Did you know that the Tax Cuts and Jobs Act of 2017 has far-reaching implications up until 2025—with impending changes set to unfold in 2026? Today Michael, John, and Ben discuss the complexities of this legislation, from the sudden shifts in withholdings to the surprising revelations during tax season in April 2019. They also explain how seemingly minor adjustments can lead to significant financial outcomes.
Beyond the conventional metrics of tax success based on refunds or payments owed, the guys highlight the need for a broader perspective. Listen in to hear about the current tax landscape, as well as its impact on individuals and businesses alike. You'll learn the repercussions of eliminating itemized deductions, the significance of simplifying the tax code, and the importance of advocating for transparency and clarity in taxation policies.
Listen to the full episode here:
What you will learn:
- The importance of knowing what’s good about the current tax situation. (4:15)
- Why there is so much more to tax than what you owe or what you get refunded. (7:00)
- Why we shouldn’t keep changing the tax code to make it more complicated. (9:00)
- Who got hurt by the removal of itemized deductions. (15:30)
- The importance of looking at what the average person is paying, not the wealthy. (18:50)
- Why it's key to know how much tax you’re paying in retirement. (23:15)
- How the Tax Cuts and Jobs Act has made doing returns easier. (26:00)
- Why tax rates going up could be a good thing. (29:00)
- The benefits of the Tax Cuts and Jobs Act. (34:00)
Ideas worth sharing:
- “People judge 100% of their success as it relates to tax on whether they get a refund or whether they owe, but there are a lot of lines that come before the refund and owe line.” - Mason & Associates
- “This a call to action to the voters and those in power: The simpler the better. We don’t want more and more change and complications to the tax code. It’s not making things better.” - Mason & Associates
- “Understand your taxes. Do not let anyone manipulate you.” - Mason & Associates
Resources from this episode:
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Read the Transcript Below:
Congratulations for taking ownership of your financial plan by tuning into the Federal Employee Financial Planning Podcast, hosted by Mason & Associates, financial advisors with over three decades of experience serving you.
John Mason: Welcome to the Federal Employee Financial Planning Podcast. I'm John Mason, president and senior financial planner at Mason and Associates. And as you know, we're financial planners first at Mason and Associates and we do this content creation second. And like we've been saying a lot - we're really enjoying producing not only this podcast, but our YouTube channel. If you haven't checked that out, we'd encourage you to do it. Do all the things for us: Like it, Rate us, hit the bell notification, do everything you can do to help us continue to spread the word.
Quick update on what's going on at Mason and Associates: Tommy is out on paternity leave. He welcomed a new baby. So today we have Ben Rakes and Mike Mason here with me. So three of the four normal crew - from our content standpoint, I think it's pretty exciting. We're well over 400 subscribers as of this recording on YouTube. So that continues to grow, which is awesome. This podcast, I think we just hit our best month ever. I think almost 4,000 downloads, well over 20,000 downloads now, since we've been doing this January of 2021 – no, January of 2022, and we owe it all to you, our audience.
So thank you: thank you for encouraging us, thank you for being with us on this journey. if you want to become a client, you can start that process at Mason LLC.net or 757-223-9898. Or if you have questions, you can send those in advance and we'll try to answer those either directly in an email response or on a future episode. Mason FP like financial planning, Mason FP at Mason LLC.net.
So today's episode, we're going to be talking the Tax Cuts and Jobs Act of 2017. So this is the current tax law that we've had since 2018 that is set to run through 2025. And then in 2026, we will have old rules, new rules, and some unknown. And what stuck out to me in our intro song, “Hope and Pray”, I sure hope and pray that one day we can have a tax law and tax rules that last longer than five or years.
So that we're not constantly going back to the drawing board trying to interpret or decipher what the government is trying to do. Mike, between Secure One, Secure Two, then you throw a tax cut and job act in there? It's the wild, wild west. It's exhausting.
Michael Mason: Well then you throw politics in the equation as well. So you just said it, the TCJA – the Tax Cuts and Jobs Act. I'm going to throw some humor in. I hope, the T is probably Trump and not tax, the Trump cuts and jobs act. And why do I say it like that? Well, first and foremost, we're so divided politically that when the greatest tax law of my entire life comes out, that many aspects of it would have looked like a Democrat did it.
