Author: Jeff

What Your Tax Return Is Trying to Tell You

Most people see their tax return as a finished task—filed, signed, forgotten. I completed my business tax returns and personal returns last week. I fought the urge to move on to other tasks and sat down to slowly review the personal return. It was enlightening. Your personal tax return is one of the clearest financial snapshots you will get all year.

If you are willing to take a few minutes to review your 1040, here are some points of interest:

You may be more dependent on one income source than you think.

W-2, business income, or investments—concentration shows up clearly.

Your portfolio’s tax efficiency is either helping…or hurting.

Too much ordinary income via short term capital gains and qualified dividends can create unnecessary tax drag. Some ordinary income is inevitable, but realized stock sale gains are only taxed as ordinary income (short term) if the stock is sold within a year of purchase.

Your real tax rate is often lower (or higher) than expected.

The effective rate—not the bracket—is what matters for planning decisions. Your income is taxed in part under all brackets up to your highest bracket. So, your effective tax rate is much lower than your marginal tax rate. It’s helpful to know your effective tax rate because that is your “real” tax rate.

Retirement savings habits don’t hide here.

Retirement contributions—or the lack of them—are easy to spot if they are made to IRAs. If they are employer based—like a 401K or SIMPLE IRA, then they only show up on your W2.

How Michigan’s flat 4.25% income tax fits into the picture

Retirement income may be partially or fully exempt depending on your birth year.

Don’t forget about local tax.

No local income tax (outside a few cities if you are here in Michigan) keeps things simpler. My wife works at UD Mercy, so we must keep track of the City of Detroit income tax (1.2% for non-residents working in Detroit).

Surprises in April usually aren’t surprises.

Large tax balances due often point to missed withholding or planning gaps during the year. Likewise, a big refund might sound nice, but it means you withheld too much over the year and gave Uncle Sam an interest-free loan.

Your giving strategy may not be as efficient as it could be.

Many people give generously—but not always tax-smart. Check into the Qualified Charitable Distribution (QCD) that I touched upon a few weeks ago.

Opportunities are easier to see in hindsight.

Roth conversions, tax-loss harvesting, and timing decisions tend to stand out after the fact.

You may be closer to key thresholds than you realize.

IRMAA brackets (Medicare Part B and D premiums), NIIT(3.8% when applicable), and marginal tax rate jumps can be triggered by relatively small changes in income. Know how much wiggle room you have left.

Your tax return isn’t just a record of last year—it’s a guide for what to do next. Take some time to review it before you file it away.

 

Fun Fact: The NCAA Basketball Tournament is in full swing. The term “March Madness” was actually first used for high school basketball in Illinois—not the NCAA tournament. It wasn’t until the 1980s that broadcaster Brent Musburger popularized it during NCAA coverage, and it stuck. Good luck with your bracket!

During Times of Market Jitters, It Wouldn’t Hurt to Remember the Pyramids

Growing up, my family loved to travel, and I had the good fortune to visit Egypt in the early 1980s. There we toured the great pyramids in Giza just outside of Cairo. We had a wonderful tour guide who seemed to have almost infinite knowledge of the structures. But the most profound statement she slowly spoke with a fascinating Arabic accent was this: “Man fears time….but time fears the pyramids.” Ah yes, man-made structures that are over 4,000 years old will surely get the attention of Father Time.

At this moment of such turmoil in the Middle East, it seems to me that keeping the long-term time perspective is important. If you are still digesting the headlines about an “oil shock,” and now know more about the Strait of Hormuz than you ever expected, you’re not alone in feeling a bit uneasy. Sharp moves in oil prices tend to grab attention quickly because energy touches almost every part of the economy from transportation costs to inflation expectations. Markets often react fast to these headlines, and the first move is frequently downward. That initial reaction must be separated from the typical long-term result.

Historically, oil spikes create short-term volatility but mixed long-term market outcomes. Investors tend to assume that higher oil prices automatically lead to recession or prolonged stock declines. Sometimes they do contribute to economic slowdowns, but more often the market digests the shock over time as businesses adapt, supply adjusts, and policymakers respond. Markets are remarkably good at recalibrating once the initial uncertainty fades.

