As the stock market tumbles, businesses halt operations, venues cancel events, and consumers tighten their belts on all spending that doesn’t involve hoarding toilet paper, it’s hard to go a day without hearing a news report about the coronavirus and a pending recession. While that would be bad news for most, some industries have built-in mechanisms that allow them to survive — and even thrive — when economic storm clouds gather. Whether it’s about finding businesses to invest in or industries it’s safe to work in, these are worth a look.
Our current economic downturn is about a health emergency, but the health care industry doesn’t tend to rattled by any kind of downturn. “Given our aging population and the high cost of health care in general, this sector is typically resilient to recessions and may actually see rising sales and profits,” said Caleb Silver, editor-in-chief of Investopedia. “Pharmaceutical products and medical services are nondiscretionary for most people who rely on prescription drugs and medical care for their health.”
Unlike clothing, entertainment, and other discretionary purchases, consumer staples are basic needs essential for everyday use and tend to perform better as a sector during downturns. “These include household goods, food, beverages, hygiene products, and other items that individuals are either unwilling or unable to eliminate from their budgets — even in times of financial trouble,” Silver says.
When budgets are tight, people go to stores that help them stretch their dollars, even if they don’t tend to shop there during times of plenty, often for household necessities. “Discount retailers also tend to benefit during economic slowdowns, given their ability to offer most consumer staple products at low costs to entice bargain hunters,” Silver says.
RELATED: Take a look at some the simplest ways to lower your taxes:
5 ridiculously simple ways to lower your taxes
5 ridiculously simple ways to lower your taxes
1. Contribute more to a retirement account
If you put money into a traditional IRA or 401(k) plan, you'll benefit in two ways. First, you'll get the financial security that comes with having savings available in retirement, and the earlier in life you start contributing, the more opportunity you'll give your money to grow. But you'll also benefit from a tax perspective, because the amount you contribute will go in pre-tax. What this means is that if you make $50,000 a year but put $5,000 into your 401(k), you'll only pay taxes on $45,000 of income. Talk about a win-win!
PeopleImages.com via Getty Images
2. Donate items you no longer use
Is your basement or hall closet overflowing with clothing, tools, and gadgets you don't need? If you donate those items to a registered charity, you'll get to claim a deduction on your taxes. All you need to do is obtain an itemized receipt of what you give away to verify your donation, and you're all set.
sirastock via Getty Images
3. Open a flexible spending account
Medical care can be a huge expense for some families. Americans spent an estimated $416 billion on out-of-pocket medical expenses in 2014, and that number is expected to climb to $608 billion by 2019. But if you sign up for a healthcare flexible spending account (FSA), you'll get to pay for eligible medical expenses, like copays and prescription drugs, with pre-tax dollars. For 2016, you can allocate up to $2,550 to an FSA, which means that if your effective tax rate is 25%, you'll save $637 by contributing the maximum. But don't make the mistake of overfunding your FSA. The money you contribute goes in on a use-it-or-lose-it basis, so if you put in the full $2,550 but only rack up $2,000 in eligible expenses, you'll have to kiss that remaining $550 goodbye.
Image Source via Getty Images
4. Use pre-tax dollars to pay for child care
Childcare is one of the greatest expenses families with young children face. The average American household currently spends $10,192 a year on full-time day care center care, $7,700 a year on regular after-school babysitting, and $28,900 on a full-time nanny. The good news, however, is that you can shave a fair amount of money off your tax bill by opening a dependent care FSA. Similar to a healthcare FSA, a dependent care FSA allows you to allocate pre-tax dollars to pay for eligible child care expenses, which include preschool and summer camp. For 2016, a couple filing a joint tax return can contribute up to $5,000 a year in pre-tax dollars. If you max out that limit and your effective tax rate is 25%, you'll save $1,250 in taxes. The only catch is that like a healthcare FSA, if you end up spending less during the year on eligible expenses than what you put in, you'll forfeit your remaining balance.
Caiaimage/Paul Bradbury via Getty Images
5. Sign up for commuter benefits
Traffic and rail delays can be a huge source of daily aggravation. But if your commute can't serve the purpose of helping you relax and ease in and out of your workday, it can at least help you lower your taxes. All you need to do is sign up for commuter benefits through your employer, and you'll get to use pre-tax dollars to pay for the costs you already incur. For 2016, you can allocate up to $255 per month in pre-tax dollars for transit and up to $255 a month for parking for a combined total of $510. If you hit that maximum and your effective tax rate is 25%, you'll save $1,530 a year on your taxes.
Nobody likes paying taxes, and there's certainly no reason to pay more than you have to. With a few smart moves, you can lower the amount you ultimately fork over to the IRS and keep more money in your pocket.
Compassionate Eye Foundation/Steven Errico via Getty Images
Discover More Like This
BACK TO SLIDE
Just like consumer staples, people have to keep utilities such as electricity in their budgets, even during the leanest of times. But that’s not the only reason the sector tends to perform well in troubled times. “Utilities are generally considered defensive stocks given their necessity and their recurring revenue models,” Silver said. “While their growth is more muted than other sectors of the market, they are slow and steady earners no matter the economic environment. They also offer relatively high dividends to investors looking for yield in good times and bad.”
Many service-based industries suffer during downturns, Silver’s Investopedia points out, including restaurants and maid services, because people tend to cut those luxuries out fairly early during a belt-tightening. Others, however, wind up doing better when the economy is down. They include service and repair companies, because budget-minded households and businesses will pay to fix the things they can instead of spending more to buy a new one.
So-called sin industries tend to thrive in recessions, Investopedia reports, because down-and-out consumers will spend a little more money to dull the pain of not having a lot of money to buy things they really want. This includes cigarettes, booze, and even chocolate. (Oddly, gambling tends to decline during recessions.)
You can maximize your tax refund in several ways — from paying off high-interest debt to investing in a business or saving for retirement. One or more of these options could be the perfect fit for you.
The Schedule K-1 is slightly different depending on whether it comes from a trust, partnership or S corporation. Find out how to use this tax form to accurately report your information on your tax return.