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Roger Harris: Hello again everyone. It's another federal Tax update podcast. It's Annie and Roger back at it again. Annie, good to see you. How are you doing?

Annie Schwab: I'm doing well. I think I'm doing better than you. You don't even know what city you're in at this point. After all these IRS forums, you got one left on your agenda for the summer. Um, yeah. One more. How are you doing? How are they going? [00:00:30]

Roger Harris: Uh, they're they're, they're all a little different. You know, I was just in Orlando yesterday, which had the largest attendance of all of them had over 3200 attendees. Um, you know, I think they're going well, I guess it depends on the perspective. I mean, you know, we, we, we don't advertise. We have a booth in the exhibit hall and we present some sessions there and they're doing well. So but it's good to be home and I'm glad to know I can see the, uh, the light at the end of the tunnel. I'll tell you one [00:01:00] thing, Andy, that at every forum I go to, we I hear from and I wish you were there to hear it too, from people who do listen to the podcast.

Annie Schwab: Oh, well, thank you everybody.

Roger Harris: Yeah, we appreciate that. Most of them want to know where you are. And so I have to explain that, you know, you get the luxury of staying home, but it's for all of you that, that do listen and we're at the forums or come to the forums. We really appreciate it. It's nice to hear when people appreciate what we're doing because, you know, when we started this, we didn't know if anybody would listen. [00:01:30] But we know we know at least a few people are.

Annie Schwab: Yeah, yeah, it's been fun. It's been a journey. And I can't say that this was on my, uh, my to do list a few years back, but, um, I've enjoyed it. I've enjoyed, you know, hearing back from our listeners and, and of course, spending time with you on these podcasts. It's, it's fun. It's, it's, it's fun.

Roger Harris: Yeah, yeah. I don't think any of us ever thought we would be doing a podcast, but here we are. And, uh, it's great. It's a great way for keeps Annie and I connected because we're in different places now. We used to [00:02:00] work in the same office, but now we're separated, so it keeps us connected. And. And as I've said many times, she does all the hard work. Like, you can imagine how much prep I did while I was in Orlando for this podcast, but, uh, it's been fun.

Annie Schwab: Well, our topic today is kind of interesting, something we've never really presented on. But, um, why don't you introduce us?

Roger Harris: Yeah. Uh, before I, I think it was before Orlando and after some other forum, I was invited to be a panelist on a show called Tax Talk today. [00:02:30] Mhm. Um, now, some of you probably know what that is, but some of you don't. It's, uh, it used to be actually live in a television studio and you got the makeup and the whole thing like you were. And it was, uh, sent out live to for people who are in our industry, it's put on primarily by a e A. Um, but the topic, uh, Allen Pink, who moderates it, who's someone Andy knows. And in fact, he was on. I don't know if it's aired yet, but we had Alan at the New Orleans Forum [00:03:00] for a few minutes.

Annie Schwab: It just aired. Yep. Yeah.

Roger Harris: Um, talking about tax talk today, but it's a great show. And it's something that I think you should, uh, in addition to listening to our podcast, you should, you know, jump on, on that as well. But the topic we covered, um, had to do with as our clients age and obviously we age at the same time, some issues that are unique to them and things that we should probably make sure we know how to explain and questions to answer [00:03:30] the other panelists. By the way, Phyllis, Jill and Terri Durkin were great. Um, so I commend that to your attention to go listen to it. Um, they have two hours. So they dug into a lot of things that we won't cover here. But we realized Andy and I talked after I did it, that we've never covered this type of topic before. And we thought it was something that our listeners would like to listen to. And so thanks to Alan, I asked him when I saw him in Orlando if he was okay with us kind of stealing his topics, and he was very happy to let us [00:04:00] do that. So, uh, we're going to talk about what happens as you age. You know, it can relate to us. It can relate to our clients and some things that probably a lot of it, you might know or know a little bit about it, but you know, we're going to try to add a little twist to it and refresh something that maybe you don't think about, but, uh, let's go.

Annie Schwab: Let's do it. So, um, again, you know, federal tax breaks for seniors, I'll say most of this [00:04:30] is related to taxpayers over 65. Um, we are going to talk about some special deductions or strategies, but then also kind of tell some stories and keep you interested. So, um, I will say most of us are probably very well aware of the senior deduction that was new as of 2025 filings. Um, that was that 6000 of them per individual, 12,000 for married filing joint and its temporary or currently it's set to sunset in [00:05:00] 2028. And there's some threshold income thresholds for it, but you need to be at least 65 by the end of the year, um, with a Social Security number. And if you are married, then you need to file jointly. So there's no married filing separate. But um, you know, that was, although there was probably some misconception when it was before it was actually released. You know, I, I know we heard people saying, well, you don't have to pay tax on Social Security anymore. Those kinds of things. Not exactly how it panned out in the end.

Roger Harris: Yeah. Well, that's [00:05:30] what you get when you call it no tax on Social Security.

Annie Schwab: Right? Right. So, um, you know, so that was that's definitely one that's at least sticking around for a couple of years. Um, and then then there's the additional standard deduction. So, uh, the, for 2026, it's increased by like 50 bucks, but for 25, it was 2000 for single or head of household and 1600 for um married. Each eligible spouse for the joint return or a surviving spouse or [00:06:00] filing separate. So, um, they did get indexed slightly, like I said, an extra 50 bucks in 2026. But, um, that was another additional standard deduction. And an individual who did not itemize, um, could claim the additional standard deduction as long as you were 65 or older. So another new perk I guess to say as you age.

Roger Harris: Yeah. As you get older, I mean you do get some deductions. What's interesting about the $6,000 senior deduction is while it's been presented as no tax [00:06:30] on Social Security, it doesn't have anything. Social security you don't have to Social Security if you are 65 or older, you still get the deduction. So it's kind of funny. They still call it no tax on Social Security.

Annie Schwab: Yeah.

Roger Harris: You don't even have to be on Social Security.

