Election Year Tax Insights - What Lies Ahead for 2025 and Beyond

In the latest episode of Amplified Wealth, hosts Austin Hagaman and Adam Armstrong sit down with Jonah Gruda, a tax expert and Partner at Withum, to explore the intricate world of tax planning in these uncertain times. As we approach significant legislative shifts, understanding the landscape is crucial for anyone serious about financial planning.

Episode Highlights:

💼 Tax Cuts and Jobs Act (TCJA) Overview: Jonah provides a deep dive into the TCJA, explaining its key provisions and what changes could mean for you as we near the 2025 expiration date.

📅 Strategic Estate Planning: Discover why now is the time to review and potentially update your estate plan before the current tax laws sunset, especially for high-net-worth individuals.

📊 Long-Term Tax Outlook: Gain insights into the potential long-term trajectory of tax rates and what that means for your financial future, including planning for higher rates in the coming years.

💡 Practical Steps for Uncertainty: Learn actionable steps to take today, from reviewing your liquidity needs to engaging with your advisory team, ensuring you're prepared no matter what happens in the next election.

🌟 Working with a Team: Jonah emphasizes the importance of collaboration between your wealth advisor, CPA, and estate planning attorney to align all aspects of your financial life.

Timestamps:

Soft Open / Introduction: (00:29)

Meet Jonah Gruda - Tax Insights: (02:34)

The Tax Cuts and Jobs Act Overview: (07:29)

Current Tax Environment and Future Considerations: (15:34)

Estate Planning Strategies Before 2026: (28:23)

Taxation, Wealth Planning, and Social Programs: (42:55)

Discussion on Unrealized Gains and Wealth Taxes: (53:31)

Personal Stories and Fun Facts: (1:02:21)

Nothing contained in this presentation should be construed as personalized advice, or solicitation to buy or sell any securities. Past performance may not be indicative of future results. Different types of investments involve varying degrees of risk. There can be no assurance that the future performance of any specific investment or non-investment related content in this Podcast will be profitable or suitable for your individual situation. Due to changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions. The opinions expressed in this podcast are those of the participants and may not reflect those of the firm. To the extent you have any questions regarding the applicability of anything discussed to your individual situation, you are encouraged to consult with the professional advisor of your choosing. The firm is neither a law firm, nor a certified public accounting firm, and no portion of this content should be construed as legal or accounting advice.

Transcript

hi everyone welcome to another episode of Amplified wealth on this week's episode we have Jonah gruda a partner at

a top 25 CPA firm talking about tax planning for 2025 and Beyond he explains

the tcja key provisions and what potential changes could be coming down

the pike as we approach the 2025 expiration date Jonah also discusses why now is the perfect time to review your

estate plan especially for high net worth individuals and offers insights on

the future of tax rates he shares actionable steps to take today and emphasizes the importance of

collaboration between your wealth advisor CPA and a state planning attorney enjoy the

episode so I Googled what Long Island's famous for and I got beaches bagels and

Billy Joel is Billy Joel from Long Island he is he is he is I didn't know that it's actually from my wife's

Hometown oh okay where's that uh Mass I believe it's masipa or maybe that's

Seinfeld Seinfeld's also masipa and I think the Baldwin brothers are from Long Island as well okay very interesting the

problem with Long Island is we used to live in Manhattan when you go from Manhattan to Long Island you break up

with your friends and family there's one way in one way out and there's no reason to ever go to Long

Island if you live in Jersey or Manhattan yeah does Long Island like that is that part of the Long Island

charm or is that something you guys are trying to find a solution for I think it's part of our charm part of the charm

there you go charm is what they're calling it these days yeah I think New Jersey just wants

more bridges we need more access more access to New York that's right well

yeah I don't like have it's one way in one way out on Long Island we're stuck yeah that's it you're in or out all

right you want to uh you want to start this uh move forward here so uh it's C the music let's C the music

[Music]

all right so today on our podcast we have Jonah gruda a tax Guru with over

two decades of experience he is a partner and the national market leader of Private Client Services for withth

them a nationally recognized public accounting and advisory firm Jonah acts as a strategic quarterback of sorts for

high net worth individuals Executives investment bankers entrepreneurs and even hedge fund managers he works with

his clients outside professionals including their attorneys investment advisers and insurance professionals to

help them navigate everything from tax planning to wealth preservation strategies Jonah is not just a tax whiz

that simply crunches away at numbers he's been featured in major Publications in the media such as the New York Times

and CNBC he has also been previously named on Long Island uh Long Island Business news's 40 under 40 list as well

as their one FS to watch list when he's not working with clients you might find him supporting causes like uh the Jewish

National Fund or the Crohn's and klias clus Foundation uh let's get ready to dive into some serious tax insights

welcome Jonah thank you for having me that was quite an impressive uh bio

there you go I stumbled a bit but uh I thought I put a nice spin on it hey you're responsible for that impressive

bio it was my marketing coordinator I'm really honored to be

part of uh this uh this podcast I I've really enjoyed some of the past presentation you guys have done so I'm

uh I'm really pleased to be part of this awesome thanks for listening um you are

it it wasn't in the bio I don't think but I want to dive into this a little bit more just on a personal level before

we actually start getting deep into the weeds um you're a licensed pilot

right uh the the technical term I'm certificated pilot um I'm A Private

Pilot with an instrument rating um it was my covid activity um I'm not that great of a

golfer so this was the next best thing for me to do so I think uh I think about

four years now I've been I've been flying uh small single engine Pipers and Cessnas out of Republican IOP airport

here in L wow see you needed a getaway vehicle in case uh covid got out of hand

got even more out of hand that's right I had a lot of convincing uh I had to convince the wife a lot to

allow me to do that we had to make sure our insurance policies were up to Snuff um I will tell you the novelty Factor

has worn off with the kids they don't care anymore it's not cool okay U but it's cool for me and I'm glad you

brought it up because there probably won't be a conversation where I don't try to interject that I'm a pilot in any

conversation got it got it how many people can you fly with uh so they're

small think of a Honda Civic with wings they're they're they're not luxurious fast large planes but you could fit

maybe four adults with uh 34 of fuel you're not going to go anywhere fast or

High um but it is it is a great hobby to go around Manhattan I've flown to Atlantic City Pennsylvania Connecticut

