Inflation news, tax bills, & more: Cut Through The Noise

November 23, 2021

Inflation news, tax bills, & More: Cut Through The Noise

This week on Cut Through The Noise: Breaking down inflation news, 2021 tax bills, & more

In this episode of Cut Through The Noise, Anthony Saffer, CFP®,CKA® and Alex Okugawa, CFP®, CEPA®, CKA® tackle the hottest topics in financial markets, financial planning, and life, including:

► Inflation numbers

► Zillow house flipping

► 2021 tax bill updates

► Increases to Social Security

Watch here:

Full transcript:

SPEAKERS

Anthony Saffer & Alex Okugawa

Alex Okugawa 0:00
Hello, and welcome to our segment cut through the noise where today we answer your questions that we’ve been hearing throughout the month. Today we’re talking about October inflation numbers, what the heck is going on with the Zillow house flipping, tax bill updates, and increases to Social Security. Stay tuned. All right, Anthony, so let’s dive into it. October inflation numbers just recently came out.

Anthony Saffer 0:26
Yes, 6.2%. year over year, and it’s getting higher. It was at 5% for a while, and then that’s much higher than the recent decade where we’ve had under 2%.

Alex Okugawa 0:36
A lot of people, see these numbers, and go, oh this is “hyperinflation“. Hyperinflation is coming. I’m like, do you understand that hyperinflation is quite literally the demise of a society. I mean, if we’re headed toward that we’re in some deep trouble. But inflation is just higher than it’s been in recent memory. We’re so used to like, 1- 2% inflation, and the second we see anything higher, which again, this is quite high, but not in hyperinflation territory.

Anthony Saffer 1:06
And it makes sense. We had pent-up demand in the economy that was restricted. So we’re coming off of those lows, and people are spending money right now. And the Fed came out a couple of weeks ago and they said, we expect now that this to persist into the summer of 2022. And that makes sense to me because inflation didn’t start to creep up until about April where it got above 4%. When inflation starts, it remains high above those numbers. So now we’re working off of that higher number, then it’s something to maybe be a little bit more aware of… All right, next thing, Alex is Zillow announced they’re shutting down their home flipping division with major losses, $381 million in a quarter. Now they’re selling all these properties.

Alex Okugawa 1:55
So I mean, this is kind of made some big headline news, at least in the investment space. I think they call it their “ibuying program” where they just had Zillow employees going out and buying houses. Just right on the scene, they just go out there they go. “Okay, sure. We’ll buy it.” Little do they know a giant dog is barking in the backyard no one wants to live next to, it’s next to a road that gets a lot of road noise. So yeah, kind of seems like a flop of a program for them. And the stock price has taken a tumble since.

Anthony Saffer 2:28
So one of the bullish arguments for housing and real estate values, is these commercial companies coming in and buying, properties in mass and driving up the values. Does this and that argument?

Alex Okugawa 2:41
Maybe it answers a solution of “how are we going to get millennials in homes?” Well, you have these big companies coming in buying houses at higher prices, and then they have to turn around and sell them at lower prices. So maybe this is how we get millennials in houses, lower home prices for them. But I think at the end of the day, what it does answer is, these companies aren’t perfect. They roll out programs, oftentimes, they’re testing in they’ll work, and clearly, this one has not worked. So they’re pulling it back. All right. Next one, there’s been a lot of back and forth on this, but tax bill updates.

Anthony Saffer 3:16
A lot of back and forth, roll out the Michael Scott snip, snap, All kinds of things and we’ve talked about them here on these videos. So the probably the biggest news of the last proposal is how much was pulled out of the bill, brackets are going to stay the same rates are going to stay the same. Except for just cost of living adjustments in those brackets. More is pulled out then stayed in at this point. Some of the notables are the fact that there it looks like the salt tax, a state and local income tax, which is especially important here in California, is going to be much higher than that $10,000 cap. So people are breathing a sigh of relief here. And I think

Alex Okugawa 4:00
for married couples, what is right now and again, my goodness, it’s changed so many times, every time this goes live, it might change again, but I believe for a married couple, they’re looking to increase the cap from 10,000 to $72,500.

Anthony Saffer 4:15
So those that are paying state income tax when they do owe something, have property taxes, a lot of people are over that $10,000 limit. So this will provide some relief from that angle. We’ve talked a lot about the backdoor Roth IRA strategy, that was repealed and then back in and then repealed again. So it doesn’t look like that’s gonna be an option after 2021. So if somebody’s thinking about that, then you might want to create some urgency there. The special surtax for S corp owners on their profits if they’re over certain income limits. I think it’s $400,000 a single married filing joint 500,000 you get above that limit? There’s a surtax applied on profits. Not just on the amount that’s above those numbers, but ultimately on the whole thing,

Alex Okugawa 5:04
My main takeaway from all this is the tax updates are so individualized, in how they will impact you. Like the tax updates, they can impact once a group of people has significantly and another group of people, like not even impact on other people. And that’s why I mean, that’s why tax planning is so important. That’s why we’re always asking for our clients, tax returns, Hey, give us a tax return, let’s run an analysis. Hey, if things are gonna change, like we can like run some projections, Hey, what is your tax bill likely to look like next year, we’re not CPAs. We’re not providing necessarily tax advice. But we can do a lot of tax planning to help lower your lifetime tax bill even taking into account the most recent tax proposals.

Anthony Saffer 5:46
We’ve had a lot of conversations with clients and their CPAs to help plan for these types of changes that are coming up, especially now as they become seemingly a little bit more realistic. All right. Last thing, Alex, so Social Security announced that their cost of living adjustments are going up by 5.9%.

Alex Okugawa 6:03
Which is it’s received with open arms. Yeah, for sure. But we see inflation numbers going up about 6%. You have social security benefits going up about 6%. The other thing there too, is I think you looked at the numbers, Medicare premiums are going up around six-ish percent. So it doesn’t completely offset, but it does increase the prices and everything. So yeah, I mean, it’s going up, I know, retirees are going to welcome that with open arms, it’s very likely a lot of that’s going to be spent pretty quickly, just with how prices have been going up lately. I think the other thing, too, is, you know, security, historically, least from our viewpoint is not keeping up with inflation. So it’s something to plan for, you know, you see these big cost of living adjustment increases. But it does cause you to take a look and go Well, actually, how has this, you know, kept up over time.

Anthony Saffer 6:58
And it hasn’t quite so much. So when we do retirement projections, we’re generally counting on Social Security, not keeping up with regular inflation. And at least we want we’d rather be conservative in that regard. But if it’s a nice surprise, great, yeah, like this year. Exactly. Absolutely.

Alex Okugawa 7:13
All right. Well, this was our segment cut through the noise. We hope you found it helpful. If you have questions that you would like us to answer, you can submit a question at admin at one degree advisors.com. We look forward to hearing from you.

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