And we don't want to give anybody kudos for getting a job done in the greatest tax law we’ve had in my lifetime, and we need to understand and that's why we're doing the show: we need to understand what is good about what we have. And if you understand what's good about what we have, you may begin to understand what's not going to be so good if it's sunsets.
John Mason: Well, it's so polarizing and it's hard to take a step back for some folks and become unemotional and unbiased and specifically when you start getting into taxes, because we know that so many consumers and so many people listening to this podcast probably use TurboTax or probably do some other version of self-prepare.
For those that don't - maybe they hire a professional, the review. What I'm getting at is we either clicked a bunch of buttons or we paid somebody else to do it. But the education level, like it - for example, and I'm making this up - let's say that all federal employees operate at a 12th-grade math level, in a 12th-grade English level, in a 12th-grade - consistently across the board, everybody's equal in all these various categories.
Well, then you get to tax. And you probably see 25% of federal employees operating on - and I'm not just calling out federal, but just for an example - 25% who have a third-grade education, 25% who have a sixth grade, 25% who are maybe a PhD in tax and 25% everywhere else in between. You probably have the biggest disparity in the country on an education level around tax.
Michael Mason: Let me give you a great example of this Ben, you and I talked about it earlier: when the new tax law hit in 2018, and then April 15th of 2019 comes around, withholdings changed dramatically.
And if you weren't on top of the game, your paycheck went up. I had one client paycheck went up by a thousand dollars a month and they didn't ask why - their net paycheck went up by a thousand dollars a month. And then they do their taxes and they're all mad, that Trump tax cut did nothing for me.
I owed $12,000. I had to write a check for $12,000. And then we look at their tax return. And we're like, look, the previous year, you had X. This year, your total tax bill was X minus, let's say, $5,000. When your check went up by $1,000 a month, why didn't you ask why did it go up? So they paid less tax, but they had less withheld.
And that's why they had to write a check. But as simple as it is, John, they couldn't look at the line that said: this is your liability. And it came down, but this is what you paid in. And it also came down. So that's the 3rd-grade education we talk about.
John Mason: Well, our judge of success - and Ben, at your prior firm, you prepared many tax returns, and you have the IRS credential enrolled agent. So you probably know this, maybe even better than Mike and I do, but it's like people judge 100% of their success as it relates to tax, whether they get a refund or whether they owe. There's a lot of lines that come before the refund and owe line.
Ben Raikes: There are certainly a lot of lines that come before that line. That's the only line that anyone cares about: do I owe money to the federal government or do they owe money to me? And Mike, just to go right back on your point: after personally preparing hundreds and hundreds of tax returns and looking at year over year, pre-Tax Cuts and Jobs Act and post, comparing the tax liability line - because that's the line that we need to look at.
I would say 99 out of 100 clients saved thousands of dollars per year. And in taxes such an interesting topic: one, because it's very complex, but two, it's inherently political - so you can't talk about taxes without it being political. If you google how many pages is our tax code, you will find answers that say 5,000 pages, 30,000 pages, 9,000 pages - no one even knows how long the tax code is because no one can agree on it, but our politicians just say I want everyone to pay their “fair share”, and I think that we can see that that means a lot of different things for a lot of different people.
John Mason: Well, we're kind of going off on tangents, but hopefully that's okay for our audience. And you just mentioned how long is the tax code? Well, I know that there's legislation that passes. Like SECURE Act 1.0, SECURE Act 2.0, legislation that was passed in the 80s. And sometimes it takes 10 or 15 years to actually get guidance on what to do when things were passed.
It's not just like laws are passed and we're able to immediately decipher them and act on them. Sometimes it's like laws are passed and we may not know for 5 or 10 years. So like a call to action for DC, a call to action for voters, a call to action for everybody that's listening to this podcast is: the simpler, the better. Like we don't want continue, I don't think more and more and more change and complications, as it relates to the tax code. It's not making things better.
Michael Mason: It's almost as easy as it's ever been. It's still difficult, but it's as easy as it's ever been. I made some notes for this-
John Mason: But let me challenge you: not when you throw in secure act in there. I mean, goodness gracious. If you just talk about a 1040, maybe.
Michael Mason: Right. You're right. Ben talked about fair share. Let me give you an example so we can kind of dispel this fair share thing: married file and joint standard deduction, take everything else out - 401ks and all that. Married file and joint standard deduction, $100,000 Income pays $8,236 in tax.
