologies like Cardano, which was designed from the outset to have a small carbon footprint and has recently launched its own fast-growing NFT platform called Cardano Kidz.
The speed of transformation of blockchain technology into a newer, more eco-friendly variant might well decide the future of the NFT market in the short term. Some artists who feel strongly about global warming trends are opposed to NFTs because of perceived ecological impact.
Whether or not the current NFT craze can keep its momentum going, NFTs have already accelerated a larger trend of digital economic innovation. NFTs have confirmed that the public is feeling increasingly favorable toward a crypto-economy and is embracing short-term risks in return for creating new business possibilities.
NFTs have already made significant inroads into the luxury and gaming industries, and have plenty of room to grow beyond these initial applications. The art sector will continue to be an important segment of the overall NFT market and is likely to gradually reach maturity over the next couple of years, although it is likely to be surpassed by other digital certificate applications like trademarks and patents, training and upskilling certificates.
Money is always an emotional subject, but often when our emotions get involved with our investments we will make wrong decisions. And that can be a costly mistake.
Keeping emotions and investing separate seems almost impossible for many investors. When reacting too quickly and letting emotions cloud judgment, even the most experienced investors do not make the best decisions. However, keeping emotions away from investment decisions can give you a better chance for success.
Here are four tips on how to keep emotions and investing separate:
It sounds so simple, but setting financial goals really is the first step to investing, and financial goals can keep emotions out of the picture if done correctly. Having goals will help you keep an eye on the big picture.
For example, if you are saving for retirement in 30 years, you know that you have more time to make up for any losses than if you plan to retire in 5 years. These goals can also keep you focused on what you need to do today to get there.
Do you check up on your investments every day, sometimes spending hours figuring out how you’re doing and what you could have done better if you had just moved your investments around? If so, you are just going to drive yourself crazy because all you’ll really see will be market gyrations and mistakes you think you could have avoided.
Checking too often will not benefit your portfolio in any way, but it will cause anxiety. This is even more true if you own individual stocks as checking stock prices too often can cause you to panic, and you might make a snap judgment to trade. Instead, keep your checks to monthly or quarterly, and concentrate on sticking to your overall plan and goals.
Again, it sounds so simple, but knowing what you are buying is crucial to help you avoid emotional setbacks in investing. Always do your own research before purchasing anything, even if you have outside assistance.
Understand what the investment is, how it will help you achieve your goals, what the risks are, and when and how to exit. Without your own research, you will not take full responsibility for your trades, introducing negative emotions.
You can create some distance between yourself and your investments by putting a financial advisor in the middle of the two.
By entrusting a neutral third party who can help you examine your situation objectively and encourage you to stay on track, you can hold yourself more accountable for the things that you can actually control.
You just finished your taxes, but it's not too early to make plans for next year.
It's important that as you build your plan, you think about some strategies to reduce or defer your taxes now or in the future. Here are some strategies to consider helping your financial plan become more tax-efficient:
1. Tax harvesting
Usually, this strategy is implemented near the end of the calendar year, but it can be done at any time. With tax-loss harvesting, you sell off holdings that have a loss position to offset the gains you've experienced from other sales.
The asset you sold is then replaced with a similar investment to maintain the portfolio's asset allocation and expected risk and return levels. It won't restore your losses, but it can ease the pain.
2. Using long-term gains and the 0% tax rate
For those who fall within the 15% tax bracket, your long-term gains are tax-free. Make it a habit to project your taxes and to look for tax opportunities every year as part of your plan.
3. Making IRA contributions
You have until the upcoming April’s Tax Day to make a Roth or traditional IRA contribution for that tax year, but why put it off? In fact, you could even use your income tax refund to fund it. Remember, a Roth creates tax-free income in the future, which is worth its weight in gold.
4. Using the "backdoor" Roth
Some people make too much money to contribute to a Roth IRA or to take a deduction on a traditional IRA. But you still can make a contribution to a traditional IRA without the deduction and later convert it to a Roth.
There's no tax due, except on growth in the account that you earn between the time of the contribution and the conversion. If you hold money in a traditional IRA for a short time only, the growth – and the resulting tax – should be small.
5. Exploring financial vehicles that can defer taxes on dividends, interest and capital gains
Tax deferral allows you to employ the triple compounding effect: It pays interest on the principle, interest on the interest and interest on the taxes that you would have paid if you were in an investment that was taxed annually.
This year – or any year for that matter – don't wait until the end of the year to think about the moves that could save you on your tax return.
Get together with your financial adviser or tax professional now to discuss a plan that will help you succeed in your goals.
