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Tax Planning: Navigating the Tax Train and Securing Your Financial Future

Updated: Aug 1, 2023

A Railroad Story


As a child, my dad used to make us watch videos of train crashes. To be fair we also

had to watch videos of building railroad tracks, restoring trains, and anything else

railroad related you can think of. One scene stood out - a car stranded on the tracks, but

its occupants would always manage to jump out just in time to avoid disaster. The car

would be destroyed as the people stood and watched the train flying by. The lesson was

clear - if you know the train is coming, get off the tracks! In the world of finances, a

similar principle applies. There is train coming to the country in the form of higher taxes

and many people are stuck on the tracks not knowing what to do. We need to anticipate

potential tax changes, get our money in the right buckets, and secure our financial well-

being. Let's explore the current tax landscape, future predictions, and effective tax

planning strategies to help you steer clear of the tax train wreck.


The Tax Landscape - Past, Present, and Future


1. Are taxes high today?

As of the time of writing, tax rates have been relatively stable, with progressive tax

brackets based on income levels. However, we must remain vigilant as tax laws can

change over time.


2. What is the highest tax bracket ever?

After World War II, the United States had the highest federal income tax bracket at a

staggering 94%. This extraordinary rate was implemented to cover the costs of the war.


3. What was the highest tax bracket in the 70s?

During the 1970s, the highest federal income tax bracket reached around 70%. These

rates were part of the government's efforts to fund various initiatives.


4. What is the highest tax bracket today?

Currently, the highest federal income tax bracket is 37%, applying to individuals with

higher incomes.


Future Tax Predictions and Challenges


1. January 1, 2026, taxes will increase. What does the government have to do?

Nothing?


On January 1, 2026, tax changes are expected to take effect, and the government

would need to pass new legislation to implement these changes.


2. What's the proposed tax rate for 2026?


The proposed tax rate for 2026 is 39.6%. Many experts believe that taxes will continue

to rise in the future, given the staggering national debt of approximately 30 trillion

dollars.


3. The David Walker Perspective

David Walker, a former U.S. Comptroller General, has extensive knowledge of the

country's financial challenges. He emphasizes that Medicare costs are five times more

expensive than Social Security. Walker advocates for immediate tax adjustments to

address the growing national debt. In fact, Mr. Walker recommends we double taxes

immediately or the national debt will continue to rise. We first recommended this shortly

before he resigned in 2008. Have we doubled taxes since then? No, we have reduced

taxes. Has the national debt continued to rise? Yes, and it’s rising faster and faster.

David Walker wrote a book in 2010 entitle “Comeback America” in which he detailed all

of this. He believes, as do we, that the real scary number is not the current national debt

but the interest on the debt and the unfunded obligations. This is stuff like Social

Security payments, Medicare, Medicaid, Pensions and other things that the government

has promised to pay but doesn’t have the money to cover. If you are taking notes write

down the number 53 trillion. That’s a 53 followed by 12 zeros. Once the national debt

reaches that number ALL the revenue the country generates will only be able to cover

the interest on the debt. Not one penny left over for any of the obligations I mentioned

above.


A solution to the tax train:


The Hollifield Financial Tax Map - Securing Your Financial Future


At our financial planning firm, we provide clients with a powerful tool called the Hollifield

Financial Tax Map. This comprehensive plan outlines the necessary steps to get your

money in the right buckets - the taxable, tax-deferred, and tax-free buckets. Most

people have a substantial portion of their wealth in tax-deferred accounts, which means

they will defer taxes until rates are potentially higher. Our map helps reposition funds

from tax-deferred to tax-free accounts, ensuring that future tax increases won't

significantly impact your financial security.


Key Steps to Take:

1. Emergency Fund in the Taxable Bucket Keep your emergency fund, equivalent to

3-6 months expenses, in a taxable account. This ensures easy access to funds

without tax implications.


2. Manage Your IRA Balance For a secure retirement, your IRA balance should be

low enough that Required Minimum Distributions (RMDs) are less than your

standard deduction. This threshold is approximately $350,000 if married and half

that for singles.


Effective Tax Planning Strategies


To implement our Tax Map, we use a range of powerful tools, including Roth

conversions, 72T distributions, and Indexed Universal Life (IUL) accounts. Our financial

experts make the process easy to understand and guide you through every step.


Take control of your financial future today. Email us at kimsey@hollifieldfinancial.com to

receive your free Tax Map report or visit our website at hollifieldfinancial.com to

schedule a 15-minute conversation with one of our experienced financial planners. Let's

work together to secure your financial well-being and ensure you're on the right track to

prosperity.



Tax Train
Here Comes the Tax Train

Comeback America by David M. Walker
Comeback America

Man posing in front of US flag
David M. Walker

Graph of Tax Rates in US
Marginal Tax Rate in the United States

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