Block Island it's a it's a nice treat so how do you define fast I'm assum I have

no idea but I'm assuming there's a difference between fast and a car and fast in a plane I'm assuming fast than a

plane F we go by knots and a knot probably about 1.15 to a mile per hour

so you know maybe 115 120 130 miles an hour over the ground maybe depending on

the Wind so if you think about that your your commercial airliners are you know four or five times as fast um so

depending on traffic and and and weather a car may get get you somewhere faster but interestingly enough living on Long

Island Long Island Sound is is between Connecticut and uh and Long Island it'll

take me three hours to get to a client in certain parts of Conneticut taking about 35 40 minutes to fly there uh so

it has it has been helpful professionally um but it really just

depends do you need to go they don't do like a TSA when you fly a smaller plane

right no no they don't okay um the FAA could ramp check you wanting to check your license and your paperwork and it

does happen from time to time certainly if I flew into Canada and came back in I'd have to go through customs which

which happens if you're touring the Niagara Falls and things like that but no that is the benefit of general aviation you could just drive up to the

plane put your bags on and and go where you need to go there you go all right should we dive in what are we what are

we getting into today lots of lots of good stuff to talk about how did you uh want to start us off so you want why

don't you give us a lay of the land where where are we today in terms of uh

you know the tax picture and where might be we be headed sure I I will say this is a really really exciting time for

wealth advisers attorneys uh professional service providers because

not only are we in an election year which is exciting just from a tax policy

and planning perspective um because there's so much uncertainty around everyone's platforms uh what's going to

happen post November on top of that we have some major sweeping tax legis

legislation that has been enacted um for a couple years the tax cuts and jobs act which is set to expire

uh in December of 2025 so we have some really important legislation we have an

election and um sometimes those don't jib really really well um so what I

thought I I'd go with is let's just talk about the environment where we're in today um for folks that are doing some

um estate planning Insurance planning wealth planning and tax planning what's the envir look like now um what's it

going to look like next year and then if nothing happens um what that looks like and then

we could pepper in you know the Republican platform the the Democratic platform and see how that integrates in

with any planning opportunities and action steps that we might uh want our clients to uh think about that makes

sense that's great so you mentioned the tax cuts and jobs act just for our listeners can you just briefly in just a

couple sentences you know what is that and why should we care about it right now yeah no that's a good question so

tax cutsom jobs Act was around 2016 2017 and it was some pretty ground

groundbreaking tax legislation it was probably one of the biggest uh Dives in the tax code since the 86 code um and if

you think about there's a couple of dates we think about when we talk about tax policy and something that I learned doing research for this was we actually

had some tax regulations on books as of early as 187 74 uh codified in 1919 I think and then

' 86 was the biggest Reform Bill that uh everyone sort of talks about uh 2016

2017 I think was really really important um it was interesting though that it got

passed with the budget reconciliation process and that was there because when you enact certain tax legislations you

need a certain number of votes to get it passed in order to get lesser votes if you make certain pieces

temporary so has to not go over certain budgetary constraint you could get certain things passed so the corporate

provisions of the tax cuts and jobs act primarily reducing your corporate rate from 35% to 21% was huge right um but

the individual Provisions were made permanent uh excuse me temporary some of the major ones were reduction of the

highest marginal rate right 39.6 to 37% we had this 199a deduction or qualified

business income deduction which gave flow through entities small business taxpayers this additional 20% deduction

and that was done to really equalize a 21% corporate rate and a marginal rate

for individuals of 37% so it actually brought down that 37% rate to

29.6% um to equalize that um it did it did away with the salt cap uh which we

know is a state and local tax deduction for folks living in blue states which tend to be your West Coast States

California New York New Jersey Connecticut Pennsylvania where your real estate taxes are High um people saw huge

cuts in their ability to deduct real estate taxes but on the flip side um

their applicability to the Alternative Minimum Tax AMT tax went down um so the

tax cuts and jobs act oversimplifying it reduced the corporate rate reduced the

indiv individual rates increased the standard deduction by by two times for

for a lot of taxpayers so a lot of taxpayers saw their taxes go down while at the same time eliminating

certain deductions um but it really affected certain Geographic areas uh differently depending on what subsidies

were in those environments meaning um our mortgage interest rates higher in certain areas or real estate taxes

higher in certain areas uh because a lot of those deductions one of the biggest ones which was affected was mortgage

interest as well right um it used to be a million dollars plus uh $100,000 of

home equity indebtedness now it's $750,000 right so that that's that's

sort of what the tax cuts and jobs Act was um and we're still in that regime right now um because of the

reconciliation process I briefly mentioned those individual Provisions are set to expire at midnight on

December 31st 2025 so that's the only reason they couldn't make it permanent

back in 2016 is because of those budgetary Provisions yeah and forgive me I'm not I

think Lynn did a did did a session not so long ago where she talked a little bit more in detail about uh the

reconciliation process but reconciliation process requires a smaller number of votes in order to do

that though there you have to sort of Target a dollar amount uh that it's not going to add to

the deficit um which interestingly enough and we could talk about it later this is why you'll never see an

economist running for president because taxation is all right it's it's

all politics right everything we everything we see in the code is is legislation it's either pushed from

Lobby groups from constituency groups um a lot of times tax policy is not driven

and written and pushed by economists or statisticians um and we and we could

talk about you know sub what subsidies does to prices and tax policies and things like that but uh yeah to answer

your question adamy it was it was through the reason they're temporary is is to get through that process so I thought maybe we just talk about what

that looks like what that looks like today um and so we have a couple slides

to to uh look at so this is the environment we're in right now uh we obviously just got through 2023 those

returns are due uh in October for those that are on extension but when we're filing our 2024 returns in 2025 we still

have those rates top rate is 37% right um you could see that uh the level that

gets you there goes from 693 up to 731 Estates and Trust have always got to the

highest marginal rate really really quick we have some business loss uh limits for those that have excess losses

from businesses that they materially participate in um again here's what the deductions

look like and these are all as enacted in tax cuts and jobs act uh we have our standard deduction which is very you

know relatively high for for married married taxpayers obviously you're talking to your clients about using

