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Tips for Early Retirement Planning

5 min read

Tips for Early Retirement PlanningRetirement planning starts with retirement spending. Ideally, retirees are mortgage-free and relatively debt-free before they leave the working life behind. In retirement, a key strategy is to maintain low monthly staple expenses.

Therefore, if you want to devise a financial plan that will allow you to retire early, consider cutting back your basic household expenses a year or more before your target retirement date. Some retirees choose to downsize their home, which also tends to reduce property taxes, homeowner’s insurance and maintenance costs.

Also, use that time to shop for cable, internet, or cell phone plans that may be cheaper and suit your needs in retirement. Be aware that seniors often get additional discounts they may not be aware of, so be sure to explore those options. By reducing your pre-retirement cost of living, you can reduce the amount of income you’ll need after you retire.

Build up Coffers

Another way to plan for retirement is to increase your savings while still earning income. You should have more than the typical emergency fund when you retire – so you won’t deplete it before you die. You also don’t want to have to take large, unscheduled withdrawals from retirement accounts because that would deplete your principal and potentially reduce the ongoing income you receive from those sources.

Social Security

Remember that if you start taking benefits before your official retirement age, you will lock into a lower payout level for the rest of your life. So even if you can afford to retire early, it’s generally a good idea to hold off tapping Social Security until full retirement age or even up until age 70, when you earn additional income credits. Factors to consider in making this decision include your health and life expectancy, needs for income, and other retirement assets. Remember, Social Security will last the rest of your life with cost-of-living increases and no investment market risk, so it is one income source you should wait to maximize as long as you can.

By establishing an account at the Social Security website, you can check your benefit amount at various ages based on current earnings; these projections are updated every year. If you are married, consider both spouses’ benefits as it might be better to start one early while allowing the other benefit to accrue.

Pension

If you expect a pension from your employer, you can request projected payouts to help devise your early retirement plan. If you have the option to receive either annuity payments or a lump-sum distribution, you might want to consult with a financial advisor to determine your best option within the context of your entire portfolio of assets.

Investment Accounts

If you have a 401(k), 403(b), or traditional IRA, remember that once you turn 73, you must begin required minimum distributions if you haven’t already. As a general rule, the common strategy for drawing down invested assets in retirement is to use taxable accounts first, tax-deferred accounts second, and tax-free accounts (e.g., Roth IRA) last. Roth IRAs do not require distributions at any age and can continue to grow throughout retirement.

Rule of 55

There is a legal strategy for tapping 401(k) or 403(b) retirement funds before the age of 59½ without incurring a penalty. The Rule of 55 enables you to make a series of substantially equal periodic payments from a former employer’s retirement plan (not a rollover account) between the ages of 55 (50 for a government defined-benefit plan) and 59½. While this strategy waives the 10 percent early withdrawal penalty, distributions are still subject to income taxes.

Health Insurance

If you wish to retire before age 65, consider your health insurance options.

  • Employer-sponsored coverage through COBRA
  • Health insurance marketplace plans at HealthCare.gov
  • Joining your spouse’s health insurance plan
  • Potential discounted coverage through membership organizations (e.g., AARP)

When you become eligible for Medicare, you must apply during the seven-month period that begins three months before you turn 65 and three months after your 65th birthday. If you do not apply during this enrollment period, you may face penalties.

Long-Term Care

If you’re thinking about early retirement, you may not be thinking much about nursing home expenses. However, long-term care can be quite expensive, so it’s important to plan for it early so you don’t run out of money when you need it most. Help from family can reduce the need for paid long-term care in your later years, so you may want to consider moving closer to them before or after you retire. Note that Medicare generally does not cover ongoing long-term care, although it may provide limited coverage for skilled nursing and rehabilitation services.  As a result, you’ll either need to self-fund, purchase some form of long-term care insurance, or spend down your assets in order to qualify for Medicaid long-term care assistance.

An early retirement plan usually involves a number of moving parts, so carefully consider withdrawal strategies and your specific tax situation in order to develop a plan that works best for your circumstances.

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Supreme Court Will Decide What Homeowners Are Owed When Tax Sale Erases Equity

4 min read

Supreme Court Will Decide What Homeowners Are Owed When Tax Sale Erases EquityA county in Michigan was owed about $2,200 in back taxes. To collect it, the government took a home worth close to $200,000, auctioned it for a fraction of that, and called the matter settled. The family is now putting a simple question to the Supreme Court: when the state sells your house over a small debt, does it owe you the real worth of what it took or only whatever the auction happened to fetch?