It’s also worth remembering that the stock market represents the entire economy, not just the cost of fuel. While higher oil prices hurt some sectors, they benefit others, particularly energy producers. Meanwhile, many companies today are less sensitive to oil than in past decades. Technology, healthcare, and service businesses make up a much larger portion of the modern market than they did during the oil crisis of the 1970s.

For long-term investors, episodes like this often feel worse than they ultimately turn out to be. Markets dislike surprises, and oil shocks certainly qualify. But volatility is not the same thing as permanent damage. More often than not, these moments become just another bump in the market’s long upward journey.

The key is perspective. If your investment horizon is measured in years rather than weeks, the most productive response is usually patience rather than reaction. Markets have climbed through wars, inflation spikes, recessions, and multiple energy crises. The lesson history tends to repeat is simple: uncertainty creates headlines, but time creates returns. A solid investment strategy will stand the test of time, just like the great man-made structures that have stood watch over Giza for thousands of years.

 

Fun Fact: Speaking of time. The Great Pyramid of Giza was the tallest structure on Earth for more than 3,800 years. Built around 2560 BC, it stood as the world’s tallest man-made structure until the Lincoln Cathedral in England surpassed it in 1311. That means the pyramid held the record longer than the entire span of the Roman Empire, the Middle Ages, and the early Renaissance combined.

The “Double Benefit” of Qualified Charitable Distributions

One of the less talked about tax strategies available to retirees is also one of the most effective: the Qualified Charitable Distribution, or QCD. While it doesn’t get as much attention as Roth conversions or tax-loss harvesting, it can be a remarkably efficient way to give to a charity, especially for retirees who are already charitably inclined.

A QCD allows individuals age 70½ or older to transfer money directly from an IRA to a qualified charity. The key word is directly. When the funds go straight from the IRA custodian to the charity, the distribution does not count as taxable income, even though it goes toward satisfying your Required Minimum Distribution (RMD) once you reach RMD age.

Why does this matter? Because reducing your Adjusted Gross Income (AGI) can have multiple effects across your tax return. A lower AGI may reduce the taxation of Social Security, help avoid certain Medicare premium surcharges (IRMAA), and limit exposure to other income-based phaseouts. In other words, the tax benefit often goes beyond the charitable gift itself.

There is another subtle advantage. Many retirees take the standard deduction and therefore receive no tax benefit from writing checks to charity. A QCD effectively restores that tax benefit because the donation is excluded from income in the first place. For charitably minded retirees with IRA assets, this can be one of the most tax-efficient ways to give.

If you are considering a QCD here are a few quick rules that are worth remembering. You must be at least age 70½, the funds must come from an IRA (not a 401(k) unless it is rolled into an IRA), and the distribution must go directly to a qualified charity. The annual limit is $111,000 per person in 2026 (indexed for inflation), and married couples with separate IRAs can each make their own QCD.

In a world where tax planning often involves complex strategies and projections, the QCD stands out for its simplicity. For retirees who regularly support charities, it is one of those rare planning opportunities where doing good and doing smart tax planning happen at the same time.

In words commonly attributed to Winston Churchill: “We make a living by what we get, but we make a life by what we give.”

Fun Fact: I hope you’ve adjusted to Daylight Savings Time. It’s nice to see the sun after work! Did you know that light has always been a factor? The general idea may have been started by Benjamin Franklin, who thought that if people got up earlier to use morning sunlight, they would save on candle wax.

What to Know About Estimated Taxes

Background: U.S. tax law requires taxes to be paid on time. Wages are never a problem, because employers are required to withhold taxes out of each paycheck and send the tax directly to the IRS. But some taxable income is not subject to required withholding and therein lies the problem. If nothing is withheld, the IRS then requires the taxpayer to square up taxes quarterly. Someone who fully intends to pay the tax but thinks they can wait until the end of year and pay it all at once will get hit with a late payment penalty – with interest. According to Laura Saunders (no relation) of the Wall Street Journal, the IRS took in over $1.3 billion in tax penalties in 2024. Moving from working – where your employer is responsible – to retirement – where you are responsible – can trigger this issue.

