RICHARD NIXON IS best known for the infamous Watergate scandal. But how many of us remember that, prior to Watergate, he got caught up in another scandal over a suspect tax deduction? In 1969, Nixon donated more than 1,000 boxes of his official papers to his presidential library and attempted to claim a $576,000 charitable deduction. This caused an uproar, and served to start turning much of the nation against the president. Congress got involved, created an investigative panel and eventually disallowed the deduction. Nixon felt his strategy was legal, and voluntarily provided three years of income-tax returns to Congress for the panel’s review. This set the precedent for presidents—and presidential candidates—to submit their tax returns for public scrutiny. This anecdote, and many more, are contained in a fascinating new book entitled All the Presidents’ Taxes, written by Charles Renwick, a Chartered Financial Analyst and Certified Public Accountant. Renwick’s goal is to expose readers to some of the more interesting stories of presidents, and presidential candidates, and their tax challenges. But the book isn’t just an exposé of suspect tax strategies. The author highlights legal tax-cutting strategies that are used by our highest leaders, but that are also available to everyday taxpayers. Part One consists of four chapters. The first provides a concise and informative overview of the history and construction of our tax system. The second chapter asks the question, “How can we assess a president’s taxes?” The author proposes four questions: Are they a cheater? Is there a conflict of interest? Are they paying their fair share? Do they have any foreign business dealings? Renwick then adds a fifth question to help readers with their own taxes: What can we learn and borrow from presidents and presidential candidates? The author uses this framework to look at President Jimmy Carter; Senators John Kerry, Ted Cruz and Mitt Romney; President Joseph R. Biden, Jr.; and President Donald Trump. Chapter No. 3 provides an excellent overview of two of the key underlying concepts in the tax code, namely nuance and context. Our tax code is riddled with nuance, especially when it comes to a business. The facts and circumstances of the tax situation provide the context to interpret the law. A good example, which may impact some retirees, is the difference between a business and a hobby. The IRS has rules addressing this, but they’re open to interpretation depending on the facts and circumstances of the case. Hobbies can’t take tax deductions; businesses can. For example, the regulations state that if you make money in three out of five years, you have a business. The author cites an example of a travel business opened in 2018. It lost money in the first two years due to startup costs. It then lost money in 2020 and 2021 because of the pandemic. Despite those losses, it’s still considered a business and qualified to deduct expenses. Chapter No. 4 discusses the critical difference between avoiding and evading taxes. Avoiding taxes—taking steps to pay less than might otherwise be owed—can be a sound and legal strategy. We’re all free to structure our financial lives to take advantage of the tax code and thereby trim our taxes. For the average salaried employee, things like contributing to a tax-deferred 401(k) or health savings account come to mind. [xyz-ihs snippet="Mobile-Subscribe"] Tax evasion happens in small and large ways. Failing to report income is common, and cash transactions are one of the methods employed to evade the taxman. Many businesses want to avoid the complexity and fees associated with third-party credit card companies. But running a cash business can be a big temptation to fudge your income. Part Two consists of chapters five through 10. These chapters provide an in-depth review and analysis of Biden’s and Trump’s tax returns. The final two chapters address two important tax topics: fringe benefits and estate tax. The fifth chapter analyzes Biden’s taxes in 2017 and 2019. Subsequent to his term as vice president, and prior to being elected president, he and his wife used an S Corp to legally reduce their tax bill. An S Corp strategy avoids payroll taxes on pass through income, and is something accessible to citizens who have rental or partnership income. Trump has the most complex financial situation of any modern president. Chapter Nos. 6, 7 and 8 delve into three specific aspects of President Trump’s tax strategy. These chapters examine the use of deductions for business expenses, using a business to pay family members, and using depreciation in a real estate business. The author makes the case that these are common strategies used by business owners, and explains how the reader might take advantage of them. The final two chapters are a brief discussion of how to use fringe benefits to provide tax-free income, and strategies to use favorable asset valuations to reduce estate taxes. Both chapters provide interesting background information and an assessment of how these strategies can drift into legal gray areas. The author ends with a call to arms of sorts—to make it a legal requirement to disclose the tax returns of presidents and presidential candidates. The reader can enjoy this book on a number of levels. The historical context and tax code philosophy are interesting and informative. The analysis of president and presidential candidate tax returns provide insight into each person. It also offers a glimpse into the political calculations that candidates make in deciding how much personal information to provide. More important, the book prompts readers to think more deeply about the role of the tax code in our country and our lives. What should be taxed and at what rates? What’s considered a fair share? When does tax avoidance slip into tax evasion? These are important questions that affect all of us. Richard Connor is a semi-retired aerospace engineer with a keen interest in finance. He enjoys a wide variety of other interests, including chasing grandkids, space, sports, travel, winemaking and reading. Follow Rick on Twitter @RConnor609 and check out his earlier articles. [xyz-ihs snippet="Donate"]

It's that time of year - time to gather your records and prepare your 2024 tax return.  Many HD contributers are involved the IRS' Voluntary income Tax Assistance (VITA) program,  helping to prepare free tax returns for qualifying individuals. This is an excellent program for lower income tax payers. The linked website has a tool for finding a local site. If you have family, friends, or neighbors who might benefit from this excellent program, please think about letting them know.  If you are looking for a volunteer opportunity that combines your financial and tax acumen with a real need, consider getting involved. This is my 7th year, and I have to say the volunteers I've worked with have consistently been some of the smartest, and most caring, individuals I've met. Good luck with your taxes.

