by Amanda O'Brien | Accounting News, Debt, News, Newsletter
Key Takeaways:
- The national debt has passed $39 trillion, and relative to the size of the economy it is higher than at any point in history except the years right after World War II.
- As debt grows, so does the interest the government pays, leaving less money for priorities like education, infrastructure, healthcare, and retirement programs.
- Increased federal borrowing can push interest rates up, and in the article’s example a move from 6% to 7% on a $300,000 mortgage adds roughly $57,000 over 30 years.
- Student loan rates reset annually based on government borrowing costs, and higher rates can also make small business financing harder to secure.
- Social Security already faces a funding gap, and the longer Congress waits to act, the larger the eventual fix may need to be.
How the National Debt Reaches Your Household Budget
The national debt has passed $39 trillion. This is a number so large that it’s hard to imagine what it means for the average American, but it’s easier to understand when you look at common expenses like mortgages, retirement income, and student loans.
Compared to the size of our economy, the federal debt is higher than at any point in history except for the years right after World War II. And if federal spending continues to outpace revenue, it will affect the wallets of Americans across generations in ways that won’t be so hard to imagine anymore.
The Widespread Effect of National Debt
The national debt grows when the federal government spends more than it takes in and borrows to cover the difference. As that debt increases, so does the interest we pay. This leaves less money available for priorities like education, infrastructure, healthcare, and retirement programs.
Increased government borrowing also tends to push interest rates up, making it more expensive for families and businesses to secure loans. While federal debt isn’t the only factor affecting rates, it can contribute to higher costs throughout the economy.
Mortgages
Higher interest rates can make home ownership more expensive. Even a modest increase in mortgage rates can significantly increase monthly payments and add thousands to the total cost of buying a home. For example, moving to a 7% interest rate from a 6% interest rate on a $300,000 mortgage can add roughly $57,000 over 30 years.
Student Loans
Federal student loan rates are reset every year based on what it costs the government to borrow. Higher borrowing costs mean higher rates and larger monthly payments for new borrowers. This, of course, affects college students with loans and parents who take out loans for their college kids.
Social Security
Social Security already faces its own funding gap, and rising federal debt could make it more challenging for Congress to address it. The longer Congress waits to make legislative changes, the bigger the fix will need to be. This could mean larger tax increases or deeper benefit cuts, or both.
Small Business Loans
Small business owners depend on affordable financing. Higher borrowing costs can make it more difficult to open a business, hire employees, purchase equipment, and expand operations. Fewer businesses grow. Fewer jobs are created. And consumers may see prices rise as businesses pass costs along.
Why Congress Hasn’t Solved the Problem
Reducing the national debt requires difficult and often challenging decisions about federal spending, taxes, and long-term budget priorities.
In March of this year, the U.S. House rejected a proposed constitutional amendment that would have capped annual federal spending to the average revenue collected over the previous three years, with exceptions for national emergencies. It failed 211 to 207.
Lawmakers in favor of the resolution viewed it as a way to support greater spending discipline, but critics argued that it could put programs like Medicare and Social Security at risk.
The Cost of Waiting
In order to fix America’s debt problem, spending has to be trimmed, revenue has to go up, or there needs to be a mix of both. Lawmakers need to put forth policy measures that will support economic growth. These likely won’t be politically popular or win votes.
But continuing to avoid the growing debt carries costs of its own. For Americans, those costs could show up in higher loan payments, tighter household budgets, and greater uncertainty about retirement benefits.
by Amanda O'Brien | Accounting News, News, Newsletter, Retirement, Retirement Savings
Key Takeaways:
- Building an income plan starts with comparing anticipated expenses to guaranteed income (Social Security, pensions) to find the gap your portfolio needs to cover.
- Investing doesn’t stop at retirement — dividing money by when you’ll need it lets short-term funds stay conservative while long-term money keeps growing.
- Traditional 401(k)/IRA withdrawals are taxed as income, Roth withdrawals are tax-free, and RMDs begin at age 73 (75 for those born in 1960 or later).
- Healthcare and long-term care can become major retirement expenses — options range from self-funding to long-term care insurance to hybrid life insurance policies.