Strategies to Avoid the Penalty:

1. Pay taxes as income comes in. You can go to the IRS website and make a tax payment at any time. If you have a quarter with income that had no withholding (self-employment, investment gains, capital gains or IRA distributions), consider getting online to make a tax payment.
2. Consider the “Safe-Harbor” rules. There are two basic “Safe-Harbor” approaches you can use when paying quarterly, estimated taxes:

• The IRS will give you a break if you pay at least 90% of your total tax for the year via withholding. So even if you misjudge a bit, you can avoid the penalty.
• If you think it will be hard to gauge income each month or quarter, you can pay based on last year’s taxes in four quarterly installments this year, and you will also avoid a penalty even if you were off. If your AGI is $150,000 or less, then you must pay 100% of last year’s tax over the four quarters. This safe harbor is 110% of last year’s taxes if your AGI is over $150,000. NOTE: You still have to spread it over 4 quarterly payments. Waiting until the end of the year will trigger the penalty.

3. Utilize the withholding “assumption.” When you have taxes withheld from a taxable withdrawal, the IRS assumes that the withholding was timely and paid equally over 12 months, even when it wasn’t. For example, if you make a large taxable IRA distribution in the 4^th quarter and you have a good handle on what your total taxable income will be for the year, just make sure your withholding on the IRA distribution gets you to the 90% safe harbor number described above and you should avoid a penalty.

Estimated taxes are yet another reason I believe a good tax preparer is worth his or her weight in gold. There are just too many ways to get caught in the estimated tax penalty trap.

Fun Fact: I am taking my winter break in Florida this week, along with my wife and my daughter…er dog, Ava. We’ve done the two-day drive to Florida several times now and Ava knows when we are getting close to the hotel after the first day of travel. She also seems to recognize certain food stops. Dogs can remember routes and specific locations though scent, visual landmarks and spatial memory. None of that explains why she was wearing sunglasses when we passed the Georgia/Florida border though.

Climbing the Wall of Worry

“The stock market is a device for transferring money from the impatient to the patient.” — Warren Buffett

I worked from home last Friday. Unfortunately, that means I had free reign of the coffee pot and could take in the big tariff news, one sip at a time (I will not confess as to how many cups I can drink if left to my own devices). If you read the headlines alone, you might wonder how markets are holding up at all. Added to the Supreme Court strike down of tariffs, there is also inflation concerns, election noise, global conflicts (Iran), cartel battles and government debt — it’s a steady drumbeat of uncertainty. And yet, markets continue to push forward. This is something investors have seen before. Markets have a long history of climbing what’s often called a “wall of worry.”

For those in or near retirement, this can feel especially unsettling. When you’re drawing income — or preparing to — volatility feels personal. The instinct to wait for clarity is completely understandable. But markets rarely reward waiting for things to feel safe. By the time the news sounds reassuring, prices have usually already adjusted.

What’s important to remember is that markets move over the short term based on expectations, not headlines. Much of today’s concern is already reflected in prices. The future doesn’t have to be perfect for markets to rise — it simply has to be better than feared. Businesses adapt. Earnings adjust. Innovation continues quietly in the background, even when the news cycle feels heavy.

For retirement-focused investors, this is where discipline matters most. A well-structured portfolio is designed not for perfect conditions, but for imperfect ones. Income planning, diversification, and appropriate reserves are meant to allow you to stay invested without reacting emotionally to every headline. The goal isn’t to eliminate worry — that’s impossible. The goal is to keep it from driving decisions.

The wall of worry isn’t a flaw in the system; it’s part of how long-term returns are earned. Patience, especially in retirement, is less about optimism and more about structure and preparation.

Fun Fact: The old story about the Chinese bamboo tree is a powerful metaphor of patience: For five years after it is planted, nothing visible seems to happen. Water it, fertilize it, care for it — still nothing breaks through the soil. But underground, an extensive root system is forming. Then in the fifth year, the bamboo can grow several feet in just a few weeks. The growth didn’t suddenly begin — it was happening quietly all along.

The Quiet Start of Something Big

Good morning — I’m writing this a little earlier than usual today because something important feels like it’s accelerating around us. If you’ve glanced at the news this week, you may have noticed more headlines about artificial intelligence. Peggy Noonan’s recent Wall Street Journal piece, Brace Yourself for the AI Tsunami, and Matt Shumer’s Fortune article, Something Big is Happening, both point to the same message: technology is moving forward faster than most people expected. The tone isn’t panic — it’s awareness. And that’s exactly where I think we should all be.

