Proactive Tax Planning

05/09/2024

What You Need to Know

1) Medicare trustees have moved the inpatient hospital benefits fund depletion date back to 2036 from 2031.

2) The trustees continue to believe that the actual situation is even
worse than it officially looks.

Did you know that half of the US Population will be 65 or older by 2030, and most of them will be on Medicare?

The post-pandemic surge in healthcare use, the aging U.S. population, and healthcare worker shortages hit Medicare hard in 2023.

According to the latest Medicare trustees report, the huge U.S. government health insurance program lost $12 billion in 2023 on some $1 trillion in revenue, compared with an $83 billion gain on $989 billion in revenue in 2022.

The good news is that the Payroll tax revenue rose 4.1% to $367 billion.

And higher interest rates pushed interest income up 27%, to $10 billion.

However, spending climbed to $15,547 per Medicare enrollee, up 15% from the 2022 average, and the effects of soaring costs swamped the effects of modest revenue growth.

Any changes that become law could complicate planning for clients but increase demand for the kinds of life insurance products and trust services that wealthy taxpayers use to cope with taxes.

None of this should be a surprise to anyone. And it's only going to get worse. The Social Security system is under the same pressure.

Do you think the government will raise our taxes to pay for these programs?

What does all this mean? Medicare losses will push Medicare program managers and members of Congress to look for ways to cut benefit costs and add additional revenue.

In my opinion, the hunt for Medicare money will put added pressure on lawmakers to let the estate tax exemption spring back to the pre-2017 level in 2026 and reduce or eliminate other federal tax breaks, push up payroll taxes make the IRMAA penalties even stiffer.

What do you think about all of this?

05/08/2024

A recent poll in Michigan asked people for their thoughts on the state of the nation’s economy today.

Only 35% of those polled described the economy as excellent (6%) or good (29%), while 65% described it as either not so good (28%) or poor (37%).

However, when asked how they would describe their PERSONAL financial situation these days, a majority of people (61%) described their circumstances as excellent (9%) or good (52%), while 38% described them as either not so good (25%) or poor (13%).

So the prevailing sentiment of this group is: I’m doing just fine, thank you very much, but the economy stinks.

There's a huge disconnect, right?

Michigan is not unique in its conflicted feelings. A national Gallup poll shows that Americans are five times as satisfied with their own lives as they are with the economic direction of the country as a whole.

I'd be in this camp for sure. How about you?

05/01/2024

Below is a look at the performance of key ETFs across various asset classes in April, year-to-date, and year-over-year from Bespoke Investment Group. You can see that the S&P 500 (SPY) fell more than 4% in April, while mid-caps and small-caps fell even more.

At the sector level, Real Estate (XLRE), Technology (XLK), and Health Care (XLV) all fell more than 5%. Meanwhile, Utilities (XLU) was the only sector that was up.

Outside of the US, China (MCHI) and Hong Kong (EWH) actually bounced back while the rest of the world took a breather. Commodities ETFs either rose or only fell slightly, while Treasury and other fixed-income ETFs were solidly in the red.

Bespoke's daily newsletter offers some great info!

04/24/2024

This is interesting from the Wall Street Journal. It profiled people who make $400,000, a level some politicians are using as a new line in the sand to define wealthy households.

Just 2.6% of U.S. make $400,000 or more income. The image shows the breakdown by state. Many of those live in high-income-taxed states.

You know what they say, "Wealth is what you keep, not what you make."

In any case, it’s hard to envision a world in which being in the top 3% of income is not considered rich.

It's harder to save taxes on earned income, but it's very easy to set yourself up for reduced taxes in retirement. My book, Get Me to ZERO, can help you do just that (available on amazon).

If we’re in the top 10%, we want to be in the top 5%. If we’re in the top 5%, we want to be in the top 1% (about $786,000 in 2022). If you’re in the top 1% (about $2.8 million in 2022), you want to be in the top 0.1%.