FOR MUCH OF MY adult life, my view of financial planning was similar to that of many others: Simply put, financial planning equaled investment management. I spent my career in aerospace engineering, surrounded by highly educated, mathematically competent colleagues. I was lucky enough to span the transition from defined benefit pension plans to defined contribution plans. My colleagues and I closely followed the market’s performance, our own company’s shares and emerging tech stocks. Some of the more mathematically inclined dabbled in options. Outside of work, one of my brothers and I ran an investment club. It was amazing to watch stock prices rise for companies that never made a profit. Despite all these financial conversations during my early adult life, I don’t remember any substantive discussion of estate planning, insurance, taxes or health care. All that changed in my late 30s. My parents’ health problems turned into financial problems. My brothers and I provided increasing support. Eventually, my wife and I sold our home, bought my parents' place and combined families. Declining health required adaptations to the house, fighting with Medicare, and understanding and accommodating hospice. My aging in-laws also compelled us to deal with issues like declining cognition, powers of attorney, taking over financial responsibility, finding lost assets, simplifying portfolios, finding quality and affordable senior living, and settling multiple estates. All this fired my interest in the broader aspects of financial planning. I wanted to be prepared as my wife and I approached retirement. I became an expert on my company’s defined benefit and defined contribution programs, and even provided counseling to fellow employees. I passed the exam to become a CFP, or certified financial planner, and then completed the RICP—retirement income certified professional—program. I volunteered and trained for the IRS’s Volunteer Income Tax Assistance program, helping diverse clients complete their tax returns. I’ve learned so much from the many practitioners I met along the way—financial planners, estate attorneys, health care professionals, senior care professionals and tax preparers. This journey has led me to a deeper understanding of the value and real need for financial planning. Most of my friends and colleagues are near or at retirement age. Many are perfect clients for holistic financial planning, but don’t know about it or won’t accept it. When they consult me now, I ask more probing questions about estate planning, tax planning and retirement income plans. Preparing tax returns for people of modest wealth has been eye-opening. The growth of defined contribution plans has led to widespread concerns that the average family is not prepared to manage and draw down what’s often their largest asset. What have I learned along the way? Here are just six of the lessons: Regularly saving money creates positive momentum in your financial life. Nothing is more important. A simple, diversified, high-quality, low-cost portfolio is often all you need. Spend less time following the market and more time understanding your taxes. Even if someone else prepares your tax returns, be sure to review them and understand your situation. Check that your estate plan is in good shape, with beneficiaries named, an up-to-date will and powers of attorney. Have a list of financial accounts available for your executor. If you have parents, talk with them about their finances. Make sure their estate is in order. Develop a family balance sheet showing your assets and debts, as well as a cash flow statement listing your income sources and where the money goes. Update these annually and review them with your family. Each year, you’ll see the impact of saving and investing—and that’ll spur you to improve your finances even further. Richard Connor is a semi-retired aerospace engineer with a keen interest in finance. Rick enjoys a wide variety of other interests, including chasing grandkids, space, sports, travel, winemaking and reading. Follow Rick on Twitter @RConnor609. [xyz-ihs snippet="Donate"]

When to claim Social Security retirement benefits is one of the most popular topics on HumbleDollar. It can also be a somewhat controversial topic among retirees. I've met many people who are firmly convinced that they made the right decision, despite any facts to the contrary. I think much of the emotion around the topic comes from the fact that it forces us to contemplate our mortality. The popular concept of "breaking even" is all about getting our money back before we die. I worked with a number of engineers who were single, and the notion of breaking even was important to them. If you are married, and you care about the financial security of a surviving spouse, the picture is more complex. The surviving spouse gets the higher of their or the deceased spouse's retirement benefit. Married couples have to consider two lives. Is one spouse much younger, do either have health concerns, or significant longevity in their families? Social Security benefits need to be considered within a complete retirement income plan. If you have a large pension, or significant retirement assets, the decision is less important. I have a friend - a single, retired engineer - who took his benefits at 62. He was concerned about his many decades of smoking. He's now nearing 80 and has never spent a dollar of his benefits. He has passed the break even point, so his decision was "wrong". But he invested the benefits during a period of growth, so maybe he was right. Social Security's official title is OASDI, which stands for Old-Age, Survivors, and Disability Insurance. The program was never intended to be an investment. The old-age part is insurance against poverty in our later years. For many retirees it is an essential source of income. In Adam Grossman's column today he suggest considering the bonds in your portfolio as insurance agents market volatility. He also mentions Social Security in a similar vein. I agree. Thinking of it as an insurance policy against running out of income in retirement may help make the cling decision a little easier. What do you think?