The Rule that is Already on the Books

Three years ago, the court drew a clear line. Geraldine Tyler, then in her 90s, had let a $2,311 levy on a Minneapolis condo balloon to about $15,000 once penalties and interest stacked up. Hennepin County took the unit, found a buyer at $40,000, and held onto all of it. By any fair reckoning, the $25,000 above her debt was Tyler’s money – even though the county walked away with it. Minnesota law blessed that, as did 11 other states and the District of Columbia, plus nine more states under narrower terms.

A unanimous court ended the practice. Chief Justice Roberts wrote that a government can sell property to satisfy a tax debt but cannot help itself to more than the debt is worth. Leftover equity belongs to the owner, and a state cannot dodge that by defining the property interest away.

The Question Tyler Left Hanging

Tyler was tidy because the surplus was undeniable. Subtract a debt near $15,000 from a $40,000 sale, and the leftover is beyond dispute. The justices never had to confront the messier case where the sale price itself is artificially low. If a forced auction brings in far less than a home would fetch on the open market, is that depressed number really the measure of what the owner lost?

That is the gap, and tax auctions are where it opens. Unlike an ordinary listing, these sales draw a thin crowd of investors and speculators, and the government has little reason to chase top dollar. A county could therefore obey Tyler to the letter, hand back every cent of the auction surplus, and still watch most of a family’s equity vanish.

How the Pung Family Got Here

Three-and-a-half decades ago, Timothy Scott Pung paid $125,000 for a roughly 3,000-square-foot house in Isabella County, and for years it carried Michigan’s Principal Residence Exemption. Scott died in 2004, and his wife in 2008. Their son Marc stayed on, assuming the exemption rolled forward without any new filing. The assessor saw it otherwise and stripped the break retroactively. Marc fought back, and a state tax tribunal agreed no further paperwork had ever been required.

The assessor would not let it go. Over a shortfall of $2,241.93, on a place the county itself pegged at $194,400, the family was thrown out, and the home went under the hammer for $76,000. Nobody disputes that the estate is owed the surplus. The quarrel is how to measure it. Isabella County treats the surplus as the hammer price minus the debt, leaving about $74,000. The estate says the yardstick should be the home’s true market value minus the debt, pushing the number toward $194,400. The spread tops $100,000.

Bigger Than One House

The stakes reach far past Michigan. Minnesota alone moved more than 4,300 properties through these sales between 2014 and 2020. Across the 1,200-plus that were family homes, the typical owner lost some 92 percent of the equity above the debt, averaging around $207,000 against bills averaging just $17,000. In the nation’s capital, a veteran with dementia lost a $200,000 home over $133.88.

There is a second front, too. The estate contends the foreclosure worked as an excessive fine barred by the Eighth Amendment, a theory the lower court waved off as ordinary tax collection but one that Justices Gorsuch and Jackson have flagged for review.

Argument wrapped on Feb. 25 with a ruling likely any day now. The court has already said the government cannot keep more than it is owed. Now it must decide whether that shield covers only the cash left after the gavel, or the equity that vanished before.

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Understanding Depreciation Recapture

3 min read

What is Depreciation RecaptureThis accounting and tax method refers to a treatment used by the Internal Revenue Service (IRS) to obtain tax remittances on sales of depreciated property. Understanding how it works is essential for filers to make the most of it.

Required Conditions

As property depreciates, its value declines. When depreciated assets are sold, it’s able to be filed as ordinary income as long as the transaction’s price is above the property’s adjusted cost basis. The gap between the sales price and its adjusted cost basis must be filed as a component of the individual’s ordinary income.

Defining Adjusted Cost Basis

Adjusted Cost Basis = Asset’s Purchase Price + Improvements – Depreciation Deductions

Per Internal Revenue Code Section 1016, this calculation factors in both lower depreciation rates and improvement additions, resulting in the asset’s net cost.

Illustrating Adjusted Cost Basis

If an asset purchase price is $75,000, and it’s depreciated annually over six years, its adjusted cost basis is as follows: $75,000 – ($3,000 x 6) = $57,000.

