You probably know how much you pay in taxes each year when you file your annual return and either (1) aren't happy about how much you owe the IRS or (2) find yourself looking forward to a tax refund. But have you ever wondered about how all of those yearly payments add up over time?

A new analysis takes that long view, estimating that the average U.S. taxpayer will pay hundreds of thousands of dollars in federal, state, and local taxes over the course of their lives. The high six-figure total includes income taxes, property taxes, sales taxes, and vehicle-related taxes.

And depending on where you live, your lifetime tax bill could be hundreds of thousands of dollars higher, according to the study from fintech company Self Financial.

These tax burden findings arrive amid rising frustration in the U.S. over high prices and lack of affordability, and as lawmakers in several states and Congress debate eliminating or reducing income taxes and, in some cases, property taxes.

Here's more to know.

How much tax people pay in the U.S.

According to a recent analysis by Self Financial, the average American will pay an estimated $762,272 in total taxes over their lifetime. (Notably, that represents a 45.3% increase from the 2024 estimate of $524,625 in lifetime taxes.)

The study adds up various taxes Americans pay throughout life across several major categories:

• Federal and state income taxes
• Property taxes
• Sales taxes
• Vehicle-related taxes

As you might expect, income taxes make up the largest share of the lifetime tax burden. (The analysis estimates that the average U.S. taxpayer pays about $532,910 in federal and state income taxes over a lifetime.)

Property taxes add roughly more than $145,000 over a lifetime, according to the study.

• Then there are the taxes we often pay without thinking much about them: Sales taxes at the register and taxes tied to car ownership.
• For example, the study data show that "owning the most popular car (i.e., a Ford F-Series) will cost an additional $31,817 in tax payments."

While these taxes might seem relatively small in any given transaction, over a lifetime, the average U.S. taxpayer will pay an estimated 33.6% of their earnings in taxes, according to the study.

Which states have the highest taxes

Where someone lives can impact their tax payments. However, when it comes to lifetime tax burden, the latest analysis reveals significant differences due to income levels, housing costs, tax structures, and spending patterns.

For example, residents of New Jersey face the highest estimated lifetime tax burden. The study projects Garden State residents will pay roughly $1.35 million in taxes over their lifetimes.

Other states with high lifetime tax burdens:

At the other end of the ranking, Florida residents have the lowest estimated lifetime tax burden, at about $508,000, according to the study. The difference between the highest- and lowest-tax states exceeds $800,000 over a lifetime.

Note: The analysis estimated lifetime taxes by combining federal, state, local, property, sales, and vehicle-related taxes using median earnings, consumer spending, housing, and vehicle ownership data. Researchers assumed a typical working life from ages 22 to 67 and applied current tax rates and spending patterns over an average lifespan of 79.6 years.

Proposals to eliminate state income tax and property tax

This tax burden analysis comes as lawmakers nationwide advance tax cut proposals.

Several states have recently lowered income tax rates or adopted flat-tax systems, while others are debating further cuts to attract residents and businesses.

For example, in Missouri, voters will decide in August on Amendment 5, a measure that would phase out the state's individual income tax.

• Supporters of eliminating the state's income tax argue it would let residents keep more of their earnings.
• Some opponents warn that Missouri might need to rely more on other taxes, e.g., sales taxes, to make up for lost revenue and fund public services.

Property taxes have also become a major target in recent years, particularly in states where rising home values have pushed up tax bills.

As Kiplinger has reported, in Florida, lawmakers are considering a constitutional amendment that would increase the state's homestead exemption for non-school property taxes to $250,000 in 2028 and beyond.

• Supporters of the proposal for November's vote say it would help homeowners and gradually eliminate property taxes on homesteaded properties.
• Critics, however, are concerned about how local governments would replace lost revenue for essential services like public safety and infrastructure.

Several members of Congress have introduced plans to exempt certain income levels from federal income tax.