- A will, medical power of attorney, and updated beneficiary designations round out a plan that protects both your savings and your family.
The Building Blocks of a Retirement Plan That Actually Lasts
Building a retirement plan involves more than allocating part of your paycheck to a 401(k). Once you’re out of the workforce, you need a plan for turning your savings into income, investing for the years to come, managing taxes, and covering healthcare costs. Here’s what you need to have in place to feel more prepared for what’s ahead.
Build an Income Plan
Start by determining your anticipated monthly expenses (housing, food, insurance, travel, etc.). Compare those expected expenses with guaranteed sources of income, such as Social Security and a pension. The difference between guaranteed income and anticipated expenses is the amount your savings will need to cover.
If you spend $7,000 a month and get $3,500 in guaranteed income, you’ll need $3,500 from your portfolio. Once you know that number, consider which investment accounts you’ll use to cover the gap.
At this stage of planning, some workers decide to delay Social Security to qualify for a larger monthly benefit or adjust their retirement date to improve financial stability.
Create an Investment Plan
Some people mistakenly think investing ends in retirement, but your money may need to support you for decades, so long-term growth is still important.
However, retirement can also change how much risk you can afford. Consider dividing your money according to when you’ll need it. You could hold money for short-term expenses in lower-risk options while keeping money for the future invested for long-term growth.
Taxes Should Be Part of Your Plan
Your investment accounts are all taxed differently. Withdrawals from traditional 401(k)s and IRAs are counted as regular income and generally taxable. Roth withdrawals are tax-free. Regular brokerage accounts are taxed at lower capital gains rates.
Then there are Required Minimum Distributions (RMDs). Starting at age 73 (75 if you were born in 1960 or later), these mandatory withdrawals can increase your taxable income and push you into a higher tax bracket.
One way to possibly get ahead of that is a Roth conversion, which could help some retirees reduce future RMDs and create tax-free retirement income. But you generally owe income tax on the amount converted, so timing is important. The best time to do this is usually early in your retirement, before Social Security or RMDs begin. If you’re considering a Roth conversion, talk to a tax professional who can help you determine the best timing for you.
Where you hold different investments also matters. Choosing which investments to keep in each type of account can help you pay less in taxes over time. A tax professional can help you sort this out, too.
Prepare for Healthcare Costs
Healthcare can become one of the biggest retirement expenses. Do you know how you’ll get coverage if you retire before Medicare eligibility? Do you know what you’ll pay once Medicare begins? How will you make sure you’re not overpaying for premiums?
Your income can affect Medicare premiums, so managing your taxable income can help keep them down.
According to the U.S. Department of Health and Human Services (HHS), most Americans will need some form of long-term care, and those costs can be substantial. Your options include setting aside enough funds to self-fund care, purchasing long-term care insurance, or considering a hybrid life insurance policy that includes long-term care benefits.
None of these options are one-size-fits-all. The right fit depends on your age, health, and finances.
Get Your Legacy and Estate Plan in Order
This is about making things as easy as possible for the people and loved ones you leave behind. Make sure you have the basics done: a will, a medical power of attorney, and designated beneficiaries on every account. Update these documents after any major life changes, store them securely, and make sure your family knows where to find them.
Creating a comprehensive retirement plan will help your savings last longer, and you’ll feel more confident about the financial future you’ve spent years preparing for.
by Amanda O'Brien | Accounting News, News, Newsletter, Retirement, Retirement Savings
Key Takeaways:
- A Roth conversion moves money from a traditional account into a Roth, taxed now in exchange for tax-free growth and withdrawals later.
- Converting during a temporarily lower-income year, such as between jobs, can let you convert at a lower tax rate.
- A “conversion ladder” — converting smaller amounts over several years to stay within your current bracket — typically beats converting all at once.
- Converting in your peak earning years, or when it would push you into a higher bracket, often doesn’t make sense.
- Because Medicare Part B/D premiums are based on income from two years earlier, a large conversion can quietly raise your Medicare costs.
If you have money in a traditional IRA or 401(k), you’ve probably wondered how much of those savings will eventually go to taxes. A Roth conversion can help reduce future taxes and build a source of tax-free income, but you generally need to pay taxes now to get those benefits later. Here’s a breakdown of the factors at play in determining if this could be a smart move.