Annie Schwab: That's a good point. Yeah, that's kind of a misleading comment there. But um, a couple other things. The thresholds, the requirement to file a tax return based on your gross income when you when you are 65 or older, that is a bit higher. Um, so like for [00:07:00] head of household, it was 26,000 or married filing joint was 33 a little bit higher than, than the, um, you know, if you were under 65. So, you know, maybe 65 is the key age. Roger. I don't know. Is that is that what I'm hoping for?

Roger Harris: 65 well, since I blew past that a number of years ago, um, yeah, 65 kicks in a lot of things, you know, deductions. That seems to be an age that's kind of factored in when a lot of times when we talk about seniors and I guess that's, well, it's not even the start date [00:07:30] for Social Security. Exactly. I mean, you can do that as early as 62. You know, I don't know, but that seems to be a number that I guess you become qualified as a senior citizen, you know, in somebody's mind.

Annie Schwab: But yeah.

Roger Harris: Yeah, you see it in a lot of places where, where that's the number. That's the age at which they start replacement.

Annie Schwab: Yeah, I do see that a lot. And we were talking a minute ago about Social Security being nontaxable or no tax on Social Security. You know, it's not, you know, automatically [00:08:00] tax free at the age of 65, but it can be potentially 50% nontaxable depending on, you know, your AGI.

Roger Harris: How much.

Annie Schwab: You earn and those kinds of things. So I mean, 50% is a decent break. It does sort of increase to more of like a up to 85, 85% when your income exceeds a certain level. But, you know, a little tax break there for maybe some that, you know.

Roger Harris: Are in the lower end. Yeah. Yeah. And what's interesting is [00:08:30] there really was no change at all to the taxability of Social Security. I mean, that's the way it's always been. So true. All this discussion about taxing Social Security, not taxing Social Security. We got a deduction, which is, I'm sure makes seniors happy. That's better than nothing. But the taxability of Social Security is what it has been. And so we're we're still there.

Annie Schwab: So tell us about all these different ages and full retirement. And you and I spoke about it, and I'm going to turn it over to you because it's.

Roger Harris: Yeah, there's, there's, so we get a lot of questions [00:09:00] and we're going to talk about a couple of different things when it comes to Social Security benefits that at least I know. And I think any you probably get them from our offices and from people. It's like, when should I draw Social Security? When am I eligible? You know, all these questions that they think the tax preparer is the person to turn to. There are three dates that do matter. Uh, two of them are pretty easy to understand. You become eligible for Social Security at age 62.

Annie Schwab: Uh, that's the earliest that.

Roger Harris: That's the earliest you can draw. Now there's [00:09:30] a third. The third date is age 70. That's when you are considered maxed out in terms of your ability to, to receive benefits. It's the date in the middle that's different for people and can be tricky. It's what's called full retirement age. So let me try to explain to those that don't know what 62 means, what full retirement age means, and what 60 or 70 means. 62 just means you're eligible. You can draw Social Security now until [00:10:00] you reach that full retirement age, which again, is in the 66, but it can be 66 and four months, five months, 11 months, again, depending.

Annie Schwab: On.

Roger Harris: Your birth.

Annie Schwab: Year, everybody.

Roger Harris: Yeah, different birth years, but between that 62 and full retirement age, if you're still working, uh, and you get over a certain amount of income, some of that Social Security benefit can be clawed back. So, um, you have to look, if you're considering retiring at 62, are you going to continue [00:10:30] to work? Because two things are true. If you're going to continue to work, you're going to get some of that money potentially pulled back. And secondly, the amount that you earn starts at age 62, but that's the lowest amount that you're going to get. It's going to creep up every year until that age 70 birthday hits when it's maxed out. So if you don't draw it after age 70, it's not going to go up anymore, right?

Annie Schwab: But if you take it at 62 that your monthly check is going to be [00:11:00] the lowest, it's.

Roger Harris: Going to be the lowest.

Annie Schwab: The longer you wait after 62, kind of creeps up a little bit, but then could get clawed back if you are still working, still working, and you make over a certain threshold and by claw back, like how much?

Roger Harris: Um, it's kind of confusing. There's some times when it's depending on. Let me answer it this way. When you get to that full retirement age, that whole earning problem goes away. Right. So you can continue to work, you can make as much as you want, and your benefits are not clawed back at that point. [00:11:30] But between that 62 and that date, it's normally $2 for every dollar that you earn. But it's different in that last year when you're reaching full retirement age and it can be $3 in there. So it's it's somewhere between 2 and $3 of earnings. Claws back a dollar of Social Security above a certain amount. In other words, there's a certain amount that you can earn and not have any clawed back. Once you top that and it gets a little tricky in that final year. [00:12:00] How close are you to that? But the big thing to know is that once you reach full retirement age, you don't have to worry anymore about how much money you're making. So now your decision. Let's say you haven't retired yet. You reach full retirement age. Now. Your motivation, if there is to delay drawing, is that that benefit will continue to grow up until age 70. So if you start at 67, you're always going to draw a little bit less than someone who waited until they're [00:12:30] 70.

Annie Schwab: Yeah. Gotcha.

Roger Harris: So you're trying to figure out now I've heard everything from as soon as I'm eligible, I'm taking it because I've paid into it. Uh, I understand that, um, the sad thing about Social Security is a lifeline for a lot of people, so don't take. I'm not one of these. We should get rid of Social Security. But for a lot of people, they just feel like I've paid into it. And by God, I'm taking it back as soon as I can. Because unlike your retirement plan [00:13:00] at work, usually if you have a retirement plan at work and you start drawing against it, if you were to pass away, there's a bucket of money still there that goes to your family. In the case of Social Security, it's over, right? I mean, your spouse may be able to get increased premium benefits to some extent. There's a small I want to say it used to be, and I haven't seen it in a while, $255 to help you bury somebody. I don't want you to dig your own hole for $255. Yeah.

Annie Schwab: And there's something for like minor [00:13:30] children and those those types of things. But for the most part, you're right. Whatever you paid into Social Security. If you die before you take it out, then you get.