The Working Americans' Tax Cut Act, proposed by Sen. Chris Van Hollen (D-Md.), would eliminate federal income taxes on the first $46,000 for individuals and $92,000 for couples while imposing a surtax on higher-income households.

Sen.Cory Booker's (D-N.J.) "Keep Your Pay Act" would increase the standard deduction to effectively eliminate federal income taxes on the first $75,000 of earnings. However, neither has gained traction in Congress

For his part, President Donald Trump has floated eliminating income taxes (initially to be replaced with tariffs, many of which have since been struck down by the U.S. Supreme Court).

Also worth noting: Some users across social media platforms like Reddit, X, and TikTok have shared posts expressing support for tax resistance or a "tax strike" to stop paying taxes.

How to lower your taxes

To reduce your tax liability, it can help to plan for taxes that you can influence to some degree. However, each financial situation is unique, so consult a trusted tax advisor or financial planner for guidance.

Review your property tax bill.

Property taxes can be a major expense for homeowners. Review your assessments and apply for any eligible exemptions, homestead exemptions, and property tax breaks.

Pay attention to other state and local taxes.

No-income tax states aren't always the ones with the lowest overall tax burden. Sales taxes, gas taxes, vehicle fees, and other costs can sometimes offset income tax savings. So take all of these factors into consideration when deciding where to live.

Use available federal tax breaks.

You can lower taxable income by taking advantage of tax deductions and credits you're eligible for, along with leveraging tax-advantaged accounts like HSAs and retirement savings accounts.

Plan for retirement taxes

Taxes don't necessarily end in retirement due to income from required minimum distributions (RMDs), pensions, Social Security benefits, etc. Planning the timing of withdrawals and other income sources can help retirees manage tax burden.

Consider the tax impact of major financial decisions.

Remember that major life changes and financial decisions, from getting married or divorced to buying a home, changing jobs, having a child, or making certain investment moves, can affect tax liability.

Also, keep an eye on tax law changes.

With the November 2026 midterm elections approaching and special elections taking place across the country, voters in several states could have their say on major tax policy changes. Stay tuned.

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• How to Pay the IRS if You Owe Taxes
• Another State Could End Income Tax in 2026

Many people believe their tax bill will drop once they retire, and while that might be the case for some families, it's not a guarantee.

The thinking is logical. If you're no longer earning a paycheck, you should fall into a lower tax bracket, right? Not exactly.

Once they've left the workforce, retirees often start drawing income from multiple sources, such as Social Security, pensions and retirement accounts, all of which can be taxed.

A new set of tax considerations

For many retirees, a large portion of those retirement savings is also held in pretax accounts, which means withdrawals can be taxed as well. This can create a new set of tax considerations many retirees didn't need to deal with in their working years.

Without proper tax planning, or a clear understanding of how these income sources might be taxed, retirees could be surprised when the tax bill comes.

Although no one can predict future tax policy changes, taking time to plan ahead can give you a better understanding of how your income will be taxed under the current law. From there, you can make adjustments before retirement begins.

Estimating future income and understanding which tax bracket you'll likely fall into can help you evaluate strategies that might help reduce lifetime tax liability.

Where to start

Reviewing the balance between pretax, after-tax and tax-free accounts and determining whether certain tax strategies make sense for you is a great place to start.

If you find a majority of your retirement savings is in pretax accounts, future withdrawals might create a larger tax bill.

At the same time, converting everything into tax-free accounts isn't necessarily the right answer either.

The goal is to find the right balance between pretax, after-tax and tax-free assets so that income in retirement can be generated as tax-efficiently as possible.

A strategy that often comes up in retirement tax planning is a Roth conversion. This allows you to move money from a pretax retirement account into a Roth account by paying taxes at the time of the conversion.

Roth conversions aren't always the right decision for everyone. The more important question to consider is whether it makes sense based on your current income, expected retirement income and long-term tax strategy.