The newest wave of AI isn’t just about robots or complicated computer systems. It’s starting to show up in everyday places — customer service calls, medical screenings, financial planning tools, and even the software that helps write emails or organize schedules. The big shift is that these systems are getting better at understanding language, recognizing patterns, and helping people make decisions. For many of us, this will feel less like “new technology” and more like helpful assistants quietly working in the background.

There’s a lot to be excited about. AI is already helping doctors detect diseases earlier, helping businesses reduce costs (which can lower prices), and helping people work faster with less stress. For those of us who didn’t grow up with computers, the good news is that most of these tools are being designed to be simple and conversational — more like talking to a helpful person than programming a machine.

At the same time, this is one of those moments where paying attention matters. Big technology shifts always bring opportunity, but they also bring change. Jobs will evolve. Scams will get more sophisticated. Information will move faster. The people who do best during big transitions are usually the ones who stay curious, ask questions, and learn just enough to stay comfortable with what’s changing around them.

My goal with this column is to help you do exactly that — stay informed without getting overwhelmed. AI isn’t something happening “out there” anymore. It’s moving into everyday life, and it’s moving quickly. The good news is we still have time to understand it, adapt to it, and benefit from it — as long as we stay awake to what’s coming.

More next Friday — bright and early.

Fun Fact: I didn’t write the column above. AI did. I spent about 2 minutes telling it about the context of my weekly newsletter, the age range and tech awareness of my readers, that I wanted the column to be both intriguing and uplifting, and to reference the articles I just read that motivated this topic. The only two edits I made were to the last names of the authors cited. I then asked ChatGPT for a title. Fascinating…

Chandeliers Are Fragile

This Up Early is about a person’s reputation, and how careful one must be with it. The Epstein file release brought this into focus for me. I’ve read all sorts of quotes from those whose names appear in the files. “Foolish” “Regretful” “Poor Judgment” and the like. Well, “If you get too close to the fire…” as they say.

As a former child sexual assault assistant prosecutor at the Oakland County Prosecutor’s Office, I have absolutely no sympathy for anyone who cozies up to a child molester like Epstein. Even those who didn’t cozy up are now being reminded of the “too close to the fire” saying as their reputations take a hit.

The Epstein situation is obvious, but care must be used in less obvious situations as well. Here’s my story: You might remember me writing about my friend Paul several weeks ago. He was the ultimate negotiator at the Prosecutor’s Office who was also the coffee connoisseur. He asked me to be in his wedding back in the late 80s when we were both assistant prosecutors. Paul had lots of “interesting” friends. Most of them seemed to whisper when they spoke. His bachelor party was on a Friday after work at a banquet center in Farmington Hills. Lots of “interesting” characters milled around at the party and I—renowned for calling it an early night even back then—determined the earliest possible time I could leave without being rude. When that time came (@9:30pm) I said my goodbyes and off I went—into my car and on home. As I was leaving the party, I noticed that the whole tone had changed. The curtains were being closed, and big tables were being unfolded for some cards and dice. Definitely not my thing.

The next morning, I awoke to the television news of a big gambling ring bust. Guess where? I figure I must have been about halfway home by the time they raided the place. Seems the undercover cops had been tailing the gambling group for quite a while. That was the beginning of the end for Paul and many of his buddies. They were never viewed quite the same again, and Paul fell into a terrible funk, to the point that he eventually lost his law license.

In some ways I lucked out, but I really believe I sensed that nothing good was about to happen when I left. I must confess, it was kind of fun to hear rumors about how I supposedly kicked out the bathroom window and jumped out just as the raid got started…just like James Bond! Not true, but intriguing, nonetheless. I kept just far enough from the “fire” that evening not to get burned, and it was a good reminder.

When I was a young attorney, one of my first mentors was Danny Goldsmith. A wickedly good trial attorney, Danny told me this: “Jeff, your reputation is like a chandelier. You build it slowly, piece by piece, over many years. But if you make just one important mistake, it will all come crashing down at once.” I’ve heard Danny’s voice slowly speak those words in the back of my mind many times over my professional career, and my sons have heard it on more than one occasion. Some food for thought, especially now.

