Lacking either a bipartisan agreement or a Supermajority (60 or more in one political party), U.S. Senators are required to fabricate new and unusual ideas to justify passing a budget. Since neither of those possibilities currently exist, current budgeting discussions are messy and contentious. Rhetoric from Capitol Hill is frequently confusing for taxpayers and financial professionals, who wind up in a state of flux when trying to plan ahead for personal and corporate taxation.

Under the leadership of President Trump 45, TCJA (Tax Cut and Jobs Act of 2017) was implemented, effective for tax years beginning on or after January 1, 2018. This true tax cut left nearly every taxpayer with substantial tax reductions on their 1040 Individual Income Tax Returns (some high-income people in high-tax states lost out). TCJA Income Tax Rates are slated to expire and then increase back to 2017 levels at the end of Tax Year 2025.

Should the TCJA expiration date (12/31/2025) not be pushed forward or eliminated, Income Tax Rates will revert to the higher 2017 levels. Most Americans would suffer a large increase in their 2026 Federal Income Taxes. Recent studies by tax analysts estimate a resulting average 22% increase in Americans’ income taxes. Comprehending the political oratory on both sides is challenging to American taxpayers, and can be confusing.

Here lies the rub. Conservatives are stressing that current income tax rates should remain the same into 2026, and preferably be made permanent. In this scenario, taxpayers would incur no tax changes in 2026 or beyond, unless calls for further changes get passed by Congress later.

Too many elected officials start with the assumption that 100% of our income is their money. What they allow us to keep is called a “tax expenditure.” Absurd? Sure, but factual, nonetheless. We need to get truth in labeling into government.

Senate Democrats have adopted the assumption that potentially higher tax rates in 2026, due to the scheduled expiration of TCJA, are already the law of the land. According to them, letting TCJA Income Tax Rates expire would increase revenues to the Treasury by more than $4.6 Trillion over 10 years.

The Democrat party line says that any foregone revenue must be offset by other taxes or spending cuts, and they detest reductions in spending. Therefore, if any other scenario is implemented, such as an extension of TCJA, it would represent, to them, an unacceptable tax expenditure for the Government. This is ludicrous, as their revenue going forward would not change from 2025.

Simply stated, TCJA needs to be made permanent. Otherwise, we will all receive a large tax increase. End of discussion.

Roth IRA Conversion decisions have always been complicated and subjective, based on expectations for changes to the U.S. Tax Code, plus a variety of personal considerations. Prior to passage of SECURE ACT 1.0 in 2019, Roth IRA Conversions could be Recharacterized (reversed in whole or in part), in the year following the Conversion. Elimination of that provision elevated uncertainty of Roth Conversion outcomes.

One primary justification for Roth Conversions involves anticipation of tax rates rising in the future. Pay tax now, save tax later. Unless Congress acts during 2025, personal income tax rates, lowered by TCJA (Tax Cuts and Jobs Act of 2017), will increase in 2026. That would favor 2025 Roth Conversions. However, since the 2024 election, there is a smaller likelihood of tax rates rising any time soon.

Among various tax proposals floating around Washington is a call for a national Flat Tax System. Long touted by the likes of Steve Forbes, the Flat Tax would tax all income above a certain base amount at a single rate. Under a Flat Tax System, there would be no tax-based incentive to perform Roth Conversions.

Consideration for Roth Conversions today also involve the taxpayer’s location within a tax bracket. For instance, a couple filing jointly with taxable income up to $96,950 (in 2025) is in the 12% tax bracket. After reaching that level, the next dollar earned (“marginal dollar”) is taxed at 22%. Logically, many taxpayers try to do Conversions on enough cash to “fill up” their tax bracket.

However, it is even more complicated than it appears on paper, because once taxable income reaches $96,951, capital gains, which are not taxed for those in the lowest 2 brackets, jump to 15%. Hence, effective tax rates rise sharply.

For older taxpayers, who may be close to Medicare age, or already receiving Medicare benefits, additional costs for Medicare Premiums must be factored into the decision. IRMAA, which stands for Income Related Monthly Adjustment Amounts, are additional income taxes charged by Medicare to people earning over $250,000 (for Married Filing Jointly). There are several IRMAA brackets, each with escalating (progressive) costs, and they are not linked to Individual Tax Brackets. This requires a thorough Roth Conversion analysis to include effects of additional income on IRMAA brackets.