Taxpayers of all ages may be able to claim a deduction on their 2020 tax return for contributions made to their Individual Retirement Account made through May 17, 2021 (the U.S. Department of the Treasury is delaying the April 15th deadline to file and pay taxes until May 17th, giving individuals and businesses another month to file and then pay the government what they owe). And unlike in past years, there is no longer a maximum age for making IRA contributions.
Contributions to a traditional IRA are usually tax deductible, while distributions are generally taxable. There is still time to make contributions that count for a 2020 tax return, so long as the contributions are made by May 17, 2021. The good news is that taxpayers can file their return claiming a traditional IRA contribution before the contribution is actually made, but the contribution must then be made by the May due date of the return.
While contributions to a Roth IRA are not tax deductible, qualified distributions are tax-free. In addition, low- and moderate-income taxpayers making these contributions may also qualify for the Saver’s Credit.
Generally, eligible taxpayers can contribute up to $6,000 to an IRA for 2020. For someone who was 50 years of age or older at the end of 2020, the limit is increased to $7,000. The restrictions on taxpayers age 70 1/2 or older to make contributions to their IRA were removed in 2020.
Qualified contributions to one or more traditional IRAs are deductible up to the contribution limit or 100% of the taxpayer's compensation, whichever is less.
For 2020, if a taxpayer is covered by a workplace retirement plan, the deduction for contributions to a traditional IRA is generally reduced depending on the taxpayer's modified adjusted gross income:
Single or head of household filers with income of $65,000 or less can take a full deduction up to the amount of their contribution limit. For incomes more than $65,000 but less than $75,000, there is a partial deduction and if $75,000 or more there is no deduction.
Even though contributions to Roth IRAs are not tax deductible, the maximum permitted amount of these contributions begins to phase out for taxpayers whose modified adjusted gross income is above a certain level:
The Saver’s Credit, also known as the Retirement Savings Contributions Credit, is often available to IRA contributors whose adjusted gross income falls below certain levels. In addition, beginning in 2018, designated beneficiaries may be eligible for a credit for contributions to their Achieving a Better Life Experience (ABLE) account.
Taxes are complicated enough and reading, learning and implementing tax strategies that are most appropriate for you can be a daunting task. Make sure you talk to your financial advisor in order to confirm that the tax decisions you make are consistent with your overall financial plan.
Without a doubt, income tax laws are complex. Yet, many individuals do their own income tax returns.
Sure, the advent of personal income tax software has somewhat eased this burden. Tax preparation software is reasonably inexpensive.However, you still have to gather all the information. But, on the plus side, most software allows you to try several different scenarios and see which is best for your particular situation tax-wise. Some of the programs allow you to use your home computer to print tax forms that are acceptable to the Internal Revenue Service (IRS). People with simple returns might also consider free help (but little in the way of tax breaks) from "assistors" on staff at some Internal Revenue Service (IRS) offices.
Still, if your finances have become more complicated, hiring a professional might be less stressful and prove less costly than risking possible errors by wading through the forms on your own.
For returns such as the 1040 or 1040A, "storefront" tax preparers, including those working for regional or national chains, may be your best bet. They're generally fast and inexpensive. Remember, however, these tax preparers may be of little help during an IRS audit.
If you are self-employed, have certain kinds of liens, or are withdrawing from a retirement plan, consider "enrolled agents." Such agents are tax consultants who have spent time working for the IRS or passed a special IRS test. They are required to continue their education to keep up with tax law changes. Remember, while consultants with an IRS background may be conservative on deductions, they tend to know what may trigger an IRS audit.
Enrolled agents generally charge more than tax preparers do, but less than certified public accountants (CPAs). CPAs must meet strict educational and professional standards, and may be appropriate if your tax filing will be very complicated.
Enrolled agents, CPAs, and attorneys are the only people who can represent you before the IRS if you are audited.
How do you choose the tax consultant who is best for you?
Try to get an initial free consultation--and do it early in the tax season. During the 1st quarter of the year, the best consultants often have four- or five-week backlogs even for paying clients. During the consultation, ask plenty of questions. Find out how aggressive the consultant is about deductions, how fees are calculated, and whether the person you speak with will actually prepare your return or pass it on to an assistant.
Finally, once the professional has completed your return, review each line carefully to avoid any possible errors.
In difficult economic times, many young couples and families may find themselves wondering where their money goes. Faced with income constraints and competing demands for their money, many people simply spend what they must on necessities and save whatever happens to be left over. Or they spend all of their wages trying to make ends meet and borrow or charge anything else that they need.
Whether you live close to your means or have substantial financial resources, a budget can serve as the foundation for a family savings program. It can provide an effective tool to help control both personal and household expenses, thus freeing up income that you can redirect toward your family’s future.