Ben, that's an 8.2% effective tax rate. Now the fair share, we're going to shoot it down. Let's say I make five times that, I make $500,000. Well, I make five times the pay, but my tax bill is thirteen times what the person that made $100,000 makes. Thirteen times! Not five times, thirteen times. And if I go all the way up to a $1,000,000 dollars, I make ten times more - and my tax bill is thirty-six times. So I think fair share is happening.
Ben Raikes: I think fair share is absolutely happening and the issue that you have is, is we certainly have a progressive tax bracket. Right now, our lowest rate is 10%, and as you make more and more and more and more income, your rate is 37%. And you'll hear stories out there that say, well, Warren Buffett actually pays a smaller tax, a smaller percentage of his income in tax than his secretary does.
Well, Warren, why don't you just pay yourself wages instead of dividends? And why don't you maybe pay your secretary a little bit more or give her the same kind of deal that you have? It’s business owners that take deductions that have mortgage interests, that have depreciation, that are writing off things. These are the people that are able to lower their effective tax rate. If you just make wages and you make a million dollars, guess what? You're gonna pay hundreds of thousands of dollars in taxes on those wages.
John Mason: Well, this is not a political episode, but you guys keep - I'm like the political one right now, which is a little bit unique for our audience to know if you haven't gathered that before. But we're recording this in October of 2023, right? That's the year. October of 2023. This will be live for election cycles and things like that. as we go into the next presidential campaign, and it's like, we don't know the difference - generally, consumers don't know the difference between marginal tax rate and effective tax rate. And you just hit it very well, Ben.
So marginal tax rate is like, if I make another dollar, what tax rate will I pay? Well, that could be 22%, 24%, 32%, et cetera. Your effective tax rate is like your total tax divided by your total income. So your effective tax rate will always be lower than your marginal rate, because we're in a progressive tax system.
And regardless of how much money you made, you still got the benefit of those lower rates at some point. So effective tax rate will always be lower than marginal, but your tax planning is looking at both: not only your effective tax rate, but your marginal. Where are you now? What can we do now?
Where are you going to be in the future? And those marginal brackets. And I think there's just a fundamental misunderstanding which leads towards these, “Warren Buffett's secretary pays a higher rate than he does”. It's not that she pays more money, it's that her marginal rate maybe is higher, and all of Buffett's income is taxed at preferable long-term capital gains rates.
Ben Raikes: Exactly.
Michael Mason: Yeah, I mean, this started, and then we'll move on to the aspects of the TCJA. But it started, the first time this popped out was when Mitt Romney ran for the presidency and all of his income was capital gains, which was capped at like 20%, right? 20% on capital gain is - and I said to the folks at that time, what if, what if all he had, Mitt Romney had was Roth IRAs?
What if he bellied up to the bar, converted all of his IRAs to Roth IRAs? And then started taking income. Well, that would be tax-free, right? You get hammered for using what the government gave you. Okay.
John Mason: And a lot of this is also reinvested money that's already been taxed too. So not only did we pay the tax when we earned it, we redeployed it. We did something else with it and then we paid tax on it again.
Michael Mason: So it's a success penalty. You won too much, you won too much. So here's I want to hit the highlights of the Tax Cuts and Jobs Act. Let's start with the standard deduction, you know back in 2017 The standard deduction, married filing joint, was $12,600, and what that means - standard deduction - that means, if you make a $100,000m Uncle Sam's not going to tax the first $12,600.
He's going to reduce it by a standard deduction, versus the itemized deductions that were in place. Then itemized deductions was your mortgage interest, was your state taxes, fully - whatever you paid in state taxes-
Ben Raikes: State and real estate taxes paid. If you had enough medical expenses, your charitable contributions. And then there are even some unreimbursed employee expenses that were in there. That's a lot simpler now.
Michael Mason: Right? So now every couple gets a standard deduction of $27,700. Guess what? That young couple in New York City that's renting, now they can write off $27,700. They don't have mortgage interest because they can't afford the property in New York City or other large cities, and senior citizens that have their house paid off and don't have mortgage interest. So everybody got to exclude $15,000 - married filing jointly $15,100 more. This again, if a Democrat had done it, everyone would, the average person would have said, look what that, what happened and how good it was.
Ben Raikes: Ask yourself who did essentially getting rid of itemized deductions hurt. It hurt people that had extremely high incomes because they could write off their state taxes paid, and it hurt people that had really high mortgage deductions because they bought really expensive houses. So this was - as much as we might not like to say it - this hurt people who had a lot of money and it helped people that didn't have as much money.