Further complicating Roth Conversion decisions are tax changes for beneficiaries of IRAs in a post-SECURE ACT America. Under the old rules, inheritors of Roth IRAs had to take Required Minimum Distributions, or RMDs, starting the year after death, but “stretched” over their own life expectancies. Today, most beneficiaries have only a 10-year window to drain the account.

Making a confident Roth Conversion decision involves a complex analysis of the Tax Code, as well as personal preferences and expectations. Consultation with a qualified Certified Financial Planner® is highly recommended.

Last week, we discussed our transformed and renamed Federal Department of Government Efficiency (DOGE), which, under the leadership of Elon Musk, is charged with slashing waste, fraud, and abuse from federal expenditures. In recent days, the recreated Department has identified more than $65 Billion (9 zeros) of expense boondoggles for termination. Musk and his minions are barely out of the starting gate. They are aiming for a minimum of $1 Trillion (12 zeros) in permanent cuts to the budget.

Recently, Musk proposed rebating of a portion of DOGE savings to taxpayers by sending every taxpayer (defined as a person or married couple who file one tax return) $5,000. Last week, I explained why I am totally against the concept of a DOGE-created refund. My reasoning was made clear in Part 1 of this Blog Post on our website, which everyone should read before passing judgement.

Rather than merely complaining to our audiences, I offer a separate proposal, right here in Part 2 of this Blog miniseries. We the People of this magnificent country are in possession of assets of value nearly beyond comprehension. Included are 2.27 billion acres of land, which represents about 27% of the U.S. total land mass. Of that, the vast majority is in the Western states, which account for approximately 92% of Federal Government land ownership.

On top and underneath our billions of acres lie countless natural resources, with potential value in trillions of dollars. Throughout decades of growth in the environmental movement, most of these lands have been rendered off limits to miners, drillers, and other entities seeking to turn natural resource assets into streams of revenue. Under our new “Trump Administration 2.0,” federal lands (and some bodies of water) are being opened (and reopened) for exploration and productive applications. Some forested acres will also become available for lumber production. All this will be closely monitored by the new EPA.

Since national assets belong to us (as citizens of the USA), we should rightly share in the profits derived from production and sale of energy and minerals. My proposal would pay a portion of proceeds to taxpayer/owners for the value of their resources as sold, similar to the DOGE proposal that I do not support.

As a bonus, the U.S. would also restore our national position of energy independence and dominance. One obvious side effect would be reduction of costs for energy, building materials, food, and so on. As transportation costs are reduced, every American reaps a benefit.

Americans have been suffering the ravages of government-induced inflation for several years, so we could all use the money. However, doling out borrowed money to taxpayers fails to pass the smell test regarding the National Debt. My concept accomplishes the dual goals of debt reduction and taxpayer compensation, with fairness to all.

Our transformed and renamed United States Digital Service, a Department founded by President Obama in 2014, is now operating under the moniker Department of Government Efficiency (DOGE). Until recently, “government efficiency” was an oxymoron, eliciting derisive smiles from taxpayers everywhere. The reborn agency is headed by Elon Musk, who is working for us without compensation.

Having hit the ground running, DOGE has so far identified and recommended for eradication more than $55 Billion (9 zeros) of eye-popping and jaw-droppingly ridiculous expenditures. They’ve only just begun, and have targeted at least $1 Trillion (12 zeros) for permanent elimination during the 18 months of DOGE’s self-imposed (initially, anyway) shelf life.

This past week, Musk himself floated a trial balloon regarding rebating of a portion of the savings to taxpayers by sending every taxpayer (defined as one person or a couple filing one tax return) $5,000. I am totally against the concept of a refund. Before outrage begins, let me explain my reasoning.