How does a budget accomplish these goals? Consider the following points:
Regardless of your family’s dreams—whether of higher education for a child, an early retirement, or a once-in-a-lifetime family vacation—a budget can help boost your savings, thereby bringing your family’s wishes closer to reality.
Women’s History Month traces its origins to 1981 when Congress passed a joint resolution designating the week beginning March 7, 1982 as “Women’s History Week” and requesting that President Reagan issue a proclamation “calling upon the people of the United States to observe such week with appropriate ceremonies and activities.”
For the next five years, Congress continued passing yearly resolutions designating a week in March as “Women’s History Week” and in 1987 Congress passed a resolution designated the month of March as “Women’s History Month.”
These proclamations celebrate the contributions women have made to the United States and recognize the wonderful achievements women have made throughout American history.
Henrietta ("Hetty") Howland Robinson was born in 1834 in New Bedford, Massachusetts, the daughter of Edward Robinson and Abby Howland, one of the most well-off whaling families of the time.
When she was two years old, Hetty was sent to live with her grandfather, Gideon Howland, and her aunt, Sylvia Ann Howland, but it was because of her grandfather’s failing eyesight that Hetty learned to read him the stock quotes and commerce reports from a remarkably young age. At the precocious age of 13, Hetty became the family’s bookkeeper.
Hetty's father died in 1865 and left Hetty a sizeable inheritance, including a trust fund from which she received income but did not control the principal. That same year, Hetty’s aunt Sylvia also died leaving Hetty a sizeable inheritance, but similarly in a trust fund from which she received income, but did not control the principal.
Hetty challenged the validity of the wills in Robinson v. Mandell and argued that the entire estate was meant for her as evidenced by an earlier will made in 1862, which Hetty produced for the court. After five years of legal battles, Hetty reached a settlement of $600,000 (worth over $12 million in today’s dollars).
Hetty invested the interest from her trust funds much like her father did, buying Civil War bonds, which paid a high yield in gold, and were supported by railroad stocks. Her investing philosophy could be described as “deep-value” but it is probably best described as “contrarian.”
Here are some of the more noteworthy quotes from Hetty that best describe how she invested:
Hetty’s thriftiness was the story of legends. She was rumored to never turn on the heat or use hot water and also to only wear one black dress and undergarments that she only changed when they were completely worn out. Another rumor swirled that Hetty told her laundress to only wash the hems of her dress, because that was the dirtiest part and she wanted to save money on soap.
But while Hetty’s frugality made sense to her, she was building a reputation that was far from flattering. To which she responded: "Just because I dress plainly and do not spend a fortune on my gowns, they say I am cranky or insane."
As a businesswoman, Hetty was wildly successful. She dealt mainly in real estate, railroads and mines. But Hetty also lent money, including when the City of New York asked her for loans to keep the city solvent on several occasions, most notably during the Panic of 1907, when Hetty wrote a check for $1.1 million in exchange for short-term revenue bonds.
Interestingly, at one time Hetty was New York City’s largest lender, but she moved to Hoboken, New Jersey to avoid New York’s property tax.
On July 3, 1916, Hetty died at age 81 and by that time had amassed a number of remarkable accolades, including:
Estimates of her worth ranged from $100 million to $200 million (about $2.5 billion to $4.5 billion in today’s dollars), making her easily the richest woman in the world at the time.
While Women’s History Month only traces its roots back to 1981 – a full 65 years after Hetty’s death – Hetty had some very strong beliefs on women and finances. In her own words, she said:
The story of Hetty Green is a must-read for every investor.
The U.S. Department of the Treasury is delaying the April 15th deadline to file and pay taxes until May 17th, giving individuals and businesses another month to file and then pay the government what they owe. The IRS will be providing formal guidance in the coming days.
From the IRS press release dated March 17th:
"This continues to be a tough time for many people, and the IRS wants to continue to do everything possible to help taxpayers navigate the unusual circumstances related to the pandemic, while also working on important tax administration responsibilities," said IRS Commissioner Chuck Rettig. "Even with the new deadline, we urge taxpayers to consider filing as soon as possible, especially those who are owed refunds. Filing electronically with direct deposit is the quickest way to get refunds, and it can help some taxpayers more quickly receive any remaining stimulus payments they may be entitled to."
“Individual taxpayers can also postpone federal income tax payments for the 2020 tax year due on April 15, 2021, to May 17, 2021, without penalties and interest, regardless of the amount owed. This postponement applies to individual taxpayers, including individuals who pay self-employment tax. Penalties, interest and additions to tax will begin to accrue on any remaining unpaid balances as of May 17, 2021. Individual taxpayers will automatically avoid interest and penalties on the taxes paid by May 17.