401ks IRAs things like that hsas these are what the limitations are right now

uh interestingly enough and we'll maybe touch on it a little bit later what our lifetime estate tax exemption tax cuts

and jobs act uh you know almost doubled it um for a lot of taxpayers so there's

a lot of opportunity Before Sunset to do some estate planning or at at least talk to our clients about looking at it you

know what does your personal financial statement look like what's your balance sheet look like what are your goals for

your legacy right how do we plan for those types of excuse me asset

transfers this is pretty big right now for us from a financial planning perspective I know we had uh in a prior

episode we had Mike Townsen on who um is political analyst down in DC for Schwab

and he was talking a lot about this um you know we're hearing starting to hear

more of hey if you're in that 10 to 15 million plus range

you should start thinking about reviewing your estate plan today not

even though the the sunset may or may not occur at the end of 2025 as you've

got here on the screen um attorneys are going to get capped on their ability to

revise estate planning docks pretty quickly yeah know that that's a good point and and he touched upon two really

important things one the the wealth level and the timing we're here right now I know might be hard to see on my

screen but we're we're right here right here we are in August right this is when the sunset happens attorneys are going

to be very hardpressed doing any type of planning in these couple of months right

where they have to draft documents so we only have about eight months 10 months maybe to really have these conversations

and I will say you could draft the documents and fund them later right um but no attorney is going to be happy

doing this planning at the last minute if anything I could see clients waiting post El to see post November to see what's

happening um but really now is the time to have that conversation with you guys uh with other advisers to really put in

put into place any type of planning or at least have that conversation right the marginal cost of getting it done

having the documents in place and drafted even prior to the election I feel like is going to be a benefit

regardless of what happens with the election um you know getting that getting in with a firm to draft these

documents ahead of the election because I I can only imagine depending on the election there may or may not be a huge

rush of people at that point too right so having your ducks in a row even before the election agreed could benit

you look if you're spending a couple thousand dollars and I don't want to spend anybody's money it's easy for me to say this but if you're a high n worth

individual um and you have a sizable balance sheet and you're spending five to $10,000 on some planning that ends

up let's say the sunset doesn't happen and gets extended for a brief per of

time well what you've done is you still looked at your overall estate plan right you've done a disaster scenario to see

if it meets your goals to see what the dispositive provisions of your will I always tell clients every 5 to 10 years

you should revisit these documents right uh we tell our clients to revisit their their their wealth planning strategies

we're looking at their insurance we're looking at their tax plan in real time so it might be a sun cost for some uh

but if anything there's value in the exercise um so what's what's the what's

the difference here so we're talking about if the tax custom jobs Act expires you know what are we looking at yeah um

thank you for that layup um if if let's just talk about individual rates because that's what most people are are talking

about what's going to happen to my taxes right right um and without without talking about salt cap other deductions

brackets rates credits things like that all that makes the calculus a bit more complicated let's just very

simplistically let's talk about individual rates right we've we've

benefited from low rates 37% is the highest

marginal R highest marginal rate right um with the expiration in 2026 that

first tax year look what happens to everyone's taxes 37% to 39.6 and you get

there a lot faster right right and so again I don't want to talk political

motivations around this right now that's not the that's not the purpose of this form here but notwithstanding any type

of legislative push extension modification amendments the way the laws written right now on December on January

1st 2026 taxes go up right and if you just

for example look at 2025 to 2026 right 24 bracket goes to

28% and you go to and while in the prior year someone could have been in the 24%

bracket all the way up to almost $400,000 someone's going to be in the 33%

bracking at $300,000 right that's huge that is a big increase but how how

does the how do these rates compare to uh rates

historically well we've you know interesting enough you know if you look postwar right you know World War Two you

know some rates got as high as 80 90% on on some levels of income right um 50%

marginal rates weren't weren't unheard of so you know in the grand scheme of things these are still sort of relatively low

historically um but these are these are you know primarily High rates if you live in California New York where you

could have marginal rates state and local of almost 14% you know you tap on 40% rate you

tack on 14% state and local rate you add

on um the piece limitation which we could talk about which is the phase out of certain

itemized deductions which could add another 1.3% to 3% of marginal rate you

could you could have tax rates for certain taxpayers 55% it's huge right right it's a huge

chunk I mean half of every more than half of every dollar coming in right yes and again you could talk about well what

that does the social programs and things like that let's let's put that aside for a moment the the the the marginal rates

going up and and the effective rate goes up as well with some of the disallowance

um and so it's not just the rates though this is this is so this is where we are right now right this is sort of tax cuts

and jobs act we have our seven brackets we're still going to have our seven brackets but we saw how the brackets

changed in that previous slide right again just 37 goes to 39 35 we still

have the 35 32 jumps up to 33 24 to 28 and we still keep these these three low

rates although the top the top one of that third bracket goes up a little bit but we still keep the 15 and 10% but

most of our clients are not really in this realm here they're sitting up here right right um everybody knows the

exemptions went away with the tax cuts and jobs act because standard deduction was doubled prior to law right um so

post sunset standard deduction gets cut in half again but we have our itemized deductions back again meaning the salt

cap is lifted you get those business deductions that are subject to 2% limitations

more and more people are going to itemize their deductions um we have a 60% limitation for chargeable

contributions now it goes to 50 which you know I don't want people to donate

to charity that's tax motivated however it's that 10% cut will definitely impact

a lot of taxpayers ability to to donate especially your high net worth taxpayers um so it is going to change Behavior

right right um the big one is uh I don't have a slide but the salt cap goes away

the state and local tax deduction right $10,000 now um I know for me I live in

Long Island previously state and local taxes and real estate taxes was my biggest deduction right taxes are very

very high in Long Island uh New York state taxes are relatively High compared to the rest of the Union um

so that was a big deduction but you also found taxpayers that received those

benefits were also in the Alternative Minimum Tax right because it's a Alternative Minimum Tax is a parallel

tax system it adds back certain deductions that you take on your regular tax return they disallow it for AMT

purposes and then recalculates based on a 26 to 20 28% rate so the tax cuts and

jobs act phasing out almost seems more of a headache for the IRS right am I am I misinterpreting that because you get