Retirement might be the end of your career, but that doesn't mean it's the end of financial planning.

Understanding how different sources of retirement income are taxed and taking time to develop a tax-efficient plan before you retire can help reduce tax burdens while giving you peace of mind and a sense of preparedness ahead of your next chapter.

Related Content

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• IRA Conversion to Roth: Rules to Convert an IRA or 401(k) to a Roth IRA
• Millions of People Are Aging Alone: What Living Single Means for Retirement Taxes
• 3 Ways to Potentially Avoid Falling Into a Tax Trap in Retirement, From a Financial Adviser

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Fear of an IRS audit is incredibly common, even if the actual odds of one are much lower than you think. After all, the federal tax agency audits only about one in 250 individual files (roughly .4%) each year.

However, getting selected isn't entirely random. Common red flags like disproportionate deductions, omitted income, or simple reporting mismatches can increase your chances of a manual review.

Think you can spot the warning signs? Take our quick five-question quiz to test your knowledge of IRS audit red flags.

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Managing healthcare costs is one of the biggest financial hurdles in retirement. According to AARP, the average Medicare beneficiary spends roughly $7,295 annually on out-of-pocket medical care. But there may be ways to save.

One way is through your federal tax return. By utilizing the medical expense deduction, you can deduct qualifying, unreimbursed medical expenses that exceed 7.5% of your adjusted gross income (AGI). While this strategy requires electing to itemize rather than claiming the standard deduction, heavy medical bills might justify the extra paperwork.

Plus, more than just standard doctor visits or hospital stays may qualify for the deduction. For instance, you might be able to deduct the cost of your weight-loss program or service animal on your federal return.

But because the IRS heavily scrutinizes unconventional claims, navigating these deductions requires ample preparation. So carefully consider whether or not you are eligible for these five unusual write-offs before claiming them on your 2026 federal return.

This list focuses exclusively on federal tax deductions. You may qualify for other tax breaks on your state income taxes. Also, the article does not constitute legal or financial advice. Always consult a qualified tax professional before filing.

The medical expense deduction: Ground rules

To be eligible to claim any of the medical tax deductions listed below, you must first meet the specific criteria for the medical expense deduction. This includes:

1. Itemizing your deductions on Schedule A (Form 1040) instead of claiming the standard deduction.
2. Filing your itemized deductions under the medical expense deduction (which is technically available to taxpayers of any age, but is heavily utilized by older adults).
3. Exceeding the adjusted gross income (AGI) threshold. You can only deduct the portion of your total qualifying medical expenses that exceeds 7.5% of your AGI. (For example, if your AGI is $100,000, the first $7,500 of your medical expenses won't count; only the amounts above that are deductible.)

Also, you can't deduct an expense on your federal return if it was already covered by your insurance, health savings account (HSA), or flexible spending account (FSA).

Additionally, the IRS recommends that you maintain all applicable tax records for qualifying medical expenses for at least three years (though most tax experts advise six or more years). This covers the IRS's tax audit period.

1. Home modifications for medical care

If you have a home improvement project planned to accommodate a medical condition or physical disability, the net cost may qualify for a medical expense deduction. These are the requirements:

• What qualifies. The modification must directly treat or accommodate a diagnosed condition. A formal letter of medical necessity from a doctor is typically necessary.
• Documentation needed. Keep your doctor's letter, a home appraisal from before and after the project (to document changes in property value), all itemized contractor receipts, and any other applicable tax records.
• Value calculation. You can only deduct the amount by which the cost of the improvement exceeds the increase in your home's market value.

The last bullet point might sound confusing. But here's an example:

• Say you install a home elevator for $35,000 to accommodate a mobility issue.
• A licensed appraiser determines that it increases your home's total property value by $25,000.
• Thus, your potentially deductible medical expense is the difference between the two: $10,000.

(Note: If an upgrade increases your home's value by more than it costs to build, the potential deduction drops to $0).