Roger Harris: Theoretically you get nothing.

Annie Schwab: You get. Yeah, it doesn't get to go anywhere. So yeah. So it's I mean, I guess you're rolling the dice. I mean, you know, well, I guess if you need it, if you need.

Roger Harris: It right.

Annie Schwab: To live on, then you should, you should take 62 because.

Roger Harris: None of this stuff matters. If you need that to pay your bills to buy food, whether it's being [00:14:00] taxed or not taxed, whether it's maxed out or not maxed out or some gets clawed back. If it's something you need to pay the bills, you should take it as soon as you're eligible because you did pay into it. I mean, yeah, so I mean, it is your money. This is and you've I'm sure you've heard this question we get asked by a lot of clients as they start approaching these ages. Well, when should I start drawing Social Security? And that's impossible to answer because first of all, we don't [00:14:30] know how long you're going to live. And I don't know how long you may. You may know how long you're going to work, but you don't know how long you're going to live. And we can all look back after the fact and know what was the right year. But to know what was the right year in real time. And I think that's what we have to make, because I'm sure you've heard it. We I don't know why they think the tax preparers, the person to ask this question to. But that's one of the very common questions I get as taxpayers start reaching retirement [00:15:00] age.

Annie Schwab: Yeah, yeah. It is a common question. And it's and like you said, it's, it's confusing and it's, well, how much is that monthly check going to be and how much is my clawback going to be? And that's, you know, that's not something that we can calculate for you based on, you know, a certain day of the month that you decide to start drawing. But I think what, how you've explained it makes sense in theory. So this is how in theory it works. And then the taxpayer, [00:15:30] the taxpayers family have to determine, you know what makes most sense for them.

Roger Harris: For them in their situation. And you just can't look back because nobody there is no, there's nobody on this planet that I think could give you a definitive answer and know the exact answer.

Annie Schwab: You know what else I get all the time? Is Social Security really going to run out? Is it really going to be gone by the time I retire? I mean, like, and you know, that's another question that I can't that I can't necessarily answer.

Roger Harris: But that's why [00:16:00] a lot of people just think I'm taking it as soon as I can because they think it is going to run out. Yeah, yeah. And I think there was something that came out of the government not too long ago. It's like they're saying that in six years there'll be drastic reductions if we don't change something, because the whole theory of Social Security was people pay into it to provide the money for people at retirement age to draw out of it. But the population has gotten out of whack. So now more is going out than it's coming in. And every time people want to deal with it [00:16:30] in a serious way. Well, then the politicians. Oh, you're going to take away my Social Security. You're going to do this. You're going to do that. Nobody's talking about taking away but, you know, is 62 still the right age given how much longer people live are living.

Annie Schwab: Exactly. But I do understand that argument. You know, people are living longer, so maybe they should be 65 or 67. I mean, who knows? But there's got to be some mathematical equation that [00:17:00] preserves, um, funds. But again, you're predicting when everybody's going to die.

Roger Harris: Yeah. The two most common suggestions that you hear to fix the problem, because Social Security does have a problem. Now, I can't imagine that any politician is ever going to let benefits go down due to their.

Annie Schwab: On their watch.

Roger Harris: You know, they're, they're going to find some way to keep it going. But the two interesting things that you hear as solutions, one is that retirement age is 62 or 60 5 or 70. [00:17:30] Any of those years still relevant? But if you suggest that, boy, people just pounce all over you that you're taking away their Social Security and this and that. The other one is one of the interesting parts about Social Security is, as we all know, there's an income cap on when you stop paying the Social Security tax, that goes up a little bit every year. But at some point, if you're a high earner, you're Social Security, you've reached the maximum for that year, and that 6.2 goes in [00:18:00] your paycheck for the remaining part of that year. Then you start over in January of the next year. A lot of people think if we just removed that cap. Mhm. And let people pay Social Security on all their earnings, that that would help solve the problem. And in some cases they say, well, don't do it on everybody, but kick it back in at some higher income number. But basically this is make the people making the most money help solve the problem.

Annie Schwab: Problem.

Roger Harris: Now, the flip side [00:18:30] to that argument is that most retirement accounts, the more you put in, the more you get out in Social Security, the more you put in is still going to not get you any more than the maximum for anybody that may not have put it. So would would someone be asked to pay in thousands of extra dollars, but their benefits wouldn't go up for doing that. So how are they going to feel? Everything can have a political twist when it comes to Social Security. Yeah. But for all [00:19:00] the whining and complaining that we hear, I can't imagine that there's anybody I've ever known in Washington, D.C., that would allow Social Security to just go in the tank due to political inaction. I think at some point we'll get serious about it, and we'll probably do a combination of both. We'll probably raise the retirement age for people and even the people that want to raise the retirement age. You're talking about people who are going to start drawing it in 30 years. They're not talking about changing anybody that's on it today. But somehow. But [00:19:30] 30 years from now, you'd have to be 70 to start drawing whatever the number is.

Annie Schwab: Whatever the whatever the the right number is, or.

Roger Harris: And probably we'll see either the tax rate go up or the amount of ratings, you know, it's going to be a combination of those things because they don't control living and dying and working and not working and all those sorts of things. And you do have to keep the fund solvent at some point. And, uh, because it's not fair for somebody. Look, I'm old enough. I'm not worried about it, but I mean, how would [00:20:00] you feel if you paid into it? And then you got my age and all of a sudden they said, sorry, we don't have any money.

Annie Schwab: Right. And I do, I mean, I think that is a fair argument. And I think it is a concern and it should be a concern. So I guess that's another one for if we had our crystal ball, we would solve this problem.

Roger Harris: But and we could probably be president of the United States so we could figure out how to pull this one off and, and get people. One other thing and we'll move off of Social Security. The other thing I hear. Excuse me, I'm trying to get over a throat. So if you hear me coughing, it's, I think, probably a lot of the traveling. [00:20:30] Um, the other thing I get is people call me and say my social security went down. I said, what do you mean? It went down? Said my check went down. I said, well, your social security didn't change. What changed is you. If you. And again, I'm saying things I'm sure most of you know your Medicare premiums. If you're on Social Security, you probably get Medicare.