more people itemizing deductions you get the AMT back does that does that put the IRS under just mounds of more work yeah

know it's a good thing they hired 87,000 more people a couple years ago right that's where they've been they've been

on a hiring beninge um it is going to put a lot of stress um you know there's

a lot of things in the code that are just being litigated in the courts right now you see you know you have qualified

opportunity zones um you see uh qualified small business stock which you

know these things have been well qualified small business stock has been around for a long long time time but

it's only been a few years which the the benefit of 100% exclusion uh on gain for

certain taxpayers um it takes a while for the IRS and the courts to catch up

um it does create a lot of opportunity for abuse and for Creative use of the

system which has never been uh something that's been unfamiliar with the tax code

um you know if there were ways to make it easier you would make some of the ambiguity

uh you would take away a lot of the ambiguity of the code and and make a lot of the provisions you you'd want to have

activity and behavior and tax character to be much more aligned right um which

you see a lot of abuse but to your point Austin yeah I think uh this is going to put a lot of headaches initially um I

would say a lot of taxpayers returns were easier to

prepare um in 2017 in 2018 through now because again most people take the

standard deduction right right um your taxes were limited to $10,000 um you were going to do your

normal charitable contributions and all your business deductions right people say can I write this off can I write

this off those were disallowed um and they're back and they will be back in

2026 um but having more of those deductions more and more taxpayers will

be subjected to the AMT um and I won't I won't touch upon uh

those couple slides but here here's just a quick summary of some of those deductions that'll be back in

2026 uh again salt was limited to 10 grand There's No Limit now but we we see

negative ramifications from that investment management fees you know that's relevant to our business and to

our clients uh I believe those used to be deductible if they were paid from taxable accounts right so many clients

used to have their taxable Investments uh the fees from say an IRA or something

deducted out of their taxable account um is that coming back as well would that be part of this if

thej yeah we'll have that that was a that was a huge thing from some of our clients years ago what am I doing with

these expenses um and there were a lot of structural conversations of do I want

to do I want to set up a family office right you had lender management which was a big case for family offices on how

to deduct these types of expenses management fee expenses and Investment Management fees investment interest

things like that very big case there's actually the family that owned lenders Bagels um believe it or not um but I

think there's going to be a lot more Simplicity for certain things especially for clients that have traditional

portfolio accounts um we you know we'll have those expenses but a lot more complexity in some of the other things

as you could see here um again you have mortgage interest is going to be a little more robust uh you have home

equity loan interest being deductible again as well again the salt's going to be huge you have the job and

miscellaneous expenses which are going to be deductible again uh prior to this

they were subject to 2% floor uh they'll be subject to 2% floor again which will throw people into alimony uh excuse me

alimony AMT again so it's G to you know we it took I think tax practitioners a

year or two to get their handle on the tax cuts on jobs act it's it's going to

be us uh learning a new tax system again that we haven't been involved in for a while um so it's it it keeps us employed

it keeps us engaged um I don't know if a lot of that re-learning time is going to be available to the client um but uh it

is a great opportunity to have these conversations now and plan around this

um and again so interesting usually you want to spend time learning a new skill

instead you're going to be learning how you used to do things seven years ago absolutely when when tax cuts and jobs

act came out we um we were telling our younger staff everyone has an opportunity to be an expert in something

that no one else in the country is it was brand new right nobody knew what

what the impact of 19a 199a the qualified small business deduction did for taxpayers no one knew um the dynamic

of just restructuring your business you know uh there might be now a push for clients to be a C

corporation as opposed to a flowr entity right with even with the rates going up

there was a push to be a flowr entity to get that 29.6% but maybe now it makes sense if

the corporate Provisions are staying permanent maybe I want to be a corporation at 21% get my

dividends um and my effective rate might be lower as a corporation

than I would be as AOW through entity so a lot of the planning that we've done for years might just get cancelled out

and and and re-envisioned with the potential new laws and remember that's just the law that's on the books right

now that's not talking about any proposals from any of the candidates coming out of the Republican or

Democratic party which um if anyone's watching the news that's that's all anyone's talking about so we don't

really know what's happening so let's let's dive into that we have you

know um KLA Harris and Donald Trump what

do those I mean is let's start with Trump maybe that's the easier uh answer here the

tcja was his policy um yeah he probably

wants to keep that in place right and and that's right are there changes

beyond that or if wins and there's a republican sweep um as of today it's

simple enough to just say it's things will probably stay how they are status quo yeah yeah I I will say the only

thing that's certain is uncertainty right um I will say that that that was

some his sweeping legislation I suspect he he's he's said in the past that he

wants to make the individual Provisions permanent right but tax Foundation a lot of policy

centers have Quantified and I don't have that data it would be disastrous to what

that does to the deficit right making some of those Provisions permanent but he's been firm in saying

that he would like to extend these provisions and make them permanent and if anything he'd want to continue to

lower taxes probably on UNC corporate payers uh and lower tax pay uh lower

taxes on um on individual taxpayers I will say in general the political Theory

is Republicans generally wanted to get rid of the salt cap because it benefits

the wealthiest taxpayers in the blue states which tend to be your Coastal Coastal States right so that's always

been a republican idea um just based on political game theory is let's eliminate

the deductions for of those constituents that are the biggest donors to the Democratic party um I haven't been

through the green book in great detail which was the Dem which President Biden plan but we know from vice president

Harris in the past when she was campaigning in 2020 um she at the time aligned herself very much so with

Biden's policy with have called for higher taxes on the wealthiest of

Americans and and corporate taxpayers so I would be remiss to say

that the Democratic platform generally would call for an elimination of a lot

of the tax cuts and jobs acts Provisions um I know from what I've read there are

a lot of additional credits for smaller taxpayers for small businesses for for families that need a little bit more

assistance um in terms of rates you know they've called for increased rates on on

folks that are the top of that 39.6 bracket adding another you know one to 2% increase um elimination of certain

deductions for certain taxpayers that have certain wealth levels um there's

always been a conversation on what do we what are we really taxing are we taxing

income are we taxing assets are we taxing wealth right that's been a debate in the media for years right um and it's

a philosophical one at Best um but the economics of of how of how a progressive

tax system works is something that I don't think any country has ever really figured out uh in a in a perfect form so