Fun Fact: Speaking of gambling, did you know the “Las Vegas Strip” is technically not in the city limits of Las Vegas but instead in the unincorporated towns of Paradise and Winchester in Clark County, Nevada.

My Biggest Financial Challenge (And I Am Not Alone)

I feel like I’ve got a good grip on our family’s finances. I have done my job making sure that our investments are well-diversified and meet our risk tolerance. My wife usually agrees – as she did last weekend when we were in Chicago. Just before she purchased a rather expensive coat, she looked at my son, nodded toward me and announced, “my financial planner says I can buy this.” (I didn’t argue because she was right). When you add the fact that my wife and I are more savers than spenders — that is when we are not in Chicago — we are in a good place financially.

For me, my wife and a lot of other folks, the problem isn’t on the saving end; it’s on the spending end. I’m afraid I’ll never quite be comfortable with spending the money we saved and invested for retirement. If you are a client of mine, you know about Bill Bengen and the 4% rule. I crunch the 4% rule numbers all the time not only for clients but also for myself and my wife. And each time I come to the same conclusion: our typical monthly budget is far below what Bill Bengen says we can spend. For some reason, even though I crunch the numbers and come to that conclusion, at some point tomorrow I will re-run the numbers again…just to make sure.

I also often need to remind myself that the 4% rule is the absolute safest withdrawal rate and it assumes everything bad that can happen does happen. The 4% rule lives in the world of a 99% success rate. If you’re willing to be a little less cautious, you can substantially increase the withdrawal rate. If you can live with a 75% success rate, you can withdraw over 6%. Heck, even a 10% withdrawal rate still has a 50% success rate under the 4% rule analysis.

For some people, crunching and re-crunching the numbers probably amounts to paranoia. That’s according to Jordan Grumet who has a blog called The Purpose Code. In a recent post called “Stop Chickening Out” Grumet reminds folks that retirement in itself is a leap of faith. Anyone already in retirement knows that is true. Drawing down your assets during retirement is also a leap of faith. Only time will tell if you got it right.

The number of withdrawal strategies are almost infinite if you’re willing to look. Guardrails, 30-year TIPS ladder, safe bucket approach, they go on and on. I find one of the most valuable things I can provide to people who are right on the cusp of retirement is confidence and courage that they will be okay. I know they will because I’ve objectively crunched the numbers and worked with retirees over my decades-long financial planning experience. But I also know the emotional block because despite all of my objective evidence, I still get hesitant on the personal side. I think it’s just human nature.

I’ll end with my favorite quote from Grumet’s article: “People don’t talk about this enough, but the hardest part of retirement isn’t the math—it’s the courage.” Courage to start a new life post work, courage to start spending money you’ve worked hard to save and courage to stick to your plan when the market inevitably drops.

If you feel hesitant about spending your money in retirement and you keep running the numbers, remember that you’re not alone. A good financial planner can help you create that invaluable courage you need for the next steps. Or perhaps you can just look to your spouse for support. I’m sure it won’t be long before I hear my wife telling one of my sons that her “financial planner” gave her the thumbs up for the next big purchase. (She’ll probably be right).

Fun Fact: Speaking of courage, perhaps you’ve heard of Alex Honnold. He’s the mountain climber who was the subject of the National Geographic documentary Free Solo. In 2017 Alex successfully scaled Yosemite’s 3,000 foot El Capitan without ropes or safety gear. If you get a chance, it’s a must watch. When asked about the challenges of the climb, Alex said the following: “The big challenge is controlling your mind, I guess.” Hmm, sounds familiar.

Can You Guess the Resort?

During the dead of winter everyone daydreams about basking in warmer weather, and many folks are fortunate enough to make their dreams a reality. If you’re considering possible destinations, you might come across one that has some eye-popping facts. Read them below and see if you can identify this entertainment mecca:

1. Food: Basic burger/fry/drink combo is about $25/person. Sit down meals start at $35 and shoot up from there. Signature dining at the top restaurants is at least $200/adult. The Michelin-starred restaurant starts at $1,200 for two.
2. Room: $900/night at one of the popular villages with the best room topping out at $3,000/night.
3. Splurge: The resort boasts an “Around the World Private Jet Adventure” to visit and enjoy all of their properties for a starting price of $115,000.
4. If you’d like to skip the crowds and have top priority to visit the resort attractions, you can obtain a priority pass that tops out at $449 per person per day.
5. Oh, and by the way, it costs $119/day just to walk in the door.