08/18/2023

This is Classic! From Bespoke:

In late June 2018, the Dow Jones Industrial Average keepers announced that they would be removing General Electric (GE) as one of the 30 Dow members and replacing it with Walgreens Boots Alliance (WBA).

This change was a big one since GE was the last remaining stock in the index that was an original member at its creation back in 1896!

When stocks are removed from the Dow, it's usually because they've gone through an extended period of weakness as a company. GE used to be the largest company in the world, but from its all-time high in 2000 through its removal from the Dow in June 2018, the stock was more than cut in half.

When stocks are added to the Dow, they are usually riding high and firing on all cylinders. This setup, however, leaves the indices at risk of adding stocks when they're peaking and removing stocks just as they're bottoming.

That appears to be what happened with Walgreens and GE. While it has taken a little while to play out, Walgreens (WBA) is now down just over 50% since being added to the Dow on 6/26/18, while GE is up 49.3%.

08/10/2023

Here's a very interesting chart and commentary by Bespoke for you.

As of yesterday morning, the 101 stocks in the S&P 500 that pay no dividend were up an average of 20.7% YTD, while the 100 S&P 500 stocks with the highest dividend yields were actually down an average of -3.2% YTD. Remember, the S&P index is up more than 17% YTD, so anything down on the year is massively underperforming.

Below is a table listing the 29 stocks in the S&P 500 that had the HIGHEST indicated dividend yields (5%+) yesterday morning. As you'll see at the bottom of the table, these 29 stocks are down an average of -8.37% YTD on a total return basis, so the 5%+ dividend yields are being more than erased by falling share prices for many of these names.

08/08/2023

Take a look at the rolling 30-year returns on the S&P 500 since 1950 (the blue line). Compare them to the latest one-year returns (the orange bars) for each 30-year period.

The returns in any given year are all over the map. However, the 30-year returns don’t change all that much from year-to-year.

One-year returns can make you feel wonderful or terrible, but they’re not going to have a ton of bearing on your long-term results (assuming you stay the course).

08/02/2023

The longer your time horizon, the higher your probability of success in the markets.

07/21/2023

How does Medicaid work for LTC patients?

This week’s blog post explains how Medicaid works in relation to long-term care (LTC) services.

This example shows the financial effect on Susan when her husband needs care beyond what she can now physically and emotionally provide (after 4 years of caring for Frank at home).

Simply CLICK the button below to read the post.

It’s a quick and educational read. And feel free to share this with those you care about.

all the best… Mark

Medicaid is a joint program with the federal government and is run by each state (the rules are generally similar but do vary by state). Below is an example from the CLTC course (a 600+ page textbook to pass the test) to earn the “Certified in Long-Term Care” designation. By the way, it does not...

07/18/2023

This chart shows the SEVEN stocks have accounted for 71.8% of the S&P 500 index gains for the year as of last Friday!

By the way, the Dow Jones Industrial Avg. is only up 5.3% YTD, while those 7 NASDAQ stocks have helped propel that index to a 35.7% gain for 2023.

07/17/2023

The good news is inflation is falling pretty quickly.

After peaking at more than 9% in June last year, the latest inflation reading was a bit under 3%.

It took 16 months for the inflation rate to go from under 3% to over 9%. It’s taken just 12 months to go from over 9% to under 3%.

However, the bad news is inflation has been higher than wage growth for some time now.

07/14/2023

Most folks know that mortgage rates are about 7% right now.

Zillow recently released a report on the "hidden" costs of owning a home. They estimate the average ancillary homeownership costs — utilities, insurance, maintenance, property taxes, etc. — to be more than $14,100 annually. That’s an additional $1,100 a month on top of your mortgage.

And those numbers are even higher in most metro areas listed on the map.

When you add in things like lawn care, furniture, and all of the other stuff you have to buy to fill up your house, these numbers are probably on the low side.