Annie Schwab: Mhm.

Roger Harris: And your Medicare premiums are based on how much money you earned in some previous years. It's not. It's about two years ago. Yeah. And [00:21:00] so if you have big earning years, your premiums for Medicare go up. Your Social Security benefits didn't change. But the amounts you get. Yeah. The net changed because your premiums for Medicare went up. Uh, the only thing I can say there, uh, and again, I'm sure this is not something you don't know. There are appeal rights if something in those base years caused that spike in income. That's unusual, not repeatable. I've seen one case where a client went and appealed [00:21:30] because they worked in a business, owned a business, I should say, for a number of years, and then they sold it and had this massive amount of income in that one year that they sold the business. And so when the Medicare premiums were being calculated on that year, they jumped out of the roof.

Annie Schwab: Oh, gotcha.

Roger Harris: And they went and appealed it and were able to get them adjusted downward, excluding that. Now, I've heard other people make similar arguments. I guess it comes down to whoever [00:22:00] you appeal it to. But there are appeal rights. It's called Irma a RMA. And, um, if you see those premiums dramatically go up and the benefits drop significantly, it might be worth at least, you know, talking to your client or having them go and see if there's something that they can appeal because, um, but the benefits don't go down. At least not yet.

Annie Schwab: Yeah, that makes sense. All right. Let's [00:22:30] briefly talk about just regular retirement distributions from like your employer plans. Um, we know 59.5, you know, I'm sure that was a calculation that I don't understand where that number came from, but 59.5 was the, you know, the, the, the year, anything before that you got kind of hit for, for that 10%. Um, unless you met some qualification, right? A waiver of that. But um, you know, we've got, like you've mentioned Social Security when you go, it doesn't pass on to anybody but retirement, [00:23:00] your retirement plans, your traditional IRAs, for example, um, would continue. And so let's talk a little bit about, um, you know, the max you can contribute in and then how are the distributions taken? And what if you inherit one of these? Um, you know, can you, do you jump on board with their lifeline schedule or can you opt out of it? We do get quite a few questions on that. You know, should I, should I take it should I just, you know.

Roger Harris: Yeah. And I think they've [00:23:30] they've tightened that up somewhat recently, I think correct me if I'm wrong, but I mean, you have a lot of flexibility. You could kind of just leave it there. And now unless you're the spouse, you got ten years, you can wait ten years, but you're taking it all out in the 10th year if you didn't take it.

Annie Schwab: Yeah.

Roger Harris: So they're kind of forcing you to take that money out. Um, because they want the tax on it.

Annie Schwab: They want the tax on. Yeah they do. Um, they want the tax on it. And so, you know, piggybacking on that ten years, you know, it's the discussion [00:24:00] of, of, you know, well, should I take it in year one? Should I take it, start taking it in year five. Should I wait till the end? Um, and again, you know, depending on the particular scenario. Um, so thinking about that and then the unfortunate situation of needing long term care, paying medical bills or those types of things. I think that's an exclusion from the 10%.

Roger Harris: Um, yeah.

Annie Schwab: As far as.

Roger Harris: Yeah, there are things that you can. Well, [00:24:30] and even the 59.5, you know, the 59.5 starts where the penalty goes away. Yeah. And there are certain things before 59.5 that Congress has decided in recent years. I don't think that's the way it started to to waive the penalty. They're still going to tax it for now. And we're talking here about something other than Ros, which are a whole different animal.

Annie Schwab: Yeah. No we're talking. Yeah. We're talking about your for example, your traditional IRA.

Roger Harris: Right. Right. So yeah, there are exceptions to all of this. There's also the other thing that comes in as we talk about [00:25:00] seniors is required minimum distributions that have to be paid, um, at a certain age. Um, some of you had to start at one, I think it's up to 73 or 70 or 73.

Annie Schwab: Yeah. The April after you turn 73. However, that works based on your birthday, year, and date. Um. But yes.

Roger Harris: And there are some exceptions to that. And again, this is something I would say talk to the retirement people, but [00:25:30] I'm not sure they all know it from personal experience. If that retirement plan is at a place where you still work and you don't make over a certain amount of money and aren't a certain percentage of ownership if you don't own, but if you're just a regular employee working at this, where your retirement plan is, you can defer the required minimum distribution until you retire or until you either make too much money or own too much of that company. So [00:26:00] there are ways for that R&D to get to be deferred. There's also and I'll plug tax talk today again, but there are some creative ways to go and do things like if you want to make a charitable donation by making a direct IRA to charity donation.

Annie Schwab: Write.

Roger Harris: To to lower the RMD by lowering the calculation. There's something about an annuity that you can begin taking, you know, as long as you start it before [00:26:30] you're 85. These things just. If you know how an RMD is calculated, it's based on the beginning value of the plan at the beginning of the year. And then there's a percentage that's applied to it based on how old you are, your life expectancy. So somebody thinks they know how long you're going to live because there's a life expectancy table. So you multiply those two numbers and that's your minimum distribution. But you can remove some of that fund balance from the calculation with some of these, um, charitable trusts, donor contributions [00:27:00] or this annuity plan and some other things that you can do. So for high, real high income seniors, there's probably some other things that you might want to learn about and talk about in ways of either lowering that are MD you can't eliminate it completely. But again, go. Listen, we spent we don't have time to spend a lot of time on that today, but go listen to tax talk today because they covered that a little more detail.

Annie Schwab: Gotcha. Well, [00:27:30] I mentioned I touched on this whole long term care services. And I'm not going to lie, I drive around Texas a lot like in my area. And there are some really fancy upscale retirement communities. Um, I mean, the pools and the golf carts and the, and the things all around. And, and obviously, I'm not suggesting that all of that would be considered long term care. But, but it is an interesting scenario as people do [00:28:00] live longer, um, finding, you know, being, being a part of one of these retirement communities, so to say, um, it definitely has its benefits. But what what would actually. Let's talk about the things that are or maybe are not deductible as a medical expense for those who would itemize. Um, for these types of environments, neighborhoods.