Individual taxpayers do not need to file any forms or call the IRS to qualify for this automatic federal tax filing and payment relief. Individual taxpayers who need additional time to file beyond the May 17 deadline can request a filing extension until Oct. 15 by filing Form 4868 through their tax professional, tax software or using the Free File link on IRS.gov. Filing Form 4868 gives taxpayers until October 15 to file their 2020 tax return but does not grant an extension of time to pay taxes due. Taxpayers should pay their federal income tax due by May 17, 2021, to avoid interest and penalties.
The IRS urges taxpayers who are due a refund to file as soon as possible. Most tax refunds associated with e-filed returns are issued within 21 days.
This relief does not apply to estimated tax payments that are due on April 15, 2021. These payments are still due on April 15. Taxes must be paid as taxpayers earn or receive income during the year, either through withholding or estimated tax payments. In general, estimated tax payments are made quarterly to the IRS by people whose income isn't subject to income tax withholding, including self-employment income, interest, dividends, alimony or rental income. Most taxpayers automatically have their taxes withheld from their paychecks and submitted to the IRS by their employer.”
“The federal tax filing deadline postponement to May 17, 2021, only applies to individual federal income returns and tax (including tax on self-employment income) payments otherwise due April 15, 2021, not state tax payments or deposits or payments of any other type of federal tax. Taxpayers also will need to file income tax returns in 42 states plus the District of Columbia. State filing and payment deadlines vary and are not always the same as the federal filing deadline. The IRS urges taxpayers to check with their state tax agencies for those details.”
Putting off paying taxes until right before the deadline is human nature. In fact, according to statistics from the IRS, in most years 70 million individuals had already filed their tax returns by mid-March. And that’s only about 45% of the returns the IRS expects to receive.
For those who haven’t filed yet, here are two reasons to convince you to have your taxes done professionally:
So it is most likely worth your time and money to have an expert prepare your tax return or at least look it over for you.
Preparing your own returns can take a lot of time, but the exact amount of time depends on the complexity of your finances.
You already know that the federal, state and local tax laws are complex, and constantly changing. But remember, the Tax Cuts and Jobs Act made some significant changes to the tax code when it went into effect. In fact, most consider the Tax Cuts and Jobs Act to be the biggest tax reform legislation in more than 30 years.
The answer to that question, of course, depends on your situation. But it’s likely that for a lot of people, it makes sense to just stick to the original schedule and file and pay taxes by April 15th. Ask yourself this question:
“Is there any real benefit to waiting until May 17th?”
When you’ve answered that question, make sure you talk to your financial advisor to confirm that the tax decisions you make are consistent with your overall financial plan.
While most people find the notion of creating a budget about as appealing as cleaning out closets, most would agree that the result—a well-crafted and useful budget—is worth the work.
Two financial “snapshots” you can take at any time to help view your financial landscape are a balance sheet (or net worth statement) and a cash flow statement. These tools demonstrate where you are today, and they can also help you make important financial comparisons in the future. Although various software programs are designed to help with budgeting, it can be easy and helpful to create your own worksheets on paper.
To create a balance sheet, simply draw a line down the center of a blank piece of paper. Label one column “Assets” and the other column “Liabilities.” Assets are everything you own, and liabilities are everything you owe.
You can add structure by grouping your assets into three categories:
Liabilities can be labeled as follows:
Enter all of the relevant numbers and add up the two columns. We’ll examine the outcome later.
Next, create a cash flow statement. Draw a line down the center of another blank sheet of paper, and label one column “Cash Inflow” and the other “Cash Outflow.”
On the inflow side of the ledger, list monthly or yearly income from all sources, such as wages, self-employment, rental properties, and investment income (interest and dividends).
On the outflow side, list all monthly or yearly expenditures, separating fixed expenses (mortgage payments, other periodic loan payments, and insurance premiums) and variable or discretionary expenses (utilities, food, clothing, entertainment, vacations, hobbies, and personal care). You may choose to put taxes (Federal, state, FICA) in a separate category. Again, fill in the relevant numbers and total the columns.
If your balance sheet shows your assets exceeding your liabilities, you have a healthy net worth, especially if your cash flow statement shows more inflow than outflow. This picture shows that you are solvent and spending within your means. The degree of your financial health depends on the amount of your surplus.
Your financial picture may look somewhat different if your balance sheet shows your liabilities exceeding your assets and/or your cash flow statement shows more outflow than inflow. This indicates that you are spending beyond your means. It may be time to assess areas in which you can decrease your liabilities.
Each year, strive to increase your net worth and keep your expenditures under control. If your financial picture is a little out of focus, taking action now to sharpen the view may help you create a more promising snapshot in the future.