In fiscal 2025, the U.S. Government will take in about $5 Trillion in Total Revenue, but will spend about $6.8 Trillion, leaving a Budget Deficit for this fiscal year of around $1.8 Trillion. Since the lion’s share of government expenditures are mandatory (examples include Social Security payments and interest on our National Debt), all the money collected from taxpayers is applied to necessities. Discretionary expenditures, including excesses being identified by DOGE, are paid from funds that are either borrowed or created out of thin air, using an “electronic printing press” at the Federal Reserve (FED).

The $1.8 Trillion in excess spending WAS NOT taken from taxpayers, and should not be returned to them. Rather, it was borrowed or created, and added to the involuntary debt load we taxpayers are forced to accept and pass along to subsequent generations. In my opinion, DOGE has no business sending the money to people who didn’t supply it and didn’t want it to be borrowed or spent in the first place.

Until spending is reduced, and/or government revenues increase by the $1.8 Trillion shortfall, Budget Deficits will continue. Until then, our annual shortfall will add to the National Debt. Only when an actual Budget Surplus is realized in any fiscal year will the Current Year Deficit go negative and, consequently, the National Debt go down. A surplus only exists when revenue comes in higher than expenditures. What a concept!

As much as we could all use a cash rebate to help offset the ravages of inflation, we must decide as a nation where our priorities lie. Only once the budget is brought into balance, could further savings could be split between taxpayer rebates and debt reduction. For a better solution, check next week’s Blog on this website.

Recent crypto purveyors have been touting tax advantages of holding actual cryptocurrency in IRAs. It should come as no surprise that crypto “investing” in Retirement Accounts is fraught with rules and regulations. And, of course, costs.

Setting aside (for now) my opinions regarding crypto as an investment, here are a few things potential crypto investors should understand before making a purchase in an IRA.

  • Only earned cash can be used to fund an IRA (no crypto)
  • Owning crypto in an IRA requires a cash contribution, followed by a purchase made within the IRA
  • IRS prohibits “collectibles” to be purchased in most IRAs, as well as life insurance, real estate, and certain other non-traditional assets
  • Crypto falls into the questionable area between allowed vs. unallowed IRA assets
  • Because of these rules, specialized custodians have sprung up to accommodate people who want to own alternative investments within their IRAs
  • Due to the specialized nature of the custodians, custodial fees and expenses for these IRAs tend to be considerably higher than those for their mainstream counterparts
  • Expect more regulations to be implemented soon, with unpredictable results (exposure to crypto is already available in some ETFs)

The IRS has long realized the universal benefits of Americans directing their own retirement assets. This is demonstrated through Congressional legislation authorizing IRAs, 401(k)s, and other tax-advantaged Retirement Accounts. Most of these accounts offer some degree of owner-investing direction, but Congress has strictly limited some risky investments from being held in those accounts.

In exchange for Americans deferring taxation on the income they contribute to Qualified Retirement Accounts, IRS is making sure that the account balances will not be squandered through complex, risky, and misunderstood investments. For that, they should be applauded.

The nascent crypto market can be accessed today, but the reason for excluding these assets from the mainstream of available Retirement Account assets should give pause to every crypto investor.

Having entered the world of fiduciary financial advising in 2001, among my earliest self-imposed rules involved understanding any and all portfolio assets prior to purchasing. As I state my own rule, “If I can’t explain it to a 12-year old in 5 minutes, it will not be in my portfolios, whether personal or client.”

Since the introduction of Bitcoin in October 2008, I have yet to gain a purchase-worthy understanding of so-called cryptocurrency. Due to my self-imposed rule, I have not and do not own any form of crypto. While not advising others to avoid this space, I do want to share a few of my concerns.

Currency has an actual definition, under which crypto does not qualify. According to Investopedia.com, a currency is tangible. Whether coin or paper, currencies are generally produced by governments and are used as legal mediums of exchange. Crypto does not meet these requirements, so we will move on to the definition of money from the same (trusted) source.

Money is not all tangible but represents a means of facilitating the exchange of goods and services in a time frame convenient to both parties. Money can be a store of value, recognized by people who care to become parties to some intended exchange. All Currency is Money, but not all Money is Currency. Seems to me that a better name for these mystical products would be cryptomoney!

We know that IRS treats currency and money differently than property, but many people do not understand that crypto is deemed property, not money, in the eyes of the IRS. This difference is critical to the tax treatment of crypto. Crypto transactions are reported on Schedule D of Form 1040, the U.S. Individual Income Tax Return.