Roger Harris: No, you're right. They're building those places everywhere. First of all, we've got an aging population, so they're building them [00:28:30] everywhere and they're getting nicer and nicer. And we used to think a few years ago, you know, you heard Old Age Home and it was just a place nobody wanted to go. Yeah. And, and now people are actually moving into these places when they're not necessarily sick or can't take care of themselves. So, so the first thing you have to decide when you're talking to someone is, are you here because you have to be here for medical reasons, or are you here because it's convenient and there's some services that you [00:29:00] like because you can have in those nice places you drive by, you can have two people in there and one could have fully deductible cost and the same. A person in that same facility would have nothing that's deductible.

Annie Schwab: Yeah. And there's this, you know, daily living activities that, um, basically have you qualifying as like a chronically ill individual. That's another term. Um, and, and you have to basically, in order to qualify for the deductions or to be considered a chronically [00:29:30] ill individual, um, you need to be unable to perform two of these daily living activities and you could guess them. They're very logical. Bathing, dressing, eating, you know, taking care of yourself, um, your that kind of stuff. Um, and it does actually, it, it makes sense that a lot of these communities offer conveniences, um, offer social activities, things to, to keep you busy, [00:30:00] things to keep your mind going, things to keep your health moving forward. Um, but certainly, like you said, there are certainly people there who who are unable to perform all the daily living activities. And if that's the case, then it could qualify for medical care. At least part of it could qualify for. It's not a in or out. 0%. 0%.

Roger Harris: No, it's not an all or nothing. No.

Annie Schwab: Right. And you. And it's cumbersome because, you know, some of it's covered, some of it's reimbursed, some of [00:30:30] it, you know, are you even going to itemize? Is this worth tracking? Um, you know, those kinds of things. What if, what if like one spouse, you know, needs the care, but the, the other spouse is like, hey, I'm coming to live with you. They're like, you know, yeah, well, somebody needs it. Somebody doesn't. We see that, um, that kind of being in question as well.

Roger Harris: Yeah. You raised a lot of things. First of all, more and more people have long term care insurance. So true. So some of those costs are covered by insurance. Clearly those aren't deductible because they've probably written off the premiums. [00:31:00] Maybe maybe not. But it didn't matter. Insurance pays for it. Um, they have to be for you if you're just there out of convenience because you want to stay with your spouse, your costs aren't going to qualify. And now we still have to look at the, the person who's there to see which of their, uh, costs would, would qualify. The good news is it appears that most of these facilities are trying at least I don't know if they're perfect to furnish statements [00:31:30] to their, um, people at the end of the year telling them what they believe is deductible. Now, I, I don't know, I mean, I'm sure they're doing the best they can. I don't know if the IRS would just blanketly accept that statement, but, uh, it's a pretty good start.

Annie Schwab: Yeah. And I've seen, I mean, it's intense. Um, I, I've only seen one particular case, um, for an individual and it was, I mean, it was broken out by the haircut and the, you know, [00:32:00] somebody getting their hair washed and, and put together versus I mean, obviously nursing. True nursing services would generally be deductible, but like room and board like does that, you know, potentially, yes. I mean, if it's, you know, if you're, let's say you're there for medical reasons, then room and board could qualify or some of it could.

Roger Harris: It's possible. Sure.

Annie Schwab: The fees for these places are, I mean, the cost of living there, it is definitely not cheap. Um, and there's all these like monthly fees and all that kind [00:32:30] of stuff. So I mean, you know, that's something. Well, maybe it qualifies, maybe it doesn't. It's mainly, you know, are the fees supporting the medical treatment or long term care or is this more for, um, you know, convenience? Um, there are a couple of other ones. I, I looked up, um, you know, personal care services, like I was talking about getting your hair done, somebody bringing in your medication, those kinds of things. Um, generally you do have to qualify as being chronically ill for those types of [00:33:00] Services to be, you know, somebody to change your sheets and help you get dressed and do your hair and help you bathe all those types of things. But, you know, they the meals, that's another big one because these places generally have, you know, all the, all your meals served. Um, and so generally meals would not be covered is what I've seen. Um, unless it qualifies as some part of their like medically necessary institutional care. Right. Um, [00:33:30] so I think that's probably probably not there. Um.

Roger Harris: And remember, these are all in theory itemized deductions. So remember we talked about higher standard deductions and higher filing limits for seniors. So and we've still got the income limitation that it has to exceed. So if you've got someone with some sort of long term care insurance, this whole discussion may be moot because whatever they have that qualifies then [00:34:00] gets reduced by the income threshold. Seven and a half. And then it's got to be greater than the standard deduction to benefit them. So it's so there's a lot of process you go through and everybody's situation is going to be different. But you have to start by knowing what are the deductible expenses and not covered by insurance to see how much of the rest of this journey we have to go through.

Annie Schwab: Right? Yeah. And it has to be, you know, stuff incurred in the year. So, you know, you pay ten grand to hold [00:34:30] your spot at the fancy facility down the street. Um, you know, you got to take all of that into, into consideration as well.

Roger Harris: Yeah. But it's going to be something that because again, more and more of these facilities are popping up, more and more of our population is getting older. I think we're going to need to be a little better maybe at understanding this, and hopefully start by asking them what that facility, that care facility documented for them because. Again, I think that's a good [00:35:00] starting point. But you still. It's like anything else, we have a due diligence requirement on anything. So we still still have to ask questions. And we can't just say 100%. We're going to trust the the facility because they may not know certain things, but clearly, if you just moved in to be with your spouse, then don't try to tell me you get to call a lot of medical.

Annie Schwab: Yeah. And I've seen where it's like, you know, this floor is, you know, for these type of ill patients and this section is for, you know, ones [00:35:30] who are taking care of themselves and, you know, all those kinds of things. Let's just be honest. I don't want to really dive deep into this. I mean, I, I hope I never need one of these facilities. Um, yeah.