I suspect a trump platform would extend the tax cuts and jobs act and a

democratic platform would let a lot of these Provisions expire uh and or

potential changes and amendments to the corporate Provisions in my is is there any historical precedent to taxing

unrealized gains you know it's been something that's been talked about for a long long

time I don't have a lot of the academic Theory but there's been papers and commissions that have wanted to tax tax

that as income because if you think about it right and I don't want to open up a can of worms here if I'm an ultra

high if I'm an ultra high NW taxpayer and I have a concentrated tax stock

position right let's say I have a pre-ipo company and I got hundreds of millions of dollars of stock sitting at

a major institution right well guess what I could leverage against that right

right I could get cash to to go out and buy assets with that money you never

have to sell and never have to sell right so me as a taxpayer as a regular

taxpayer I can't do that I have to use my net after tax proceeds to go buy an

asset right so if it's if it's not income but I could use it to

to accrete my wealth well why why shouldn't that be

taxed as as income because it's it's create it's creating wealth right on the flip side if I can't use it I can't use

it right and so there's been a conversation about do you tax unrealized

gains but then you have the question is okay well how do you index that to inflation right if I if I inherited a

stock in in the 60s or bought a stock in the 60s or 70s right you should

definitely adjust my basis right you should right they talk about basis indexing for

years um the point of the capital gain system was to Spur investment right let's let's

let's encourage taxpayers to invest in capital intensive businesses spur business growth job growth but we all

know folks could gain the system right if I'm if I'm a wealth wealth manager

for an institution and my income is structured as wage I'm paying a marginal rate

if I'm an investment manager for a fund and it's structured as a as a carried interest well I'm paying capital gains

rates I'm doing the same job potentially right right so there's a lot of gamesmanship with with the code um so to

your question is there a lot of precedent um there's a lot of discussion um around it and I just don't know I

don't know how you would implement it implement it effectively yeah it seems crazy to me it almost seems anti-

Capital capitalism right also so what happens when you get taxed on your unrealized gain and then your unrealized

gain goes away because you know the position went down right you gonna give that money back that's you know that's

right that's right if they ra I mean if they raise the basis along with whatever taxes you pay then you could turn around

the next year if the value of that stock and right take a loss if it drops significantly it makes a lot more sense

for basis indexing than attacks on unrealized uh because at least you could quantify

the basis indexing it it only makes sense if I bought a stock if I inherited a stock from the 30s or 40s or 50s and I

sell it today the my purchasing Powers has been inherently adjusted because it's just

not the cost of that isn't isn't what it is today right the same dollar is not the same dollar right um I think that

makes a lot more sense um I would love to see an academic paper on how you

effectively Implement tax taing an unrealized position um but I do find it interesting

that certain taxpayers with certain banking relationships can use you know use that unrealized appreciation to sort

of access liquidity when other taxpayers aren't afforded that same benefit uh

with other assets right right um if it's income right because to your point I could use it to buy and sell assets and

never never have to return that money I feel like the the I'm just going to call it a wealth tax right um air quotes for

those listening I feel like that's one of those things that every call it every couple of years this

worry pops up as if like it's going to cause this great stock market selloff or

something because everyone's going to sell all their assets before uh before

this tax goes into effect it's the most ridiculous argument and it it comes up from time to time but I I don't think

that's true I think look the estate state tax impacts a very very small percentage

of the country a minuscule percentage yet the the East Coast and West Coast

taxpayers which tends to be your ultra high netw worth individuals aren't representative of the voting Block in

America right so right it's it's a really good po like policy piece and a

soapbox platform but the reality is these wealth taxes and the state

tax in terms of percentage of the population it doesn't impact a lot of people but it's great it's great news

it's great yeah convers it's a great conversation what about the percentage of the the budget or the tax revenue is

I'm assuming it represents a larger share of that or uh it it it does um but

if if we go back to the let's say the tax Cs and jobs act if it's made permanent it would add

trillions I believe to to the deficit over time right um and

again where's that tax revenue going from a wealth tax right so it's really a

short-term solution I think right because it's it's not a I don't believe

a wealth tax would be a progressive system you know overall and then how do you ensure that those funds are really

used for you know the public welfare the public good um so I'm not I'm again I'm

not so certain what that really does in the in the long term and what that really adds to reducing the de the

national deficit um and adding to other programs that that Americans need right

right I guess it's a damned if you do damn if you don't type situation too because no matter what the rule is anything that is that that will be able

to pass there's going to be a loophole that you know figure out I don't think any industrialized country that has a

progressive tax system out there has figured out a way to fund social

programs efficiently and effective through using through using the tax system I don't know I I I don't Maybe

I'm Wrong um I just I can't think of any

um so it's certainly an interesting thing for the politicians and the economists and the philosophers to to

discuss over over a scotch I'd be curious to hear someone like Nancy Pelosi with with all her uh success in

the stock market how she feels about unrealized gains being taxed

you know you there's like algorithms these

days that copy trade these politicians it's insane yeah and if you look at the timing they're they're almost as good as

the quants right and the quants but yeah look I it's almost as if they know

something you know look it only makes logical sense if

you're sitting on a on a finance committee if you're sitting and you're talking about legislative change change

and policy change you have that information I mean there definitely needs to be some

regulations on you know whether all your assets are in a blind trust you can't tra you have to wait 30 days 60 days 90

days for any trades or needs to get approved but it it it's non it's always

been nonsense to me that there are there are certain folks in our government

that play by different rules than others right um everyone should be on equal

footing in an equal playing field especially those that are riding riding the laws right they should you know they

should be right there in the trenches with all of us right does the president's money need to be in a blind trust yes I think so I think the

president's money needs to be in the blind blind trust but the people actually writing these these laws doesn't which is interesting yeah when

you think when you put it that way yes that's very odd yeah even in health insurance right

they I mean uh they get to use different health insurance um and someone said to

me that's kind of interesting if if uh they can't pass the

budget then or a balanced budget then all members of Congress shouldn't get

paid right right yeah you know that that would never that would never Jud right

it's like it's your job right I don't get paid if I don't do a good job at my job you don't get paid if you don't get do a good you know what polit politics

and professional sports that's it also like CEOs can't just trade willy-nilly of their own stock right they're an