What Is a Roth Conversion?
A Roth conversion moves money from a traditional retirement account into a Roth account. You pay taxes on that money now, at today’s rates. In exchange, that money grows tax-free from then on, and you never pay taxes on it again, not even when you withdraw it. Roth IRAs also don’t require the owner to take required minimum distributions (RMDs). Tax-free growth sounds like the right idea, but it isn’t always the best move.
When a Roth Conversion Could Make Sense
A Roth conversion could be the right move when your income is temporarily lower than usual. For example, if you’ve had a slow income year or you’re between jobs, this could be an ideal time to convert some traditional retirement savings at a lower tax rate.
A conversion may also make sense if you expect tax rates to be higher in the future or want to reduce future RMDs. Having money in both traditional and Roth accounts can also give you more control over taxable income during retirement.
Should You Convert Everything at Once?
Converting a traditional IRA all at once could trigger a substantial tax bill and push you into a higher tax bracket. Instead, converting smaller amounts over several years is typically a better move.
A common strategy known as a “conversion ladder” is to convert enough each year to take advantage of your current tax bracket without unnecessarily pushing income into a higher one.
Work with a tax professional to figure out how much you can convert each year without risking a jump to a higher tax bracket.
When You Might Want to Skip a Roth Conversion
If you’re currently in your peak earning years and sitting in a high tax bracket, or if the conversion could push you into a higher tax bracket than your current one, it may not make sense.
Keep in mind that you’ll need to pay the tax bill. Ideally, this should come from savings outside your retirement account. If you use retirement funds to pay the taxes owed, you’ll put a dent in your investments, and you could incur additional tax consequences.
The Medicare Trap
If you are approaching or already enrolled in Medicare, something to keep in mind is that a Roth conversion can quietly raise your premiums.
Medicare Part B and Part D premiums are based on your income from two years earlier. A large Roth conversion adds to your taxable income, which can increase your Medicare premiums. This is exactly why smaller conversions spread over a few years tend to work better for people in or near retirement.
A Roth conversion can be one of the smartest pathways to create tax-free retirement income, but it can also be an expensive mistake if you do it at the wrong time or with the wrong amount. A tax professional can help you assess your income needs, goals, and timeline if you’re considering a conversion.
by Amanda O'Brien | Accounting News, News, Newsletter, Tax
Key Takeaways:
- The OBBBA made most 2017 TCJA tax cuts permanent, avoiding a scheduled tax increase in 2026.
- New “no tax on tips” (up to $25,000) and “no tax on overtime” (up to $12,500) deductions are now in effect.
- The Child Tax Credit rose to $2,200 per child, and new “Trump Accounts” let families save for kids under 18.
- 100% bonus depreciation is now permanent, giving businesses an immediate deduction on qualifying equipment.
- The tax cuts are partly funded by Medicaid and SNAP cuts, including new work requirements.
One Year of the OBBBA: What It’s Meant for Your Wallet
The One Big Beautiful Bill Act (OBBBA) made some of the biggest tax changes in years, and one year after Trump signed it into law, many Americans are still figuring out what it means for their finances. Here’s a look at some of the law’s biggest financial effects.
The 2017 Tax Cuts Preserved
The tax cuts from the 2017 Tax Cuts and Jobs Act (TCJA) were set to expire at the end of 2025, but the OBBBA made most of them permanent, so the current tax brackets and lower individual tax rates remain in place. Without the OBBBA, taxes would have increased for many households starting this year.
The standard deduction also got a small bump. For the 2025 tax year, it was $15,750 for single filers and $31,500 for married couples filing jointly. That amount will adjust each year for inflation.
New Tax Breaks for Workers and Seniors
The OBBBA introduced “no tax on tips” and “no tax on overtime.” Eligible workers can now deduct certain tip and overtime income, up to a specific amount. The tip deduction applies to up to $25,000 in qualifying tip income. The overtime deduction is capped at $12,500 and only covers the extra pay earned from working overtime, not regular wages. Both deductions gradually phase out at higher incomes.