Roger Harris: No, it's not.

Annie Schwab: The unfortunate truth is.

Roger Harris: They're life savers, you know, when they're needed. But there's not a place though. They are. I mean, I admit they're getting nicer and you know, meals cooked and swimming pools and, you can.

Annie Schwab: Garden and read.

Roger Harris: And.

Annie Schwab: Play board [00:36:00] games.

Roger Harris: But I still think most people would like to be independent, but there are some people that they don't get to deduct it because they're not, I don't know. I don't know. Six. Sounds like the wrong word. I don't know what the word is sick or. But they do want to be around people and they want certain things taken care of from them, and they just don't want to do it themselves or can't do it for themselves. But that doesn't mean it's deductible.

Annie Schwab: Right, right. Um, okay, let's shift gears a little bit about, um, [00:36:30] like gifting and, oh, you know, we know there's a gift tax exclusion every year, 19,000, you can give tax free, the donor can give tax free to anybody that they want essentially, right? Once a year at that, at that max. But in theory behind when should you give a gift pre or post or I guess pre death. Um, and and what, what are the sort of landmines associated with that?

Roger Harris: Yeah. And again, [00:37:00] this is something I think most of us have had happen at some point. The common. There's a couple of questions. I'll I'll throw the first one out, Annie, as if I'm the client and you can answer it. So, um. Hey, Annie. My, I just inherited $15,000 in cash from my brother who passed away. What do I have to do?

Annie Schwab: Uh, and the inheritance on federal taxes. There is no tax on inheritance. You don't really have to do anything. I mean.

Roger Harris: And a lot of people are surprised to hear that [00:37:30] because they just assume that if I get money, it must be taxable. But it's it's cash, it's money. There's nothing to track. Just go enjoy.

Annie Schwab: Yeah. I mean, I might have some suggestions on what you should do with it, you know, perhaps take long on the cruise. But yeah, um, in general, there's, there's no federal reporting requirement associated with that.

Roger Harris: Yeah. So being on the receiving end of gifts is pretty straightforward and pretty simple. Um, yeah. I mean, the big thing that you have to worry about, and [00:38:00] we'll touch on it in different ways in a minute, is if I had told you, Andy, that I received stock worth 15,000, what would you tell me?

Annie Schwab: Well, you would need to value the stock at the date of death because there would be there could be a step up in basis depending, you know, if you held the stock for a long time and the stock rose, then when you got the gift, it's the fair market value of the gift at fair market value at the date of death, it would be your basis in the gift. Um, and that's not just [00:38:30] stock, you know, that's.

Roger Harris: Any.

Annie Schwab: Property, right? Land, um, artwork, you know, all that kind of stuff that would.

Roger Harris: So there's no immediate tax on receiving it, but there's critical critical information you need to know. So at some point in the future, if you dispose of it, then there could be.

Annie Schwab: A loss gain or loss associated.

Roger Harris: Yeah, yeah. So so cash is really simple. Just take it, enjoy it, go do what you want to. But if I receive [00:39:00] some sort of property, I don't have to pay tax on receiving it, but I would have to pay tax on potentially disposing of it. And the question is, how do I calculate the gain. And that's something that you don't want to have somebody come to you and say, well, I sold this land. Well, when did you get it? I got it 35 years ago. Well, how'd you get it? Well, I got it when my parents either died or gave it to me. Well, what was it worth 35 years ago? I have no idea. [00:39:30]

Annie Schwab: That's. That's the question. And we get that question a lot. Well, how, you know, a publicly traded stock? Okay. You can go find the records. You can something you purchased that was purchased relatively recent, or maybe something in an area of town where you could take some sort of property value of square footage or, you know, whatever, or houses like this going for at that time, those kinds of things. But I mean, if you just own land from some place that you got from so and so, [00:40:00] um, that's not our job to evaluate. Um, there are professional valuation firms that, um, come and value those types of things. Um, so some are going to be easy to value, like cash, it is what it is or publicly traded stock. Um, but then some it's, it's, I don't, I don't know how to come up with that number. You're going to have to be told that number.

Roger Harris: Um, yeah. And that's a really important point is that as a tax preparer, we can prepare any return [00:40:30] necessary. Well, I should say any return we can prepare them if we're qualified. There may be some of these things. You just refer to somebody else because you say, I don't know this. Just go somewhere.

Annie Schwab: Else. State trusts sometimes.

Roger Harris: Something. I mean, unless you know the rules, but it's not our job to be the return preparer and the appraiser of land or a business or anything like that. And don't get sucked into that because now you're you're making some of the biggest decisions in the world for this person, particularly if it's something like a privately [00:41:00] owned business. Well, good Lord. I mean, there's so much subjectivity to how it's valued. Remember, we just prepare the return. We're not value experts unless you are. Now, there can be certified business appraisers that do taxes. I get all that. But so, um, but it's important that those dates are established and trying to figure out how to value something 30, 50 years ago. I know you've all seen that happen to you. Yeah, yeah, I got it there. And I have no idea [00:41:30] what it's worth. Or, you know, there's not a lot of real estate agents 35 years ago still around that could tell you what it's worth or willing to put their name on it. Yeah.

Annie Schwab: So it can be a tricky spot to be in for sure. And, and the dates do matter, like you said. So, you know, let's say someone deceased in July. Well, that final tax return goes from January to July. And then from July until the end of the year, there's an estate return. Um, there might not be a filing requirement, [00:42:00] but in, in theory, an estate is established. Right. And I know you've seen it. I've seen it where they just throw everything on that final tax return, whether or not it was associated with, um, you know, a partial year, um income earned on the post-death. So that's another hard conversation to, to explain to family members.