The IRS also explicitly states in its Medical and Dental Expenses Guide that certain standard accessibility modifications are presumed not to increase a home's market value, and are thus 100% potentially deductible. These include adding ramps, widening doorways, modifying stairways, etc.

For more information, check out Kiplinger's report, Tax-Deductible Home Improvements for Retirement.

2. Guide dogs and service animals

Service animals trained to assist with physical disabilities (like visual impairments or mobility limitations) or medical alerts may qualify for the medical expense deduction. Typical qualifying expenses include the total cost of purchasing, training, and maintaining the animal.

• What qualifies. The animal must be individually trained to perform tasks for a person with a disability. Emotional support animals (ESAs) or general family pets are not tax-deductible and do not qualify.
• Documentation needed. You must retain training invoices, veterinary bills, grocery/supply receipts, and other applicable tax records.
• Value calculation. You may write off the vet care, grooming, food, and specialized training supplies associated with your service animal.

3. Prescribed swimming pools

This is a highly scrutinized deduction by the IRS, but it may be medically necessary under special circumstances.

If a doctor explicitly prescribes hydrotherapy to treat a severe, specific medical condition (like advanced arthritis), the cost of installing and operating a home pool might be eligible for a medical expense deduction.

• What qualifies. You can deduct not only the qualifying home pool installation fees but also the ongoing operational costs — like heating, chemicals, and electricity — only for the portion of the year the pool is used strictly for medical treatment.
• Documentation needed. You will need a letter of medical necessity, appraisal documents, and utility bills to prove your operation costs.
• Value calculation. Like home modifications, the installation cost is deductible only to the extent it exceeds the value the pool adds to your real estate. So, if a pool costs $50,000 to build but adds $20,000 to your home's equity, you can potentially claim only $30,000 as a medical expense.

Special note: Because the IRS looks closely at pool deductions, it is very rare to claim this home improvement as a tax deduction. However, if a pool is medically necessary, you can consult with a tax professional to see if it would qualify for a potential write-off.

4. Prescription weight-loss programs

If you're enrolled in a weight-loss program to manage or mitigate a specific diagnosed health condition — like type 2 diabetes, heart disease, or severe hypertension — the enrollment and attendance fees may be tax-deductible as a medical expense deduction.

• What qualifies. Only fees related to your prescribed diagnosis. The IRS strictly prohibits deductions for programs designed for general health, well-being, or cosmetic appearance.
• Documentation needed. A written diagnosis from your physician stating the specific disease being treated, along with itemized monthly statement receipts from the program.
• Value calculation. You generally cannot deduct the cost of specialty diet foods, nutritional supplements, or standard gym memberships. All qualifying healthcare expenses related to your program are potentially deductible under the medical expense deduction.

5. Oral and facial physical therapy

In a landmark IRS ruling, a parent successfully argued that clarinet lessons for their child were deductible because an orthodontist formally prescribed them to correct a severe overbite.

For older adults, the equivalent is specialized physical therapy for the mouth and jaw muscles, like treatment for Temporomandibular Joint (TMJ) disorders or myofunctional therapy.

• What qualifies. As with other qualifying expenses on this list, you can only claim out-of-pocket expenses that were not otherwise covered or reimbursed by your insurance, HSA, or FSA.
• Documentation needed. A formal referral and script from a dentist, orthodontist, or primary physician, alongside detailed treatment logs specifying the dates of service and itemized payment receipts.
• Value calculation. Any qualifying medical expenses above the 7.5% AGI limit may be potentially deductible under this federal tax deduction.

For more information on what qualifies as AGI, check out Kiplinger's report, How to Calculate Your Adjusted Gross Income — and What It Means.

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Remember the days of blinking in-store coupon dispensers and thick, mailbox-clogging booklets full of grocery discounts? Depending on where you live, that might still be your weekly reality.

