Tax Benefits and Social Security Shortage

SAS Financial Advisors, LLC |

Opportunity always lurks in bad events. Example, buying stock both in 2009 and 2020 during bear markets has paid off and is still paying off today. It was not easy to buck the crowd because one of our behavioral biases is that whatever is happening now feels like it will happen forever. During the beginning of Covid, it was hard to see us emerging from the pandemic. It still is, but the impact of the recognition of Covid caused markets to tumble for a few weeks. The continuing pandemic is causing huge costs to our lifestyle, health, public institutions and income equality. We have discussed the K shaped recovery and how difficult the pandemic has been for direct service workers, healthcare workers and children especially with the closing (and newly reopening) of public schools and the lack of a vaccination solution currently.

Despite major disruption to our lives, other, new opportunities have emerged. The pandemic has caused historic job displacement including a group of millennials who have decided to take their work pathway in a different direction. The pause in life as we knew it caused some individuals to look for new work and encouraged others to start businesses.


CARES Act and Taxes

A note on a CARES act tax benefit for cash donations. In 2020, the cash donation was an “above the line” deduction (which is way more impactful to you than a below the line deduction). That means the deduction was available regardless of whether you itemize your deductions or take the standard deduction. Above the line deductions also favorably impact how your social security is taxed as well as any additional Medicare Part B premiums you will have to pay based on an IRMAA charge. This year, 2021, for tax preparation the cash donation benefit was increased to $600 but is no longer an above the line deduction. It is still available if you do not itemize your deductions. This change will hit single taxpayers at the lower income levels hard but married couples not so much.  


Social Security

A report out today estimates that social security will have to reduce benefits a year sooner than previously estimated because of Covid-19. This would result in benefits reduced to 76% of current benefits in calendar year 2034. With the rise in unemployment caused by the pandemic, contributions to the Old Age Survivor payments (OASDI line item on your paycheck) have declined. Ironically, the deaths caused by Covid-19 concentrated in older citizens more likely to be receiving Social Security benefits, have counter acted the higher unemployment. Also, calculations for Social Security benefit increases for 2022 are estimating increases of about 6.2%. Working against that increase will be increased Medicare Part B costs.


This website is informational only and does not constitute investment advice or a solicitation. Investments and investment strategies recommended in this blog may not be suitable for all investors. SAS Financial Advisors, LLC and its members may hold positions in the securities mentioned within this newsletter.

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