Roger Harris: Yeah. It's where it's, it's hopeful. I mean, it's everything in taxes is better off if you've had the ability to, to [00:42:30] have these discussions in advance of something happening as opposed to being brought into it after the fact. And as we we move into this AI world where we're going to have to look for ways to be advisory and add value to something besides just putting numbers on a tax form. These are some areas that, you know, as Annie mentioned, technically, if someone dies, any income they earn before it goes to the beneficiary's income of that estate. And then you have to decide whether to tax it at the estate and then distribute it or [00:43:00] distribute it, and have the heirs paying the tax on it and filing that estate return and all those sorts of things, is an area where US offers some great advisory opportunities as people age. And we're actually talking about the simple stuff because we're talking about it from the recipient standpoint, right? Which is, well, I say it's simpler. I mean, it's not simple. If you got value of some land from 35 years ago. But again, a lot of the stuff, it's just simple. Here's money. Okay, great, I got money. I don't [00:43:30] have to worry about it, you know, but it's a little different if you're the the giver.

Annie Schwab: Yeah. That's the person who needs to file the gift tax returns. If they're above the threshold, you have to deal with that lifetime exclusion. Um, there's, you know, community property states are different than, than others. Um, so I love that I don't love this story, but I, I know this story about the, the lake house. So you, you kind of.

Roger Harris: Yeah, the, the saddest story. And this is when [00:44:00] someone has done something that just inherently seems like a wonderful thing to do.

Annie Schwab: Such a nice gesture.

Roger Harris: Such a wonderful gesture that, you know, they bought a lake house, but we'll stick with 35 years ago on some lake, paid $100,000 for it. Well, it's 35 years later. That house is probably worth $2 million. And the parents are getting older, and the kids always want to spend every summer at the lake house. And it was their favorite place to be. So they come in to get their taxes [00:44:30] done and they go, Annie, I did something I'm so proud of. I've been wanting to do this forever. I said, what is that? I gave my kids the lake house. You did what? So, yeah, I gave my kids the lake house.

Annie Schwab: And my kids. So excited.

Roger Harris: They are just thrilled I went. Yeah, I bet they are. So, I mean, what we're talking about here is, as Andy has mentioned a couple of times, there's a gift tax exclusion [00:45:00] of 19,000. And if that lake house is worth 2 million, that's a little bit more than 19,000. So now actually the estate tax limit today is $15 million a person. So this example isn't as bad as it used to be when the state tax limit was so small. But you gave somebody something that had [00:45:30] you waited until you died, they could have still owned each of them, owned 50%, but they would have gotten that basis of $2 million.

Annie Schwab: Yep.

Roger Harris: But free.

Annie Schwab: Free free, free. Right there. Right there. Instead of when. So when they go and sell it for 2.5, they're only looking at the five game versus getting it at 100,000 and selling it for 2.5.

Roger Harris: Right. So you can't get rid of that. If you gave it to them, you're stuck. Now you can get out of the gift [00:46:00] tax by filing a gift tax return and using some of that 15 million lifetime value against to offset the gift tax. But their basis is still that lower plus some gift tax, whatever you paid, but you didn't pay any probably. So, um, so helping seniors understand that if they want to start gifting things to their children or siblings or brothers or sisters, whatever, there are some things [00:46:30] that that's fine. If you got money, give it to them. Don't worry about it. If it's over 19, you still got to file a gift tax return, but give it to them. But when you get into lake houses or.

Annie Schwab: Appreciated property.

Roger Harris: Appreciated property, you know you're probably going to be better off either going with an estate attorney to worry about some trust possibilities. But if nothing else, just let them get it. They can go spend all the time at the lake house. They want to. Just don't let them own it until you [00:47:00] pass away. Doesn't mean they can't go there and spend the summers and do whatever they want to, but make sure that that title and that ownership doesn't transfer until you've passed away. Because let's say the House appreciated to $50 million. Well, let's say $30 million, then if your husband and wife are both alive, you each get 15 million. So even that could be this is when you hear and a lot of you may have heard this and didn't know what they're talking about. When you hear politicians talking [00:47:30] about getting rid of stepped up basis, this is what they're talking about is not letting that $100,000 lake house jump up to $30 million. And and we, the government, don't get any money on it because it passed through. We only get paid by the stupid people who gave it to somebody before they died. And then we get it. And so taking that away could have dramatic effects on, uh, how we deal.

Annie Schwab: Around for I mean, that's all I've known. Yeah. [00:48:00]

Roger Harris: That's all I've known. And that makes it a lot longer. But but I.

Annie Schwab: Mean, talking, talking about, you know, things that you can do to help solve some of these problems. I know we only have a few minutes left, but I do think that it's important to talk to all your clients, but especially the aging clients or senior clients about what kinds of things do, what kind of paperwork, what kinds of documents do you need to preserve or save? And, um, obviously, you know, in prior [00:48:30] income tax returns, um, house purchases, investment per purchases. Um, you know, if you're out there doing Bitcoin and all kinds of stuff, I mean, keeping track of brokerage accounts and your investment accounts. And that goes for retirement accounts too, you know, what are you putting in? What have you taken out? Um, you know, all, all of these types of things that you think are just going to be so easy, you know, they're going to mail that W-2 in the mail for my, um, my surviving [00:49:00] spouse to handle, but there are some basis information, ownership information. Um, I mean, simple things as having a will. I'm shocked to hear so many people just don't have a will, right?

Roger Harris: Um, right.

Annie Schwab: Or a power of somebody who has a power of attorney. Um, you know, simple things like a living will, you know, what happens, you know, are you an organ donor? I mean, I'm like going down a rabbit hole here, but.

Roger Harris: No, but all those things are things that we can help prepare families to make their lives [00:49:30] Better. We're not going to make them great when they have to, you know, have a family member pass away. But because think about everything we've talked about in this whole podcast. What if all these records were there? I mean, life would have been a lot simpler.