Insider other sea level Executives other they have to you actually have to like

they're the ones writing the laws they're literally bending the rules as they're trading in these companies that

get affected by the rules it's not to make a political statement or anything

no you're you're entirely right if you're a CEO you have to disclose with the SEC what your trading plan is over

the next couple months you have to let them know the date the share it it would be interesting to think uh

if it would make sense for our politicians to do the same thing right right so back to the

tcja what should clients be thinking about right now yeah good question so I

think irrespective of wealth level I think clients should be thinking about their short-term and long-term goals

right um both from a liquidity perspective what do I need in the shortterm midterm long-term what major

expenses are coming up College weddings or Mitzvah vacations uh and then look at

their overall estate plan I think now is a really good time to have conversations with their Board of advisors and what I

mean by Board of advisors are their wealth managers their insurance professionals their state planning attorneys their CPAs um because it's

because it's so nuanced and there's so many factors that are in play right now between a November vote and an expert

Iration or a sunset of these Provisions we at least need to I at least want to make my clients aware of what the

environment is right we don't have to make decisions I want my clients to be educated enough to make those decisions

with me and with their advisers because again we may need to suggest redeploying

their Assets in a different type of allocation methodology right we may if depending on where rates go um if it

affects you know fixed income or something like that we may need to look at some older trust documents that were

drafted a couple years ago that might need to get updated um we may need to

think about how we utilize a client's lifetime exemption now before the sunset

in 2025 you know if you think about it and I think Adam you mentioned you know what do you do with your clients that are 105 million if I'm worth $15 million

guess what I don't have a tax a federal taxable estate right now right if I'm married but guess what January 2026 I

sure I'm going going to even though it doesn't seem like that right and I hate to again I hate to

sound disingenuous but in today's world and and sort of New York City $10

million wouldn't cons be considered a high number taxpayer as opposed to someone that might live in the West in

sort of the middle of America right so yeah I mean real estate values are up stock markets up business valuations are

up from even four or five years ago right so you know what was a million bucks a couple years ago is you know

maybe one and a half two these numbers double quickly and that's not even

talking about what the next couple years could bring or the next decade or Beyond and if for people who are business

owners still in a wealth accumulation phase before they begin to draw down on

their estate over time um you know you have to also project where you're going

not just where you're going to be this year next year before the sunset no you

said you said it perfectly and uh uh you know part of that you know trying to

talk to a client that's worth 1015 million that's that's going to be

impacted by the sunset now you're asking them to transfer irrevocably transfer

three3 to5 million well that that's that's real dollars that's real liquidity for these clients and now and

now their decision- making might might be impacted by this so um now let me just make sure that the listeners

understand what you're saying you're saying up the exemption now right while it's higher so that if the exemption

comes down you already used up and the government's not going to take that back right correct right so we we know that

there's no there's not going to be any clawback of exemptions I'm just going to use round numbers so let's say we have $30 million of exemption right

now a taxpayer could could irrevocably transfer out of his estate $30 million

and so now his taxable estate goes from $30 million to zero or you know maybe he keeps some cash marketable Securities

jewelry real estate art things like that but now all those assets that are transferred out of his estate the

appreciation is out of their estate and will transfer to the beneficiaries based on the dispositive provisions of the

agreement now we're going to go potentially go to 12 or 13 million right

and so if it's 13 what happens to that 17 million IRS is going to come after

that but if I wait to do any transfers until January 2025 I only have 12 or 13

million to transfer right so now if I'm worth 30 I now have a taxable estate right right so part of this conversation

can't be done in a vacuum right we can't CPA can't be the only ones doing that because we need to we need to discuss

this with the wealth advisors right what's the client's burn rate right what's their cash flow like what you

know what's the Monty Carlo analysis of how much money do you have at 80 years old 90 years old people are living much

much later so I may not want to put all this money away in a trust that I don't

have access to now again there are certain types of trusts that exist that allow for spouses to access the the

assets that are in a trust um but for the most part when we're talking about

gifting we're we give up control of those assets it's not my money anymore

and so we need to talk about what that does and then how does insurance come into play right do I need an insurance

product now to fill in the gap of my net worth my taxable state to what the

exemption is you know do it does now Insurance go from a diversification tool

to an asset protection tool obviously we know insurance is always used to shift

excuse me to shift risk but now I may need an insurance policy to create liquidity to cover a

tax bill yeah right so when you die the insurance policy kicks in which gives who's ever left right the cash to pay

the tax bill correct right so I I know I've hit the I beat the horse to death

already but now is August is the time to have these conversations with with our

clients with our advisers um the the strategies are going to be uh need to be

worked out in a team environment right I like that you bring up yeah I like that you bring up the team you know the

multiple advisors and the goals because the go isn't always to save money on taxes sometimes saving money on taxes

hurts you know your your other goal over here right uh and then also from you

know the team aspect people have different relationships with their accountants than they do with their

wealth advisor or the insurance agent or the lawyer right so you know to be able to get that

well-rounded um that well-rounded coaching I think makes a lot of sense you know I've been in situations where

the client comes to me and this he says the CPA says to do x y and z I'm like well wait a second that doesn't one it

doesn't quite fit your risk tolerance two uh I thought we talked about you know doing this and that seems counter

to this right uh and the to the to the uh the tax person's credit right they

didn't know that they didn't have the conversation they didn't have that experience with with the client but you know the wealth advisor did and so it's

really important to get all the views at the table right you know us thinking the wealth advisor thinking from the you

know your end goals uh Financial projections things like that and then the tax the tax person professional

thinking about well how do we how do we save how do we save the money because they do conflict sometimes uh but there

is a middle ground where you know it it works and it's productive if you if

you're doing tax and estate planning without confirming that the financial

planning aspect of this still holds true and you can successfully retire and save

enough money for the lifestyle you want to live if if you're doing the first part without the second part there's an

error taking place there yeah I I think that's a very ne ne negligent activity

um I use this term a lot I'm known to use cliches but um I consider myself

part of a client's Board of advisers with the wealth advisor with their attorneys with their insurance