Michael Mason: Yeah, and effectively, the people we were just talking about, the senior citizens with no mortgage interest, on Social Security only? They were effectively supplementing the purchase of that milliondollar house. Let's talk mortgage interest. It also changed, didn't it? What do we cap now, on a mortgage, on a loan? How big can the loan be and you can still write off the interest?
Ben Raikes: I believe it's $750,000 is the total amount that you could have in a loan. Anything over and above that, that interest is no longer deductible.
Michael Mason: Yeah, and it's 7% world. It used to be a $1,000,000 dollars, pre-Tax Cuts and Jobs Act. Now it's $750,000. That extra $250,000 of mortgage interest, at 7%, that was $17,500 that millionaire didn't have to pay in taxes. Now that millionaire, that million-dollar home, is more equal. It's more fair. They're not getting that big deduction.
John Mason: Yeah I mean, I think we've made a really good case guys that the Tax Cuts and Jobs Act from 2017 did a lot to help a lot of people, and maybe it hurt some people, and then maybe it helped a lot more people.
Like there are so many - and I can't even - I'm smart and I know a lot about taxes. But like, I don't know if I could do Elon Musk's tax return. I don't know if I could do some of these like uber-wealthy people's tax return. So we have a saying at Mason and Associates where it's like, are we talking to the majority or the minority?
So like if we have a client that calls in, or a potential client, and there's like this big issue and it's one out of a hundred, we're like: what do we change our entire process for one thing? And the answer is no. So when we start arguing at the fringes, like we're arguing about Elon Musk's tax return, we're arguing on the fringes.
We're not arguing and like, what actually matters in my opinion, which is the majority of America. And as you guys were talking about this stuff, I wrote down: there was like 134 million to 140 million tax returns filed in 2022. $4.9 trillion revenue collected, 72 million didn't pay any federal income tax.
So we could also argue that like the 72 million that didn't pay any income tax, like, are we arguing on the fringes there? Or is that a fringe? Like it's on the fringe of income on the low side, but we have a gigantic number of people in this country that aren't paying federal income tax. Maybe they're paying social security or Medicare, but they're not paying federal income.
It just continues. Every time we talk about this, we shouldn't be arguing at the fringes. And we're not saying that the uber-wealthy are paying or not paying their fair share. But I think we just need to focus on like, middle America and what middle America is paying as we go into the next voting cycle and election cycle.
And as we talk about tax law, like I'm sure there's stuff happening on the top end that I don't know how it works, that I probably don't agree with. And I'm sure there are some loopholes that need to get closed, but that should not be what politicians are running on. They should be running on what's happening to Joe the Plumber, right? That's what we should be talking about.
Michael Mason: Well, yeah, and that's who we - I mean, we're not talking to Joe the Plumber, but we're talking to middle America, right? Maybe upper middle America, but it's the Federal Employee Financial Planning Podcast. And you did win, as a federal employee, from the Tax Cuts and Jobs Act. You absolutely did.
John Mason: And so this has set, Mike, to expire - and I know you're kind of running point on this, but this is set to run through tax year 2025. So we have two full tax years left with this and then we will revert back to either the old code or some revamped, redone version of the current code and we would just be guessing.
But for our audience, like what can we do? For the next year or two, what are we doing at Mason and Associates while we know the rules of the game? Because, let's face it, our federal employees listening to this? It's like almost halftime. Maybe they got close to retirement. So it's halftime. And then we've got three or four decades left. What are we doing now? What can we do from a tax planning perspective, knowing that we have this code for two years?
Ben Raikes: What you're essentially looking at doing is not only where there are differences in the standard deduction versus itemizing deductions and the amount of deductible mortgage interest. There are tons of things that have changed. But one of the biggest things that changed with the Tax Cuts and Jobs Act is: one, all of our tax brackets are lower. Our marginal tax brackets are lower than they used to be, and they're also much wider than they used to be. And so we're looking at the expiration of the TCJA and thinking: okay, if we know our tax brackets are going to go up in the future, assuming this sunsets when it says it will, we want to look at accelerating income if we can.
So what does that mean? That means Roth contributions into our TSP if we can. That means Roth conversions if we're in a position to do Roth conversions. That means taking income now at a lower rate in whatever form possible, and then you're going to take it out later.