Annie Schwab: Right? And, and encouraging your aging clients to do it while their brain is fresh and they have the energy and their understanding of, you know, the, the tax law and putting it in an organized fashion. Um, you know, it's, it seems so [00:50:00] obvious, but in theory it rarely happens. There's all missing things, unknown facts. Um, you know, we did a whole podcast earlier this year on, you know, if you're a small business owner or, you know, you own a business, there are certain, you know, you need to have somebody who knows your passwords and knows how to get into things and navigate if they're going to take over. It's the same thing in your personal life. Um, you know, some somebody has got to have an understanding [00:50:30] of where your assets are. What are your debts? What are your ownerships? What are your basis in these things? How long do I need to keep these records? I get that all the time. How many years do I have to keep this stuff? Um, so I do think that is another opportunity for you to advise your clients, um, have some, um, personal conversations around what's going on and, and help guide them, you know, what's, what can we do to make this journey easier? Um, [00:51:00] so.

Roger Harris: Because what seems, I mean, think about it, let's say you grew up in Virginia and you've since moved to California. You're the child and something your parents pass away and you fly back to Virginia and want to walk in their bank and say, I want the money in that checking account. You think that bank's going to hand it to you because you walked in there and said, you're their son, there's documents, there's such red tape that if you aren't prepared for that, you don't have the proper authority. You're not [00:51:30] going to wait a while to get that money, because you're going to have to go through a lot of hoops to prove that that's your money. Uh, just because, you know it's your money that banker doesn't know you probably doesn't know anything about you. And the fact that you've got the same last name doesn't mean there's going to open up the vault and say, well, here, take the money.

Annie Schwab: Yeah, unfortunately, I, I lost a family member, um, earlier this year. And one of the crazy pieces of advice that, that her children were given was to [00:52:00] make to order 15 copies of a death certificate. Because every institution, everybody, every insurance, everything wants this, this proof of, you know, it's like, well, her name's in the obituary, you know, I mean, like those kinds of things. You just can't go. It's just not that simple anymore. Um, and so you're right. Having somebody with a power of attorney, somebody with access to your accounts. Someone who is a cosigner on your on your banking information. [00:52:30] Um, yeah, I mean, it's, it's crazy what, what it is a lot of hoops to jump through if you don't plan properly. And I think it's a true gift to your heirs. If you provide them with your wishes, talk to them about it, put it in writing, you know, all the things. Um, and nobody wants to think about it. It's not a fun conversation to have. Um, nobody wants to think about their, you know, what their funeral is going to look like, but I assure you, [00:53:00] your heirs will appreciate if you can communicate, you know?

Roger Harris: Yeah. And I think that you're right. It's a hard discussion to have. But it's times that that particularly if we can have it with the parents while they're still have all their faculties because they don't want to leave their children in a difficult situation.

Annie Schwab: Right? No.

Roger Harris: Um, so asking them to do some of these things and collect the proper paperwork, get the proper authorizations in [00:53:30] place for bank accounts or whatever is going to not make, you know, the children are going to be distraught enough with the passing of a parent. Mhm. That doing this and thinking about this is going to make that experience as good as it can be, as opposed to adding another problem and another thing on it. So I think it's an area where people will really appreciate us trying to think about it in those ways with our clients, whether you're [00:54:00] talking to the children from their perspective or the parents from their perspective, for all of these kinds of things that we've talked about here today, um, can, can really make a huge difference in, um, particularly the heirs, you know, life going forward.

Annie Schwab: Yeah, yeah. Um, well, this has been a very depressing podcast.

Roger Harris: I know it's been fun to talk about, and I'm sitting here thinking about all this in relation to me. So how much of [00:54:30] this have I actually done? Because like I said, I've blown past most of these dates, but I mean, it's just a reality. It's a fact of life and, and whether we want to be or not, if we're the kind of firm that people say they want to be, you're going to get these kind of questions.

Annie Schwab: Mhm.

Roger Harris: Now, if they just view you as somebody, they come in once a year and drop a bunch of papers on your desk, and they come back a week later and pick up a tax return and pay you and wait for their refund. You probably won't get these questions, but I [00:55:00] almost think it's a it's a I don't know if it's a badge of honor, but it's a reflection of how you're valued, that they ask you for these kinds of advice, and you should be up to speed to give it to them.

Annie Schwab: Yeah.

Roger Harris: To the extent that you can, we've talked about things that you can't answer for them, but there are certain things that you can. And I think it they'll be more happy with you. And I think you'll be more proud of what you're doing because you're really helping somebody.

Annie Schwab: Yeah. Yeah. Well, Roger, that's that was sort of everything I had on my list. Um, I know [00:55:30] we've got several guests kind of getting scheduled for future podcasts. Um, clearly we're, we're getting into the fourth quarter, so year end stuff will start popping up doing that.

Roger Harris: Yeah, yeah. We're waiting on some scheduling things with some people from the IRS that I think you'll really like. Um, that we're just trying to get calendars, uh, coordinated, uh, other industry people. So you'll, you'll have more than just Annie and I on a lot going forward. But, you know, it always gets a little more complicated when you [00:56:00] got to bring one more calendar in to coordinate with. But again, thanks for all of you that listen, it's like I said it really, I wish Annie could go to all these places and hear all these people because it, it, it makes because at times when you're doing these podcasts and you're thinking, oh, we got to come up with another topic. I got to take another hour. It makes it worth it.

Annie Schwab: Yeah it does. So thank you everyone for listening and, um, encourage your friends and family to, to join us. We would love to have more ears. [00:56:30] Um, and Roger, I'll let you close this out.

Roger Harris: All right. Well, Annie, thank you as always. Like I said, she does the heavy lifting and she particularly did the heavy lifting on this one. And I really appreciate her. And, uh, very welcome. Appreciate you for for listening. And, uh, we'll be back in a couple of weeks with another federal tax update podcast. We hope you have a wonderful Labor Day as we're filming the recording this just before Labor Day. Have a wonderful Labor Day. Hopefully, wherever you are, the weather will cool off at some point and we don't all melt between now and the October [00:57:00] 15th deadline. So thanks for listening. Thanks to Annie for all the work she does. Hope to see you back next time on another Federal Tax Update podcast.