Seniors also received a temporary tax benefit. Taxpayers age 65 can deduct up to $6,000 from their income through 2028 ($12,000 for a married couple). This deduction also phases out at higher income levels.
Larger Child Tax Credit and New Investment Accounts for Kids
The child tax credit was previously set to decrease from $2,000 to $1,000, but the OBBBA increased it to $2,200 per child. This amount will be adjusted for inflation going forward.
Another new feature of the OBBBA is the creation of “Trump Accounts,” a new kind of savings account for kids under 18. Parents and other adults can contribute up to $5,000 to an account annually.
Trump accounts are meant to encourage long-term saving by allowing money to be invested for a child’s future. And children born between January 1, 2025 and December 31, 2028 qualify for a one-time $1,000 deposit from the federal government. Money in Trump accounts can’t be touched until the child turns 18.
Business Tax Breaks Continue
The OBBBA extended or restored several tax provisions that encourage companies to invest in equipment, technology, and research. 100% bonus depreciation is now permanent, letting businesses deduct the full cost of qualifying equipment purchases immediately instead of spreading it out over years. The idea here is to encourage business expansion, job creation, and economic growth.
Medicaid and SNAP Spending Cuts
The price of the tax cuts in the OBBBA was paid, in part, by cuts to Medicaid and SNAP. The changes include stricter eligibility and work requirements for some recipients, along with other policy changes intended to reduce federal spending over time.
Supporters argue that these reforms encourage workforce participation and improve the long-term stability of these programs, but critics warn that it could make it harder for some low-income Americans to access healthcare and food assistance.
One year in and the OBBBA is shaping household finances with lower taxes, larger deductions, and expanded tax credits. And businesses have renewed investment incentives. But some families are adjusting to changes in Medicaid and SNAP. The long-term impact of the OBBBA will become clearer as time goes on.
by Amanda O'Brien | Accounting News, News, Newsletter, Small Business, Tax
Few things create more stress for a small business owner than receiving a notice from the IRS. A tax debt can quickly become overwhelming, but the worst thing you can do is nothing.
The good news is that IRS debt doesn’t have to derail your business. The key is tackling the problem before it grows larger.
Sticking Your Head in the Sand Only Makes the Problem Worse
The IRS charges interest and penalties that compound over time. By ignoring manageable debt, you’re allowing it to balloon into something much more difficult to handle.
In some cases, the IRS may file tax liens, levy bank accounts, or withhold certain income. Even if those consequences seem far away, waiting too long limits your options and can make negotiations more difficult. If you owe back taxes, taking action sooner almost always means paying less in the long run.
Organize Your Financial Records
Before you can fix the problem, you need to understand it. Start by pulling together your financial records: tax returns, payroll records, expense receipts, profit and loss statements, bank statements, invoices, and any correspondence you’ve received from the IRS.
Having accurate records can help you understand how much you owe. And if the IRS requests documentation, you’ll be ready.
Work with a Tax Professional
Seek out a qualified tax professional who specifically understands IRS debt resolution. A Certified Public Accountant (CPA) or a Certified Tax Resolution Specialist (CTRS) can review your situation, explain your options, and communicate with the IRS on your behalf. Depending on your circumstances, they may help establish payment plans, request penalty relief, or identify programs that could reduce the overall amount you owe, like an Offer in Compromise.
Not all tax situations require professional help, but seeking guidance early can help prevent bigger problems later. And you can stay focused on running your business.
Communicate with the IRS
The IRS responds better to taxpayers who stay in contact than those who avoid communication. If you receive a notice, respond by the deadline, even if you don’t have all the information yet. A simple acknowledgment lets them know you’re responsive, and it can buy you time.
If you can’t pay your full balance, ask about a payment plan. The IRS offers installment agreements that let you pay down your debt in monthly payments. This at least keeps penalties from piling up and shows the IRS that you’re working to resolve the issue.
Create a Plan Moving Forward
Resolving back taxes is crucial, but you also need to come up with a plan to prevent future tax problems.
Review your booking systems, set aside funds for future tax obligations, and make sure estimated tax payments and payroll tax deposits are paid on time. Regular meetings with an accountant or tax advisor can also help identify issues before they become serious.