Did you figure it out yet? The resort is none other than our beloved Disney World. Some might be surprised, remembering their childhood visit in the 70s when adult admission was $3.75 and a sit-down meal was around $3/person (that’s still only about $25/person in today’s dollars).

In today’s world, many businesses — including Disney – have decided that if you cater to the well-to-do, you can make much more profit even though you sell less units (or have fewer total visitors). Disney’s visitor numbers have decreased while profits have increased. Try taking a family of 4 to a Pistons game at LCA and you will see the same concept at work.

These companies are making a big bet that they can grow their profits while ignoring those with more limited resources. I hope they are wrong because to do big things — especially if you start out with very little — you must be a bit of a dreamer, and there are few places better at inspiring dreams than Disney World.

Fun Fact: I found out watching the weather reports last week that you can use the iconic breakfast restaurant chain Waffle House to track weather. In fact, they have a Storm Center that is so thorough it assists FEMA during hurricanes. The “Waffle House Index” has 3 levels: Green – which means the restaurant is serving a full menu; Yellow – which means a limited menu is being served because power is from a generator and the food supply is low; and Red – which means the restaurant is closed. Since Waffle Houses pride themselves on being open 24/7, Red means weather conditions are extreme in the area

The Sun Don’t Always Shine on the Same Dog’s Tail

On these cold January days, I try to find every excuse to daydream about the golf course. Sure enough, after writing a draft of this Up Early it dawned on me that I found the perfect title. Back in 1954 a guy named Ben Hogan was dominating professional golf. You could say he was the Tiger Woods of the 50s. Another golfer with a syrupy smooth swing by the name of Sam Snead found a way to beat Hogan at the 1954 Masters. After the win, a result that was certainly a surprise, Snead was heard to utter the words set forth in the title above in reminding folks about how good fortune gets spread around.

As we close the books on 2025 investments, the spreading around of good fortune showed up in the financial world as well. You might be surprised to learn the information below about where big returns really came from.

No doubt individual tech stocks seemed to power the stock market higher in 2025. The total return for Nvidia, the glamour child of AI, was 39.46%. Even better was Google (now known as Alphabet) with a 2025 return of about 66%. Heading up the rear was Apple at 13.1% and then Amazon at 6.6%.

It was a good year for U.S. tech stocks, but let me expose you to a few other interesting returns for 2025 that were found in other parts of the world:

1. DFA’s International Value Portfolio I (DFIVX) is a mutual fund made up of “value” stocks from outside the United States. Its 2025 return was 45.21%.
2. DFA’s International Small Company Portfolio I (DFISX) is made up of companies of smaller size outside the United States. Its return for 2025 was 36.33%.
3. DFA’s International Small Company Value Portfolio I (DISVX) invests in small companies outside the United States that are somewhat underpriced. The return on that fund for 2025 was 52.07%.

My intent is to remind you of the importance of diversification. All the news from 2025 seemed to focus on the Magnificent Seven, AI and the outsized returns of those behemoths. Turns out only one of them (Google) could outpace carefully selected international mutual funds. If you are an investment hobbyist or you fancy yourself as a stock picker (good luck with that) then a focus on one country and even one industry is commonplace.

However, for the rest of us who strive to have a fundamentally sound investment portfolio that outpaces inflation, diversification is key. As you can see from 2025, sometimes the areas of investing that do the heavy lifting will surprise you, notwithstanding who makes the biggest noise in the press.

As “Slammin’ Sammy Snead” would surely remind you if he could, “The sun don’t always shine on the same dog’s tail”. Even Ben Hogan would have to agree.

 

Fun fact: For you golf lovers who want to daydream about warmer weather like me, you should know that in April the very prestigious Masters Tournament kicks off the first of the “majors” and the ticket is almost impossible to get. Notwithstanding that fact, the food at The Masters is unbelievably affordable. I’m told a pimento cheese sandwich costs just $1.50 and a club sandwich costs just $3.00.  In fact, according to USA Today, if you bought every item on the menu at last year’s Masters, including the alcohol, your total bill would be $77.00.