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Analysing Data

October 2020 Newsletter


SOCIAL SECURITY: There is some good news to report. Social Security will post a modified CPI increase of 1.3% for all beneficiaries effective for January 2021.  The bad news is that the real inflation this year will be closer to 5%, especially with housing and food costs going up.  Fuel costs are down as an offset but most Senior Citizens do not usually drive to work and tend to stay home more.  The increased Medicare fee will offset more than half of the average increase, to net less than $10 per month.  

FEDERAL STIMULUS PAYMENTS: $1.8 billion will now be paid to 85,000 State and Federal prisoners who were not budgeted into the Cares Act. How the money is used is debatable. How the $30,000,000,000 federal deficit will be repaid is also debatable.

CALIFORNIA INCOME TAXES: The Golden Grizzly Bear State has proposed bill AB 1253 to increase the top 13.3% tax rate to 16.8% RETROACTIVELY to January 1 this year.  This new rate would affect only millionaire’s taxes and would be inflation adjusted annually.  The worse news is that State taxes are not deductible on the Federal returns if over $10,000. U Haul and moving services are absolutely overwhelmed from moving people out of state now.

NEW CALIFORNIA EXCISE TAXES: Cannabis excise taxes are now based on 15% of the mark-up (retail sales price) rate.  This is determined every six months and paid by the distributors, same as liquor, beer, and wine.  It is worth noting (client rumors) that illegal marijuana may now be cheaper.

FEDERAL TAXABLE FIND: In ancient times everything belonged to the King.  He would dispense forests and estates to the loyal and political supporters with an occasional bequest to war heroes.  In our country, a democracy, the Federal government will allow people to profit from their efforts as long as they pay taxes on it.  Even if it is minerals from Federal or State lands and the Spanish treasure ships.

About 100 years ago a volcanic diamond-bearing site was discovered in Arkansas.  The De Beers people who owned and operated the South African mines cartel found out and tried to take it over.  They were repulsed because it was on State land.  They lobbied that if they couldn’t have it, the output would destroy the value of diamonds everywhere and a compromise was reached whereas the location would become the Crater of Diamonds State Park and it would not be commercially mined.  Visitors to the park have been allowed to dig around and keep any diamonds they find.

Recently, a 9 carat diamond was found and the stone is currently being appraised.  It might be a surprise to all that the value, when determined, will be taxable under the Cesarini vs. US tax case that ruled that all TREASURE TROVES found are taxable income.  Unfortunately, the finder will probably have to sell the beauty to pay the taxes. Noteworthy, is that a 16 carat diamond was found there in 1975.

CALIFORNIA PROPOSED REAL ESTATE PROPERTY TAXES: The coming election will probably toss out Proposition 15 which limited property taxes to a cost basis when purchased and a 2% annual increase until it is sold or inherited. This will affect commercial properties and will bring in another $12 billion annually to pay for the huge costs of pensions and administration.  These taxes will be paid by consumers and businesses through triple net leases and increased prices. I am sure it will pass because the Temecula citizens passed an increased sales tax increase a few years ago (no SWAT team here) and a majority of Californians passed the huge fuel and transportation tax increase recently.  Californians love spending and taxing.

I once had a medical doctor client who lived very high.  He would spend exactly twice whatever he earned, which was very substantial.  Eventually he lost his contract to provide medical services with the State for overbilling, and went downhill forever afterwards.  Reminds me of California State and municipalities with no limits on spending and none on new taxes.

FEDERAL FOREIGN ACCOUNTS AND ASSETS: An FBAR report must be filed annually when the tax returns are filed.  Please inform us if you or your spouse had an aggregate value of foreign accounts of at least $10,000 at any point during the tax year.  It is a question on the tax returns. I once represented a client on a FBAR penalty case involving a Canadian investor who actually filed the reports and I had to deal with a SOB IRS lawyer who thought his job was to read instruction manuals, not to look up the case on his computer. 

REAL ESTATE:  Although real estate values have increased 6% in the past year there are problems looming.  Federal mandates for landlords forbidding evicting non-renting tenants, and forbearing mortgage payments have pushed a $15 trillion dollar liability into the next year.  Some people will be capable of negotiating rent or mortgage repayments into the next year when everything must be resolved.  The others will move because of unemployment or inability to pay.  This will induce a crash of foreclosures and a glut of houses for sale.  Beware, it could affect your finances or ability to move. Best to complete refinancing now before interest rates or prices affect your deal.  This is the best of times.

ANNUITIES:  We still offer an insurance annuity which features a 6% sign-up bonus, averaged 6% earnings for the past ten years, guaranteed principal with no loss years ever, and no fees.  We believe it will outperform most portfolios based on the current economy and the near future.  If you are interested and would like to discuss your investment portfolio, please email me or call to schedule an appointment.

Best wishes for the coming Holidays.  We hope to see you again next year and pray that the COVID-19 virus is whipped forever.

Phil Chute, EA, Nett, Leslie, and Sarah

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