Early on, many crypto buyers believed that transactions done in crypto would not involve taxation. Also early on, we began warning listeners and clients that the IRS would get involved, and very quickly. And don’t forget State taxing authorities, who demand their revenue from State Sales Tax on transactions, including crypto-based exchanges.

Among the most important (and dead wrong) selling points in the crypto industry was the impeccable safety and security of one’s crypto ownership. In the year 2024 alone, an estimated $3 Billion in crypto equivalent was stolen by hackers. Blockchain technology is obviously not 100% secure.

All this goes against my financial planning and investing brain functions. From literally nothing to about $100,000 per share, Bitcoin has made many holders extremely wealthy. On paper, anyway.

Next week, we will examine the recent media push to own crypto in your IRA. Again, potential investors should be advised to understand the rules regarding non-standard IRA transactions and holdings.

Mortgage Interest and Property Taxes: Maximizing Tax Deductions and Navigating the SALT Deduction Limitation

Owning a home is a significant financial milestone. One of the often-overlooked benefits is the potential tax advantages. Mortgage interest and property taxes can significantly reduce tax liability for certain households – particularly those giving significant amounts to charity, paying significant mortgage interest and/or experiencing significant medical bills.

Understanding how these deductions work can be of material importance, especially as we await Washington’s determination surrounding the future of TCJA. Ponte Vedra, Nocatee, Atlantic Beach, San Marco, Ortega and beyond are full of beautiful homes demanding significant price tags. These relevant tax laws impact the ongoing net cost of ownership.

This post breaks down some key facts and figures you need to know to better navigate your financial and tax planning moves this year.

How Mortgage Interest and Property Taxes Lower Your Tax Bill

Before the Tax Cuts and Jobs Act of 2017, homeowners could deduct the full amount of mortgage interest paid on their primary residence (and a second home in some cases) and all their property taxes from their federal taxable income. This “itemized deduction” reduced the amount of income subject to federal income tax, leading to potentially significant tax savings.

  • Mortgage Interest Deduction: This deduction applies to the interest portion of your mortgage payments. In the early years of a mortgage, a larger portion of your payment goes toward interest, making this deduction particularly valuable.
  • Property Tax Deduction: Homeowners can deduct the property taxes they pay on their primary residence. In areas with high property values, like Ponte Vedra, Nocatee, San Marco, Jacksonville Beach and Atlantic Beach, this deduction could be substantial.

The Impact of the SALT Deduction Limit

The Tax Cuts and Jobs Act introduced a significant change: a $10,000 limit on the amount of state and local taxes (SALT) that can be deducted. This cap includes both property taxes and state income taxes.

While the TCJA giveth the tax payer generally larger tax brackets and lower tax rates…the TCJA taketh unlimited deductions for Sales And Local Taxes, as well as an unlimited mortgage interest deduction.

Fortunately, the net effect these deduction limits have for Florida residents is considerably less than the effect for residents of states with state income taxes and higher property taxes: like New Jersey, New York and Pennsylvania.

Nonetheless, this change can still impact Florida residents with high property tax bills and mortgages beyond $750,000 as well as those who weathered considerable sales tax during the year – think luxury car purchases.

How This Affects Jacksonville Homeowners

Affluent communities in Greater Jacksonville are known for their desirable locations and beautiful homes, which often come with higher price tags and, consequently, higher property taxes. Ponte Vedra, Nocatee, San Marco, Jacksonville Beach, Atlantic Beach, Deerwood and St. Augustine all contain pockets of these high-end homes.

For these homeowners, annual property taxes alone can approach, or even exceed, the $10,000 SALT deduction limit, rendering their ‘sales taxes paid’ amount a useless factor for income-tax’ sake.

Example: The SALT Deduction Squeeze

Imagine a family in Ponte Vedra with a $1,500,000 home and a $12,000 annual property tax bill plus $7,000 in sales tax paid associated with a Jeep Grand Wagoneer, or similar purchase during the year. Outside of TCJA, they could deduct the full $19,000. Now, they’re limited to a $10,000 deduction, meaning $9,000 is no longer deductible for federal income tax purposes.