If, however, the asset is sold for less compared to its adjusted cost basis, the transaction’s gain should be filed as a capital gain and not ordinary income. When it comes to calculating depreciation recapture, the adjusted cost basis is incorporated into the calculation as follows:  

Property Acquisition Cost: $750,000

Six annual deductions for depreciation: $7,000

Amount the assets are sold for in year 7: $740,000

Tax Rate of 25 percent for depreciation recapture

20 percent tax rate of capital gains

Therefore, adjusted cost basis equals = $750,000 – ($7,000 x 6) = $708,000

When calculating the gain on the sale, the resulting amount is calculated as follows:

= $740,000 – $708,000 = $32,000

Based on the owner(s) of the assets, the $32,000 will be reported as ordinary income. The depreciation recapture tax of 25 percent on the $32,000 will be $8,000 ($32,000 x 25 percent).

Be mindful if the $32,000 is more than the full depreciation deductions filed for by the taxpayer, the depreciation recapture will match how much depreciation is deducted and must be taxed as ordinary income. The balance will be taxed as a capital gain.

Assume everything from the first calculation is the same, but now the same asset is sold for $940,000.

Property Acquisition Cost: $750,000

Six annual deductions for depreciation: $7,000

Amount the asset is sold for in year 7: $940,000

Tax Rate of 25 percent for depreciation recapture

20 percent tax rate of capital gains

The adjusted cost basis will remain $708,000

In this example, since the asset owner’s gain is $190,000 ($940,000 – $750,000), only the depreciation deduction of $42,000 ($7,000 x 6 years of depreciation) will be reported as ordinary income since it’s the complete sum of the depreciation deductions. The balance of $148,000 ($190,000 – $42,000) will be taxed at the capital gains rate. The calculations for taxes are calculated as follows:

Depreciation recapture: $42,000 x 25 percent = $10,500

Capital gains calculation: $148,000 x 20 percent = $29,600

Additional Considerations

It’s important to consider that if an asset has been held for fewer than 12 months, gains from property sales are taxed as ordinary income. Depending on the circumstances, if an asset is sold for a loss, depreciation recapture isn’t applicable; however, Internal Revenue Code Section 1231 may provide exceptions to treat it as an ordinary loss tax treatment.

While each business’ transactions are different, when the entity is eligible, it can provide another way to navigate their federal taxes efficiently. As always, contact a professional for more personalized guidance.

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Understanding Horizontal Analysis

3 min read

Understanding Horizontal Analysis, What is Horizontal AnalysisHorizontal Analysis provides businesses a method to examine financial statement entries by looking at the documents’ number for a specific accounting time frame compared to the same length of a historical period for the same accounting line item.

Breaking the Process Down

It’s a way to measure trends and variances by looking at the current year’s values versus the reference year. This helps an analyst figure out if the values increase or decrease. It’s either done on an absolute value or a percentage change basis. The analysis provides a company’s growth and financial position against competitors.

This method is different compared to vertical analysis because vertical analysis looks at a single reporting period and measures the proportional relationship between items, compared to horizontal analysis evaluating multiple periods and multiple ratios for a more comprehensive approach.

Generally Accepted Accounting Principles (GAAP) require uniform and standardized financial statements for adequate financial statement analysis. This entails consistent accounting practices and fundamental principles being employed annually. Comparability constraints mandates that the business’ financial statements are in a form that permits analysts to evaluate them against other competitors in the same field. This is where horizontal analysis comes into play, creating consistency.  

This analysis determines what impacts a company’s growth over time. For cyclical or seasonal companies, it lets analysts get a handle on what’s normal and what’s not. It also permits identification of variances in different product/business segments and how to project a company’s future performance.

Along with the three financial statements (balance sheet, cash flow statement, and income statement) providing working outcomes, it can similarly identify issues and strengths by looking at certain metrics like profit margins or the rate of inventory changing hands.  

If a company reports higher earnings per share due to increases in revenue or lowers its figures of the COGS (cost of goods sold), analysts looking at the interest coverage ratio or cash flow-to-debt ratio, for example, can use horizontal analysis to gauge if a business has enough liquidity for continued operations.