John Mason: And to your point, as we were game planning for this podcast, we were looking back at like 2017 and you got through the 28% tax bracket by like $200,000 of income back then. Now, granted that's inflation, noninflation adjusted, but Ben's point is: it's not just that rates dropped Ben from 25% to 22%. It's that it dropped from 25% to 22% and that 3% reduction or as Mike would say, 20% to 30% less tax payment applies to like $100,000 more income. So it's lower rates over a significant period, over a significant amount of time. So if you just look at 22% verse 25%, that doesn't get you excited. But if you apply that delta over $150, 000 of income, it's pretty substantial.
Ben Raikes: It's thousands more dollars.
Michael Mason: The notes that I made: first and foremost, the 12% bracket, which is where a lot of Americans are going to live. That's taxable income between $22,000 and $89,000. That's a 12% tax bracket. That was a 30% cut from the previous 15. The 24% tax bracket. It goes from $190,000 to $364,000. That's, you're definitely catching upper middle class, but that's somewhere between a 20% and 25% decrease, where the biggest decrease in taxes was in that $22,000 to $90,000 of income, which was a 30% reduction from 2017.
John Mason: So, looking at your 30, 40, 50-year tax planning strategy, knowing that rates have come down and these brackets are significantly wider, when you said 12%, Mike, it really hit off this idea in my mind that we've presented so many times - and it's like federal employees and retirees, many of them, the 12% tax bracket doesn't exist.
So it exists while you're working, but it doesn't really exist when you're retired, because then all of a sudden it's like, well, how's my social security taxed? So go back, listen to those “Social Security in the news, I'm confused” in these other episodes we have, but effectively right now, if you’re in the 12% tax bracket and Social Security is playing mean in your tax return, you're really at like a 20%, 20% - 22%.
Well, what happens when rates go back to 15% and you're still in the tax torpedo? Now, your effective rate when you're in the tax torpedoes is 28%. So there may not even be a 15% taxed bracket for you as you approach retirement.
Michael Mason: That's a great point. It's a great point. You know that this - especially the audience we're listening to. You are going to pay tax on your Social Security, you know up to the maximum level: 85%, because you are one of the secret millionaires. But that couple that all they have is Social Security and maybe some income from their IRAs or 401ks.
Another thing in the tax code, it wasn't in the TCJA or maybe it was just made permanent - and that's the ability to give money from your IRA to your church or charity. So now if you're going to give $15,000 or $20,000 to church or charity, you ask what are we doing? We're making sure that if you're 70 and a half or older. Your charitable contributions are going directly from your IRA to your church just to keep that social security from being taxed.
John Mason: And if you're not 70 and a half or older, we've been doing things like donor-advised funds and charitable bunching, because with this hurdle rate of the standard deduction being so high, a lot of people who are donating to charity aren't necessarily seeing that tax benefit.
Again, we've covered this in another episode, but now that we're getting close to the end of the window, right? TCJA end of the window? You're maybe not experiencing the same benefit from charitable bunching anymore. Right? So now all of a sudden, maybe because we're only a year or two away from this expiring, maybe delaying your big charitable gift until after the sunset.
I'm just speculating. I'm not saying this is advice. I'm just saying: doing a big donor-advised fund in 2018 is certainly different than doing a big donor-advised fund in 2024.
Ben Raikes: No, it's a great point. Again, if we know that these rates are going to sunset and we're going to be in a higher rate in the future, our charitable deductions are absolutely worth more if our tax rate is higher.
This is something we haven't really hit on with this, and I just gave myself a tangent alert. The Tax Cuts and Jobs Act has made preparing returns so much easier and I'm sure it's made the cost of preparing returns go down as well. When you were talking about bunching your charitable deductions John, I go back to thinking about the person that collects every single solitary receipt: that they gave $5 at PetSmart, or they gave $20 to church this day, or they gave another $15 to another fund, and collecting all of them and keeping them at tax time to deduct on their return, and we said, hey, guess what?
If you're taking a standard deduction now, we don't have to worry about any of it. Well, guess what's going to happen when that sun sets? People are going to start collecting those receipts. They're going to start adding up all these and the cost and expenses to do their returns and even for them just to personally go through all that data, it is not going to be a welcome sight when that comes back.
John Mason: And we certainly have continued to find ourselves where there are less and less CPAs graduating college. There are less and less professional firms out there with tax expertise. So cost of returns is going up already, with just the sheer lack of credible businesses out there that are actually still doing this for clients. Certainly, you would think for the masses that the simpler the better, but who knows where we find ourselves two years from now?