This difference may increase their net tax bill. But of course, given how complex tax calculations are, it is also possible their tax bill decreased in other regions of the tax return by greater amounts than any savings lost in this section alone.

Just like with any financial planning and advice, taxes are extremely unique to each person and situation.

Why This Matters

This limitation disproportionately impacts homeowners in high-tax areas. It effectively increases the cost of homeownership, making it potentially more expensive to live in communities like Ponte Vedra, Nocatee, Jacksonville Beach and Atlantic Beach.

Families who purchased homes in 2016 and 2017, perhaps somewhat relying on the previous tax deduction rules, may now find themselves with a higher tax burden than anticipated. This can put a strain on household budgets and impact long-term financial planning.

Navigating the Changes

While the SALT deduction limitation is a reality, there are strategies homeowners can explore to potentially mitigate its impact. These include:

  • Analyzing Itemized vs. Standard Deduction: Determine whether itemizing, even with the SALT cap, is more advantageous than taking the standard deduction.
  • Tax-Efficient Investing: Focus on investment strategies that minimize your tax liability.
  • Mortgage Review: While not directly addressing the SALT issue, it’s always wise to periodically review your mortgage terms and explore options like refinancing if it makes financial sense.
  • Property Tax Assessment Appeals: If you believe your property tax assessment is too high, you may be able to appeal it.

Working with a Financial Advisor to Improve Tax Outcomes

Navigating the complexities of tax law is an ongoing effort that weaves into all other areas of planning. Forward-looking tax planning is a pillar of what we do for our clients.

Maybe, for your particular situation, a gift to your favorite church or charity is more impactful in one year than another. Maybe gifting stock straight from your portfolio is better than cash.

When you have someone in your corner who works alongside your accountant, keeping a watchful eye on changing tax law, these seemingly small adjustments can amount to material differences over a lifetime.

We’ve never understood the propensity of many Wall Street media “stars” to make prognostications regarding the stock market’s future. Mostly, their predictions are for “lower than average” returns for the next decade. This year has been no exception, and these stories abound. Low expectations seem to be in vogue, even as the country (and the world in general) is experiencing an upturn in attitude and expectations.

We wonder why the naysayers feel so confident, when the future is predicated on unpredictable future events. First, many of the media “talking heads” are self-appointed “experts,” not willing to own up to track records for their prior prognosticating having been flimsy and inconsistent. There is nothing so powerful among the media crowd than the knowledge that they will not be held accountable for being wrong.

One of my favorite pieces of wisdom is simple, but too often overlooked– always consider the source. What are Wall Street purveyors of “wisdom” selling? All are selling something, whether more media time and access for themselves, expensive newsletters, precious metals, books, or whatever. How trusting could anyone be after discovering the actual motive behind the prediction?

Yet another talking point for the “anointed ones” regards pure market statistics. Classic among them is the Market Correction, which refers to a drop of at least 10% in the S&P500 Index from its most recent peak. Corrections occur on average once per year. That does not mean there will be a Market Correction every year, or even soon. That is a misuse of statistics.

Similarly, many look at our market gains of the prior two+ years, citing the past 834 calendar days, during which the S&P500 Index gained over 71%, insinuating that this can’t go further. That is also a false conclusion, as the average Bull Market runs over 1,000 days, with total gains of more than 114%. That sure doesn’t sound like a restrained Bull Market.

No one knows what the market will do this year, no matter how confident he or she appears. I am certainly no exception. That said, our new Administration has a track record of success. To me, that counts. Good, bad, or indifferent, recent changes do nothing to sour my optimism. Were I to be asked for a market forecast, I would simply tell the questioner that over a long time period, average annual market returns are near 11%. We have to say, because it is so true, that past performance is no guarantee of future success. With a record like that, I’ll stick with a diversified fundamental investing strategy, including a lengthy time horizon. It works.

Let’s all relax and enjoy the newfound spirit of optimism. We will continue to report the actual results weekly.