professionals we are one team and I think Austin you said it right A lot of times in a state planning strategy might

be tax inefficient or a tax strategy may not be what the wealth advisor wants for

the long-term growth of the portfolio right so we have to find some middle ground and and Adam to your point um I

don't do any planning unless a wealth advisor is at the table I am not an investment professional I know enough to

be dangerous I'm knowledgeable at the about the market but you guys are the experts right um and working with the

ultra high nth population you have to have that seat at the table uh and

frankly to some extent I would even say the wealth advisor um might be the most important person at

the table because that's the one that's the keeper of the keys of all the assets right because if I'm developing an

estate plan with the attorney I need to Target the type of assets that we're we're using whether is it private Equity

is it a hardto value Asset is it art is it fixed income is it Mar other marketable Securities in cash now if I'm

pulling a basket of assets well guess what the wealth advisor needs to now fill in the Gap if a client is earn

yielding $2 million of cash on his taxable portfolio and I'm taking some of those assets that generate that yield

and stick it into a trust if he can't touch well guess what you how do you how do you how do you shortfall right right

or or maybe not but with proper planning you can figure that out you can understand what what can someone

irrevocably give away and still be able to comfortably live their life based on what they're earning which is why it's a

team approach right 100% yeah let me let me jump in and kind of flip this script

here you know we've talked about what is coming in a couple years and there's a

lot the only certainty is uncertainty right we we don't exactly know what the future holds what can you say about

taxes longer term 10 15 20 years down the road I mean you talked about the deficit

already I I hear a lot and often that taxes have to be higher in the Future No

Matter What changes in the short term is is there validity to that can you talk to us a little bit about what you think

think the the longer term outlook for tax rates in this country might be you're really ending with a hard hard

question oh no I've got a better one next you know and and this is this is my

sort of personal view I think without any type of sweeping social reforms in how we live

our lives and the expectations we have from our government the world is getting more and

more complex right um business is getting more and more complicated um the needs of of Americans are getting

a bit more robust and we I I'm a firm believer that we need certain social

programs in this country they need to be funded somehow um we live in a wonderful country that

affords us beautiful freedoms that a lot of countries don't have um look some of

our Scandinavian countries have tax rates higher than 50% 60% yet they're

the happiest countries on the face of the Earth so um I don't want to get into the socialization aspect of things but

government serves a purpose to protect and provide for your population with that being

said I think taxes only get more and more complicated right um there's still

Nuance in the code that hasn't been looked at for over 50 60 years it's right for manipulation it's if you have

the resources to do these complicated esoteric strategies for tax M mitigation

purposes then you could do that um you need to hire attorneys and accountants to look through the code and pick out

Nuance Provisions that that really limit regular taxpayers the sophistication

that sophisticated taxpayers are allowed to have right so I don't see it getting easier I think I see it getting a little

bit more difficult right um and I see taxes going up over and over time because it's just getting more and more

expensive to live just think about it this way um and again I don't want to

talk politics but when you subsidize a behavior you're inherently inflating the

price of that asset right and why do I mention that well the code inherently benefits those

that purchase homes and incur debt right you get to deduct your real estate taxes

you get to deduct your mortgage interest but if I'm a renter why why should I not

get some benefit as well if I think it makes more economic sense to rent so the tax code is incentivizing the

behavior and we all know in these types of incentives artificially inflate the price of the the the asset so maybe

allowing a deduction for home mortgage interest and real estate taxes are unfairly increasing the prices of real

estate across the board making it unattainable for certain taxpayers sort of exacerbating that

cycle again I don't know it's just it's certainly just yeah

so yeah certainly possible so yeah I I don't see things getting easier I think things are getting a bit more

complicated look um whenever there's new legislation it keeps me employed um it's

it's time for me to research and learn and and and implement it for my client now a lot of the things that we have to

do as practitioners add very little value to the client just for them to stay in compliance with the law I mean

it doesn't put more money in their pocket doesn't help them accelerate inome to a lower tax period defer

expenses to a higher tax period it's just hey by the way Mr and Mrs taxpayer you have to fill out these three forms

because the government's asking you for them right well I need to find a way to build them for that and then have a f

find a way to let them know that why it's important and why they need to pay for that yet it doesn't add anything to

their bottom line so um I think got not to belittle not to belittle like your

industry and your profession but if we do all this work to file taxes and

I cut a check to the government um you know they they turn

around and say actually no you owe more or here's your refund you overpaid at

the end of the day like can't they just figure it out and tell me what I owe and then I'll pay that like why why are they

making me and you do all this work to to guess and ultimately be told we overpaid

or underpaid well you you you would think look I think one of the biggest Lobby groups out there are those for

atome tax software preparation right there there's been programs in place for years where the government gives you

your tax return most of our stuff is already reported in in the system right they know what we make we know our taxes

and if you have some adjustments but we know tax policy is pushed forward by

Lobby groups consistency groups um professional organizations that say no

no no taxpayers are not that sophisticated um to that end though there are taxpayers in other Industries

where they tax and financial picture is not is not bread and butter right I'm

sure there's some level of trust that is required as well and um you know to if

if the government tells you you owe a certain amount you might pause and scratch your head for a minute and say

do is that really what I owe I had let me do the math here I had had someone reach out to me

the other day that was certain the 16th Amendment wasn't ratified and that the

Internal Revenue code was legal and they asked me if I would amend all his returns to get back all his Federal

withholdings I'm not joking this was a conversation with I had with a business owner I don't know how he found me um

but I gave him the time of day and he's like Internal Revenue code this is this is legal you can't charge income taxes

oh boy okay you have you have at it but um did did you try and call the phone

number back did it did it ring out to some pay phone in India no I actually I did it I actually we were looking back

and forth it was over teams uh but it's interesting look I think I think the IRS

could do things to make things a lot easier for a lot of taxpayers well that was my final buzzworthy question was

look if you had a magic wand today and you could swipe it over you know the the

tax forms of our country what would you change and why wow that's a great

question um I think I touched on it before I think there's a lot of ambiguity in the

code right um I think two practitioners could look at a court case opinion look

there's the there's the code right then there's the regulations and then there's the tax the