AS A YOUNG ENGINEER at General Electric, I took a three-day class on career development. That class strongly influenced my thinking about my career—and my life. The class made use of a great little book by David P. Campbell called If You Don’t Know Where You’re Going, You’ll Probably Wind Up Somewhere Else. The premise of the book is that life is a journey, not a destination. We should set some basic goals that help guide our journey, but—as with all journeys—there are choices to be made along the way. Campbell believes the foundation of a happy life is the ability to control those decisions to the maximum extent possible. If you come to a fork in the road, you want to be the one who chooses which way to go. You don’t want to be forced in one direction or, worse yet, have no good options. How do you get to control your choices? By doing the necessary work throughout your life to gain the assets needed to make the decision. These assets are the attributes, skills, experiences, family, friends and knowledge you develop as you grow. The more assets you acquire, the more choices you’ll have. This is also true in our financial life. The more financial assets we have, the more choices we’ll have. But we also need to acquire some non-financial assets. You probably possess many of these assets. They include innate intelligence, an ability to learn and some facility with numbers. Some of us are born into families where finance is openly discussed. That’s a terrific advantage, especially as you start your financial life. [xyz-ihs snippet="Mobile-Subscribe"] If we lack knowledge, there’s a tremendous amount of free educational material to help us learn how to save and invest. There are great books, websites such as this one, and courses. Many of us can point to investing icons whose teachings were pivotal in our growth. Names like Munger, Buffett and Bogle are responsible for much of my knowledge. There’s one more asset that I think is critical to acquire. I liken it to emotional intelligence. We need to develop self-awareness of how we think about money. Studying behavioral economics, and then examining ourselves through that lens, is one key to building wealth. If we’re in a committed relationship, understanding our partner is also important. Building these insights, and applying them to our life, can help us to build wealth. I’ve studied financial planning for three decades, including reading dozens of books on investing. I helped found and run an investment club. I completed the coursework and passed the test for the Certified Financial Planner designation. I also completed the Retirement Income Certified Professional certification. Despite all this, I’m struggling mightily with completing a retirement income plan for my wife and me. I’ve taken early retirement, and the thought of spending our hard-won retirement savings is scary. I also tend to overanalyze things, looking for the perfect solution. Over the years, I’ve learned that when I get into “paralysis by analysis,” the best thing to do is pick a relatively easy task and finish it. In this case, I set up a recurring withdrawal from my Vanguard Group IRA, enough to cover the gap between my pension and our expenses. We’ll run this way for 2022, while I think about our next moves, such as signing up for Medicare and when to claim Social Security. It isn’t optimal, but it’s one small step on our retirement journey—and the good news is, we control where we’ll go next. Richard Connor is a semi-retired aerospace engineer with a keen interest in finance. He enjoys a wide variety of other interests, including chasing grandkids, space, sports, travel, winemaking and reading. Follow Rick on Twitter @RConnor609 and check out his earlier articles. [xyz-ihs snippet="Donate"]

I’M WRITING THIS a few days after Hurricane Ida ravaged parts of our country. We were lucky. Our home here on the South Jersey coast was spared from all but minor rainfall. Much of Pennsylvania and North Jersey saw enormous amounts of rain, flooding and tornadoes. In my 64 years living in this region, I don’t recall there ever being this much severe weather, especially the number of tornadoes. Prior to the hurricane landing in Louisiana, I read a Twitter thread by New Orleans resident and financial planner Jude Boudreaux. His Twitter thread talked about what it was like to live in a region about to be hit by a major hurricane, what to do and what goes through your mind. It’s a sobering read. He said that Hurricane Katrina changed many local people’s thinking about the seriousness of major storms and how best to prepare. Hurricane Sandy did that in my area of the country. Ida will reinforce this in both regions. Now that I live at the beach, this event made me realize that we need a preparedness plan. One of the first things you want to do is assess the types of emergency you might experience. Do you live in an area prone to, say, hurricanes, tornadoes, wildfires or frequent power outages? Research what the experts recommend. The federal government’s Ready.gov has good information to help you prepare for a wide variety of emergencies. The National Weather Service has advice on hurricane preparedness. At a minimum, here are some things you should be able to locate and pull together at short notice: Important papers, including passports, birth certificates, wills, powers of attorney, financial account information and Social Security cards. Personal IDs such as your driver’s license and health insurance cards. Cash. With large scale power outages, ATMs may not function for many days. Credit cards. You probably want at least two, just in case there’s an issue with one of them. Medications. Try to have a few weeks’ worth on hand. Understand how to renew prescriptions if you can’t use your local pharmacy. Irreplaceable items. Try to keep these to a minimum. Electronics, including chargers and extra batteries. Also make sure your cell phone is fully charged. In case you need to leave your home, give some thought to an evacuation plan. Do you have family or friends with whom you could stay for an extended period? When we owned a primary home and a beach house, this never concerned me. I was pretty sure one would always be available. Now that we have just one home, we need a plan. Also take time to review your insurance policies. Do you have flood insurance on your home? If your car is damaged in a flood, are you covered? My town saw a lot of damage from Hurricane Sandy. We had friends who were faced with more than $100,000 in repair costs.