Real World Example of Horizontal Analysis

Let’s say Company X had revenue of $100 million in the previous year and accounts receivable of $200 million during the “base year.” This is compared to revenue of $300 million in the present year and accounts receivable of $600 million. Based on these numbers, the calculations are as follows:

Revenue Comparison

[($300 million – $100 million)/$100 million)] x 100 = 200 percent

Accounts Receivable

[($600 million – $300 million)/$300 million)] x 100 = 100 percent

When it comes to interpreting horizontal analysis, the process needs context to ensure it’s used appropriately. The most prominent consideration is understanding what contributed to the base year’s numbers and the current year’s numbers. Did the company sell off a segment that increased profitability, or did they face massive lawsuits or spend excessive amounts of capex to ensure their viability and competitiveness in the upcoming years?

The calculation is straightforward, but being able to delve into what happened – and why – is the role of the business owner and investor to determine the true health of the business.

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The IRS Could Owe You Money Thanks to a Pandemic-Era Court Ruling

4 min read

IRS Could Owe You Money, COVID Court RulingHere’s something that flew under the radar for most people: a court decision from late last year could put money back in your pocket if you got hit with IRS penalties during COVID. But you need to act fast! For some taxpayers, the deadline to file a claim is July 10.

What This Case Is Actually About

Remember when COVID was declared a federal disaster? That designation wasn’t just symbolic. It triggered real protections under the tax code, specifically Section 7508A, which lets the IRS push back deadlines and waive penalties when taxpayers are caught up in a disaster. We’re talking about failure-to-file and failure-to-pay penalties here, and those fees can add up to almost 50 percent of what you already owe, which is brutal!

The Kwong v. United States decision came down from the Court of Federal Claims in November 2025, and it changed the game. The court said the nationwide COVID emergency created a mandatory postponement running from Jan. 20, 2020, through July 10, 2023. Everything that came due in that window should have been bumped to July 11, 2023. In other words, a lot of people may have been penalized when they shouldn’t have been.

This Got Real on April 30

The case had been percolating quietly until the National Taxpayer Advocate (NTA) made some noise about it on April 30. That’s when things got interesting. According to the NTA, tens of millions of taxpayers could be eligible for refunds. Not just on the penalties themselves, but on the interest that piled up on top of those penalties.

The NTA isn’t being shy about this either. The office has pushed hard for the IRS to apply relief broadly instead of making people jump through hoops. They want systemic fixes, not case-by-case battles. And they’ve asked Congress to make sure procedural red tape doesn’t rob people of money they are owed.

There’s another wrinkle worth knowing about. Some refunds issued during 2020 through 2023 may have shortchanged taxpayers on interest because the IRS treated their returns as late. If Kwong holds up, you might be able to claim that missing interest, too.

Expats Had It Especially Rough

If you were living overseas when the pandemic hit, you know the chaos was next level. Borders slammed shut with no warning. People got stranded in countries they were just passing through. Others couldn’t get back to the places they’d been living for years.

Good luck reaching your accountant when consulates are closed, mail isn’t moving, and you’re dealing with a 12-hour time zone difference. Some folks couldn’t access their bank accounts. Others couldn’t get basic documents. And plenty of people were simply stuck, unable to go anywhere, when their filing deadlines rolled around.

Slapping penalties on taxpayers who were dealing with all of that? It misses the point entirely. The disaster relief rules exist for exactly these situations. The NTA has been clear: fair treatment means recognizing what people were actually going through.

You Need to File a Protective Claim

Here’s the practical part. If you want to preserve your right to get this money back, you have to file something called a protective claim. Think of it as a placeholder that keeps your options open while the legal dust settles.

For many people, the deadline is July 10, 2026, though it depends on the tax year involved. Don’t wait until the last minute to figure this out.

The good news is the paperwork isn’t complicated. You can use IRS Form 843 or just file an amended return. You need to list the tax years you’re claiming and note that your refund depends on how the Kwong case plays out. You don’t have to calculate the exact dollar amount right now. The whole point is just to get yourself on record before time runs out.

A Few Limitations to Know About

This relief is specifically about federal income taxes under the Internal Revenue Code. If you’re worried about Report of Foreign Bank and Financial Accounts (FBAR) penalties, that’s a different animal. FBARs fall under the Bank Secrecy Act, so Kwong doesn’t automatically help there. That said, you might still have a reasonable cause argument based on the same COVID disruptions.

State taxes? Every state did its own thing. Most offered some pandemic extensions, but those programs were separate and usually more limited than what we’re talking about here.

Conclusion

If there’s any chance this applies to you, file that protective claim now. Especially if you were overseas during the pandemic years. Once that deadline passes, the door closes for good.