tax law the the the tax cases and all of these things sort of meld with one another

there are some provisions of the code that are really just one paragraph yet there's pages of regulations and then

there's dozens of C Tax Court cases open to interpretation right and so if I had

that magic wand for a day I would say take a deeper dive of

the code update it refresh it and make take away the distinctions between

character of income and the activity of the taxpayer and put everyone on an even

playing field I think um it is complicated we live in a complicated world the political

system's complicated but understanding that once you understand that all the deductions

and credits and expenses that were afforded to deduct are not a result

of potentially good tax policy but because good legislation and good bill

writers and Bill a lot of the things in the code are snuck in there on a farm bill right or or some other type of you

know uh legislation that oh yeah there's a a couple pages of tax tax law in there

to me that doesn't make any sense right right and I think we need to we need to we really need to fix that because I

think there's opportunity to make things a bit more fair for a lot of our our uh

lower income tax payers that aren't afforded the benefits that we all have and have the resources that we all have

it shouldn't be harder for them to to stand compliant and their effective rates should not be higher than those

with substantial means uh if if we want to talk about everyone on an equal plane field awesome this has been great do you

have fun was this did we explain everything we wanted to yes I I thought we're gonna talk more

about flying and Aviation but I'll take it so this is great what what what's new

in uh what's new in Jonah's world is it uh did did we steal it with the flying conversation you did you did I'm waiting

for my kids to come home from camp and getting them to put their iPads away and try to get reading time on the books

again and yeah it's gonna be very difficult when you were going uh to flight school I guess that's what you

call it did did they do the shirt cutting thing I've seen that where you know once you get to a certain point

they cut the back of your shirt was that part of part of the process yeah so it's so the the answer is yes but for

whatever reason my flight instructor did not cut my shirt on my first solo and do

you do you know the history behind that so I do but but you should you should tell us yeah yeah so years ago um the

when Flight instructors used to train their student Pilots they used to sit behind the pilot um and you see these

planes like the Piper Cubs the j3 Cubs the like the bwing planes or low Wing planes someone sits in the front someone

in the back they didn't have radios so the students wore like tail feathers on their coats or on their shirts and so

when the instructor needed the student pilot to do something he would you know tug on the the tail coats right when the

student proved that he was Prof he or she was proficient enough to fly the plane on their own they soloed and then

they cut the tail feathers because they were no longer a student so now what flight schools will do is you'll wear

like a white T-shirt or something to your solo and then they'll cut it for whatever reason my instructor never did

that for me and I was still really upset about it co co

yeah there you go there you go just blame um should I do you mind if I jump in

Austin with my so I've been it's very

frustrating um but nothing that any of us could control it's Mother Nature's

fault um hurricane Debbie is rolling through New England this week and just

causing widespread rain everywhere I've been planning a camping trip up in northern Maine for this weekend for the

last like two and a half months where were you to go uh we were going to

go to Flagstaff Lake uh it's in the Northwestern corner of Maine almost you

know equally distant from Vermont and Canada right there and uh I was going to

camp on the backside of Mount Bigalow which I've hiked it as a kid um but you

know a couple of my neighbors um we've been talking about going and doing a Day

hike and I said why don't we go way up to northern Maine and we get tents and everything like that camp out for a

weekend and turn it into a a nice a nice fun weekend um so I found this campsite

on a lake right behind the mountain that we could hike it was going to be you know probably an 8 Hour 9 M roundt trip

um ordeal on Saturday and now we're just getting completely washed out so we're

all we've been postponing actually getting together to plan our meals and prep and who's bringing what and what

car and who's packing everything and it's just it's not going to happen it's such a such a shame you should consider

frankonia Notch New Hampshire in rotation um I used to love hiking up that area and it's a shame because this

would be a perfect time to to hike yeah I've done I've done uh Mount Lincoln's

right there right it's one of the 4,000 Footers Adams M Lincoln all the

presidential ranges right there in franconian Notch that's for anyone up in the New England area

that's y trouble no it's uh that's a great area it's beautiful up there um so

for any clients or listeners if you want to uh if you want some trip advice reach

out I've got some great trips I can un so yeah so I'm hopeful with all this rain that next week will be bright and

sunny because I'm getting married next week and we have an outdoor ceremony and uh now it looks thank you right now it

looks like the weather's clear but uh you know I'm hopeful that you know it's kind of we're going through the rotation

of the batter weather now and and we'll be uh into some uh better weather uh next week especially Friday fingers

crossed oh my God very exciting yeah so uh my what's new though is um I feel

like the three of us in our lines of work we help clients with a lot of complex situations a client comes to us

and they say you know this is my criteria this is my issue and we could find a needle and a hay stack for them

if we put our minds to it right so more recently I've been trying to find a

water bottle that is not plastic holds at least 36 ounces of water or more uh

not it doesn't leak doesn't come with a straw right I want it to lock up safe I want to be able to twist it upside down

and is washer machine safe do you know how hard it is to find a water bottle with that criteria if I feel like those

are all pretty reasonable asks right I should ask my 10-year-old daughter because she collects water bottles oh my

God I could use any help that's possible I actually went and I and I thought I found one I ordered it uh it's set on

the website machine washable and it comes in and right on the box right across the side of it says wash by hand

only and I reached out to on here you should just ask chat GPT to find that's

true too there you go that's true too I'll put chat when did water bottles become a

thing like when I was a kid I drank from a hose and a water fountain now I have 60 water bottles in my house right well

now we know about the germs you know right yeah and my kids are like I need my water bottle before I leave the house

there was like when you were a kid there was nothing more refreshing on a hot summer day than turning on the hose and

just taking a sip out of it right right it's really by the way as my wife make sure I

have a glass water bottle but y um it's really comical how many water bottles I

have in the house it's disgusting well you'll have to let me know and if there's any listeners out there who uh who who found who've had the same issue

as me and found a solution please put it in the comments let us know put in the comments getting a delivery

tomorrow so very cool very cool so uh we appreciate having you on to our listeners we appreciate you guys

listening in uh please remember to to like follow and all that fun stuff share

uh we love to hear from you uh it's been great thank you thanks Jonah appreciate it