Michael Mason: Well, here is my prediction: and folks, it is just a prediction. But I want you to think about this guys: the ultimate feather in the president's cap that put this tax code in will be: if in 2026, a Democrat still in the White House, and it doesn't sunset.
That will be the ultimate credit for how good it was for the people we're talking to. Because if they let it sunset, in 2026, you're going to pay 30% more in federal tax. That 12% bracket goes back to 15%, you're going to pay 30% more in federal tax. I don't know of any politician that wants to raise taxes on people that make between $50,000 and $400,000.
John Mason: We want to raise taxes on the fringe. But nobody's running on the campaign that we want to increase taxes on the masses now. And this is completely unscripted folks: like if you're listening to this and you're like, how long did Mason and Associates plan this podcast episode? Not a lot of planning went into this one, but I think it's important for us to acknowledge that we have a revenue problem in the United States, and we have a spending problem in the United States.
And you guys can hate me for this, both internally and externally, whoever's listening. Maybe tax rates should go up. I'm just saying we have a revenue problem. We have a spending problem. I don't know. We're not smart enough in this room to know what the fix is guys. But like maybe tax rates going up in two years would actually be better for the U.S. than these things being extended.
Now as your financial planner, we try to limit and reduce. We want you to pay what you owe, and as one of our other friends in the industry says, we don't want to tip the IRS. So we want you to pay what you owe, and we want to try and reduce what you owe through legal ways, but maybe rates need to go up.
Michael Mason: Well, let me make sure that the numbers you gave me earlier: 134 million tax returns?
John Mason: I think that's between 134 and 142, I think is what I found.
Michael Mason:And 72 of those resulted in zero federal liability?
John Mason: Correct. And audience, please fact-check us. I mean, this was really quick Google, but it was like 40% had no federal tax liability.
Michael Mason: Right. And what that means, again - because when some people hear they had no federal tax liability, they think, oh, they didn't have to write a check on April 15th. What it means is, you got everything you put in back, and in some cases you get stuff other people put in back, so you get more than what you put in back.
So to John's point, if we were a less divided country, and we could actually trust our federal government, I would gladly pay more as long as everybody has some stake in the game. I don't care if it's a dollar, but 72 million people not paying anything? Everyone should be responsible for the roads, bullets, F15s. I would gladly do it. The problem we have is we're so divided and then we're not trusting the government at this point. And so you don't want to give them more money, right?
John Mason: Yeah. And our listeners can do the math. 72 million times $1,000, or 72 million times $2,000, that adds up to a substantial revenue increase. And Mike to your point - we don't want to get political, but obviously there needs to be some sort of accountability for spending. But I don't know how I'd vote if rates were going up. It's hard to think about wanting that personally, but for the general good of the nation and the good of your brothers and sisters, you feel like, yeah. Maybe, everybody should pay a little more into the system.
Michael Mason: So I made some notes and I want you guys to add. You've already heard all my numbers. I'm not doing any real hard numbers going forward, but I want to talk about easy things to conceive: the state and local tax deduction. That's your property taxes, the taxes you pay to California or the taxes you don't pay to Texas.
They limited, the TCJA limited that deduction to $10,000. And the easy statements that come from this are simply: a federal employee, all else all things being equal, federal couple in California making $150,000, should have the same federal tax liability that a couple anywhere in the country making $150,000. That California resident shouldn't pay less in federal tax, less obligation to their own benefits, right?
Because it comes out of the tax dollars of America. A California or a New York federal employee shouldn't pay less federal tax than a Texas or Florida federal employee. And now they don't. How could you have any issues with that? Or the the guy that, the couple that buys a million-dollar house, or a two-million-dollar house or a three-million-dollar house in California with property taxes. Why should the rest of us supplement that three million dollar house, because they're living with an ocean view and they're getting a write-off state taxes on their federal return?
John Mason: It's hard to imagine that we could justify that Mike. I mean, I think that you've outlined quite a few good points in this episode, about how it's pretty fair and it's kind of leveled the playing field and gave renters the ability to have a high standard deduction that they didn't have before and limited, certainly real estate and even the playing field among the various states.
Now, states have gotten creative with ways that we're now getting around some of those limitations for business owners and what have you. And nobody's ever going to just lie down when it comes to a tax law. So even though this seems to have been a very fair proposal, people are actively working every day to find the loopholes or poke holes in something and put it back in their favor. So no tax code is immune or can be prevented from being stretched or nuanced to a way to benefit those who really have the means to stretch and nuance it, if that makes sense.