Most everyone knows enough about credit scores (FICO) and their role in your personal finances. The Big 3 credit reporting agencies controlling your data and scores include Equifax, Experian, and Transunion. But how many of you know about their little brother, Innovis? Protecting yourself requires being as thorough as possible, partly by paying attention to all four agencies.

When you are setting out to increase your own security, begin by locating your own personal credit score. A good place to start is myfico.com, which is the standard bearer for credit scores. Yours can be obtained for no charge. Also, check out freecreditcheck.com for more information, as well as your own personal credit report.

Freezing your credit is an excellent safety precaution, in a world where there are bad guys lurking in every corner of the Internet. Freezing your credit assures you that no agency can make any changes or get your scores unless and until you authorize access at one or more of the credit reporting agencies.

We all hear the scary commercials on TV. You know the ones, where the bad guy steals your home by filing a simple piece of paper. The Register of Deeds in your county is required to file the notarized paper, once received in good condition, fraudulent or not. Or, the criminal puts mortgages and liens on your home, taking the money, and leaving you to cover the debts, even if it requires sale of the property.

While the commercials are designed to take some of your hard-earned cash, there are steps you can take that do not drain your wallet. The first and foremost action to be taken is to freeze your credit at every reporting agency. Fortunately, they make it easy.

Remember, they have ALL of your personal data, and any one of them may cause you trouble if they do not have a freeze on your data. That’s why many Americans freeze their own credit at the Big 3 agencies. This can be done online or by phone (at no cost to you). Once frozen, potential creditors may still gain access to your information, but they will first need to obtain your permission.

When you are taking these actions, remember to contact Innovis as well. They control the same data, and need to follow the same procedures.

Applying for a new loan or credit card requires a credit report, and the potential loan provider will need to obtain your score and credit history from one of the agencies. Find out which one the company prefers, and you can contact that agency to place a “thaw” on your data for a specific time. Once the process is completed, the freeze goes back into effect.

Remember that every person is treated individually by the agencies, so married people must perform the actions twice. We recently upgraded our status, including at Innovis, and the process was easy and free. Take advantage of that.

America is experiencing a cathartic moment in time. Common Sense, which we Baby Boomers grew up more or less taking for granted, has been eroding at an alarming pace for a few decades. Call it Political Correctness, CRT (Critical Race Theory), Equity, DEI (Diversity, Equity, and Inclusion), Affirmative Action, or ESG (Environmental, Social, and Governance), the powerful movement has infected American sensibilities, negatively affecting our investments. Lately, their popularity appears to be coming to a halt.

Socially Conscious investing has been popular for decades, as many mutual funds and ETFs (Exchange-Traded Funds) were developed to offer investors the ability to avoid holdings in the tobacco industry, defense weapons production, fossil fuels, and any number of individually distasteful arenas. Among the most recent were investments tailored to DEI proponents.

One after another, America’s publicly traded corporations are terminating their DEI programs. Until recently, public pressure to adopt these programs was difficult to ignore. Remember when Chief Justice John Roberts rendered his opinion that perhaps the best way to end discrimination was to “stop discriminating?” Doing the right thing does not need to be tailored to social fads.

Recent investment performance problems have raised eyebrows among investors, Wall Street practitioners, and government officials. Fiduciary Responsibility, which compels managers to do the best thing for shareholders, was violated, all in the name of Political Correctness (or whichever trendy term applies). Investors noticed, scrapped their underperforming assets, and took their investment cash elsewhere.

Just this week, American Airlines lost a court case alleging that the company’s 401(k) Plan underperformed due to an emphasis on ESG investing, resulting in reduced returns for their employees.

Lowering standards to accommodate feel-good policy acronyms leads to reduced performance. Demand for improved performance has induced corrective action, such as elimination of ESG and DEI, which are suddenly being dropped like proverbial hot potatoes.

Recently, Vivek Ramaswamy noted that “American culture has venerated mediocrity over excellence for way too long.” That did not sit well with all Americans, but evidence is all around us. As we re-enter a period of America First attitudes, individuals and corporations are seeking performance. Stock and bond markets will hopefully react positively to recent changes, and we all win.

As investment managers, we are constantly seeking improved performance. Our economic futures will all be enhanced as the country returns to the pursuit of excellence through common sense competition.