The government has expanded the money supply by over 35% since the Covid Pandemic began. The printing press was being run 24/7 and the output was dropped out of helicopters on everyone, whether they needed it or not. In addition, they forced huge sectors of the economy to shut down for months and even longer. What we have is more money chasing fewer goods and services. A recipe for inflation in any scenario.
To make things even worse, they impaired domestic energy production by cancelling the XL pipeline. This has forced us to import more oil and gas at much higher rates. And labor costs, were not spared. People were paid more to sit home than return to work, minimum wages were raised significantly, and unions were given unprecedented preferences and privileges.
It appears as I write this that any modifications to our tax laws and system will not be enacted nor take effect until 2022. Additionally, there is very little likelihood that any tax rates will be lower in 2022 than they were in 2021. While it’s usually beneficial to defer taxes when possible, it can be even more advantageous to pay taxes at the lowest rate possible. It is clear that for some taxpayers 2021 will be the lowest rate for the foreseeable future.
It’s not too late to do some year end tax planning. Based on my assumptions above, some of these actions and strategies may be beneficial for you.
It happens every year. We are bombarded on TV with commercials enticing seniors to enroll in a Medicare Advantage Plan. This year the notable celebrity pitchmen are Joe Namath and Jimmy “JJ” Walker of Good Times fame. They promise and imply the world if you just sign up. Sometimes I think they would tell you that you will live to be 100 if they could get away with it and it was on the cue card.
But, are they really a good option? Here is the good, the bad, and the ugly…
If your car lease is expiring in the coming months, it MAY have a buyout purchase option. This means you have an option to buy the car at a previously set price. This price was set based upon the predicted residual value of the car at the end of the lease when you entered into the contract. Check your lease to see if yours has a buyout. If it does, you may want to consider executing the buyout for a number of reasons.
New cars are in short supply mostly due to chip shortages. As with anything in short supply, they are more expensive than usual. By buying or leasing a new car now you would be locking in a high price.
The prices of used cars are way up due to the new car shortage.
Your current leased vehicle may have lower mileage due to curtailed driving in the pandemic.
The buyout price may be well below the current market value of the vehicle.
By buying the car you avoid the damage inspection and assessments for often minor issues when a leased car gets turned in.
The $1.9 Trillion Covid Relief Bill (American Rescue Plan Act) appears headed to passing the House and Senate with at least the $1,400 per person direct checks to many Americans remaining in the bill. In the House version, the full payments will go to all filers with incomes under $75,000 Single and $150,000 Joint. The payments would begin phasing out at incomes above that until reaching $100,000 Single and $200,000 Joint respectively.
The Senate version lowers the eligibility numbers to $50 – 75K Single and $100 – $150K Joint. In either case eligibility will be determined by the most recent of your 2019 and 2020 Tax Returns. It recognizes that many people have not filed their 2020 returns yet.
Here in lies a planning opportunity for some people. If your income will allow you to qualify for the payment(s) in only one of those tax years, make sure that the lower income is the latest return you have filed.
As a result of the Georgia Senate elections on January 5th, we have regime change. The Democratic Party now controls the White House and both chambers on Capitol Hill. They are free to enact almost any economic, regulatory or fiscal legislation they desire as long as they can agree amongst themselves and pass muster with the Supreme Court. None of what they do will be undone until the Republican Party regains control of all three legs of the stool. In the past 40 years one party has had complete control in only 14 of them, so it could be a while until that happens. Here is what I think we will see from the Federal Government in the coming year from a fiscal and economic perspective.
For the first few months, they will be tied up trying to implement their own Covid plan. We can expect more stimulus money being distributed to almost everyone, unemployment payments being expanded and extended and more aid of some sort being directed at small businesses. This plethora of money chasing fewer goods and services will lead to increased inflation, that’s Econ 101. Sustained inflation will lead to higher market interest rates – the Fed will not be able to stop this over any extended period.
One of the projects I undertook over the past few weeks, was to redesign this blog. I had never liked the design that was originally imbedded with our website and two years ago I decided to use a separate host. I picked a template and configured it – at least as best I could. To be generous, it sucked. After a while, I just stopped posting – frankly, I was a bit embarrassed by it and it was way too distracting. Fixing it is one of those things that just never got to the top of the to do list. Until now.
I have been writing Financial In$ight for three decades. It morphed from a monthly printed and mailed newsletter to a blog. Communicating with our clients and followers is important. The financial world is a big place and I cherish the opportunity to make it a bit smaller. I needed to solve this problem.
CNBC is usually playing in the background on a TV in my office. In addition to hard news, financial and otherwise, they have and endless stream of talking heads and commentators, both their own and outside guests, throwing opinion and predictions at the audience.
Last week the equity markets were particularly volatile, so I was paying a bit more attention. At one point on a sharply down day, they put on a guest who told us that he was predicting the S&P 500 Index would finish the year higher than where it was as he was speaking. He seemed very sure of himself. Continue reading →
This month marks 30 years ago that I started my own firm. At the time, I was working at a local Financial Planning firm that was actually pretty progressive for that era.
When I had started there some two years earlier, one of my colleagues, Jacquie, took me under her wing and taught me much about employee benefits. That became an important career skill for me. Jacquie had left the firm in the spring of 1988 for another endeavor. Like many breakups I guess there were bad feelings between her and the firm’s ownership. She was very involved in a local business association and they sponsored a running race that September to benefit a charity. I was a runner (I still am) and I ran in the race. I saw Jacquie at the race and spent some time catching up with her. Continue reading →