Ben Raikes: I think just over our lifetimes - and Mike and John, you've both said this many times Our marginal tax rates, since we have been alive, have only gone lower. They've only gotten less and less and less, and I think this is a point where we actually feel that not only are taxes low, but things seem to be more equal than they were, and maybe even easier to understand, notwithstanding Secure Act, than they were under a previous tax code.
So, this is - one, yes, this is fair and we like it. And two, we don't want this thing to sunset either. And to your point, Mike, wouldn't that be a great feather in the cap that, “Hey, this is actually going to continue, not just for another five years, but in perpetuity.”
John Mason: I wonder what they'll call it. I wonder what the bill or the law to extend this would actually be called. And I wonder, like what the two sides of Congress will even do? Like maybe the Democrats support it and the Republicans don't? You're like, well, how's that possible? Like, could this actually be a tax law that Republicans and Democrats both agree on? Stay tuned. 2026 is right around the corner. I mean, this is fascinating.
Michael Mason: Yeah, As we begin to close, I want our listeners to understand that forever, the federal government - both sides of it - have used the tax code to manipulate Americans. they gave you a tax deduction on the mortgage interest of your house so that you would buy houses. They use the tax code, we talked earlier about the first year of it. 2018, where people, April of 2019, were having to write big checks to the federal government because the IRS didn't warn them. We tried, John. We did it on a radio show. Once we figured out what was happening, we're like, your paycheck went up because your taxes being withheld, went down and you're going to have to write a big check.
And now, what are we - five years later, or four years later - and now I'm starting to think, Ben, that. Yeah, that maybe the IRS did that on purpose just to taint the fact that, the Trump tax code. And we shouldn't have to think like that. But here's my point: understand your taxes. Do not let anybody manipulate you.
You should not go in and pick up that tax return that somebody did for you. And they say, look, I got you, a $3,000 refund. The answer should be to that person, you did my taxes last year. So what you did is cost me $250 a month too much. So don't let the tax preparer manipulate you.
Don't let the federal government or politicians manipulate you. It's pretty easy to do a little homework, listen to a few of our podcasts, and get a good idea of what taxes are gonna look like this year and next.
Ben Raikes: Work with a financial advisor that is not just walking you through how your tax return may be prepared. Work with someone who's gonna do tax planning. Essentially anyone can enter the data into their software and spit out a return that says, Hey, here's how much you owed or here's how much you're going to get from the federal government.
Work with someone that can say, “Hey, that Tax Cuts and Jobs Act is expiring in two years. Have we thought about doing Roth conversions? Have we thought about rather than doing traditional TSP contributions, doing Roth TSP contributions? I know that, QCDs are not going to be potentially as valuable anymore in two or three years. How can we shift and accelerate deductions and donations?” I mean, these are the valuable conversations to have, not just, hey, thanks for entering that in. Here's, here's your bill.
John Mason: So these were two really great big action items and takeaways, I think for audience and if you guys are okay with it, I think we, we maybe move to wrap this one up. And my final action item or takeaway from this episode is we've recorded a lot of tax episodes, tax planning versus tax reacting.
It's like, go back and make sure that you're listening to all of these various episodes that we've recorded. And just remember that your tax plan expires every year on December 31st. You prepare your return by April 15th or by extension date, but your tax planning window closes December 31. I imagine that this episode will be live probably either December, January timeframe.
So we'll maybe miss the window, but your tax planning window ends at the end of every year. Go back, listen to all of our various episodes on this. and we're going to talk maybe in a future episode or on a YouTube channel episode on EE Bonds, and if now is the time to liquidate those, so stay tuned for a YouTube episode on that.
Folks, this has been another episode of the Federal Employee Financial Planning Podcast. John Mason, Ben Rakes, Michael Mason, certified financial planners, three, four, five decades or more of experience serving you, the federal employee. We're honored to be on this journey with you. Remember this: things at Mason and Associates are what they seem.
We're here to support, empower, educate, and motivate you to make changes in your financial plan. That's whether you're just a listener to our podcast and to our YouTube channel, or if you'd like to be a client of Mason and Associates, things are what they seem.
Thank you for being on the journey. Thank you for tuning in to another episode of the Federal Employee Financial Planning Podcast.
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