But those days are fading fast, as rising print costs and falling newspaper circulations push glossy inserts into history. Yet the need to save on food costs is stronger than ever — especially since strategic couponing can still slash roughly 17% off the average grocery run.

That's where the grocery store surprise bags come in.

If you're familiar with the mystery liquidation bundles at flea markets or online auctions, you might already know how it works: stores sell a grab bag of goods, and you reap the discounts.

Now, traditional grocery stores are getting in on the action — cutting retail prices by 50% to 75% on leftover inventory through smartphone apps.

But there's a catch: What you save in cash, you pay for in scarcity, variety, and relative value. To see if the tradeoffs are worth it, I bought a grocery store surprise bag on a popular app so you don't have to navigate these "surprise taxes" alone. Here's what I found.

This article is not a sponsorship or an endorsement of any particular product. Information is provided for educational purposes only.

What are grocery store surprise bags?

At their core, grocery surprise bags are mystery bundles of surplus produce, baked goods, and canned or boxed items sold at steep discounts. The premise is simple. You buy leftover inventory to avoid paying premium prices, and the stores successfully curb their food waste.

Here's how the process works:

1. Download the app. You install a surplus food app on your smartphone.
2. Find nearby stores. You enter your location to view nearby participating grocery stores, bakeries, and markets. I was surprised (pun intended) to find major national chains like Whole Foods and The Fresh Market alongside local independent shops.
3. Reserve and pay. When you spot an available surprise bag in your area, you reserve and pay for it directly through the app.
4. Pick up. Each store has a dedicated pickup window. You simply arrive during that timeframe, show the clerk your digital receipt, and claim your bag.

For my experiment, I chose Too Good To Go, the app that popularized the term "Surprise Bag" for grocery mystery bundles and has over 120 million registered users worldwide. The app's website also states that its bag prices are "roughly a third of the original price," which I was eager to test firsthand.

My experience buying a grocery store surprise bag

With traditional coupons, you know exactly what you're buying. With a surprise bag, you surrender all control over the contents, condition, and variety of the food.

So when I purchased a surprise grocery bag for the first time, I was somewhat skeptical about whether it would be truly "worth it."

Would I get a random collection of unusable items? Would the food be stale, expired, or overvalued by the app?

To find out, I purchased a "Bakery Surprise Bag" from The Fresh Market (one of two major grocers in the area on the Too Good To Go app). The bag promised $30 worth of food for just $10 (plus sales tax).

Then I went for pickup. I arrived during the designated 10 a.m. to 6 p.m. pickup period and showed my order to the store manager, who verified my bag type and retrieved my haul from the back.

After that, I managed a quick Q&A to see how the system worked on their end. This is roughly how the conversation went:

Me: When are the bags put together?
Store manager: Every morning. They sell out fast, usually between 7 am and 8 am (I had purchased my bag at 8:30 am that morning).

Me: How much are they worth?
Store manager: They're worth a lot. I think it's $35.

Did you catch that? The bag was supposed to be worth $30, not $35. Apparently, I was already receiving a more valuable bag than anticipated, which probably explains why the store had a 4.8-star rating (out of 5) on the app.

But, to my disappointment, the store manager couldn't tell me exactly when the items were baked. For that, I needed to inspect the items thoroughly (oh, darn…taste test time).

Here's what I got

List of what I received (from left to right):

• Peach Creme Challah
• Rustic Italian Bread
• Sweet Hawaiian Dinner Rolls (12-count)
• Blueberry Muffins (4-count)

A quick inspection at home revealed that everything was stamped with that exact day's sell-by date.

Fortunately, because baked goods don't spoil immediately, this still gave my family a comfortable two- to five-day window to enjoy the breads and pastries. Nothing was stale, and everyone agreed the selection was delicious — especially the blueberry muffins (seriously, they were incredibly moist).

In the end, the items tasted nice (and we could eat them comfortably before they expired), but questions about the value remained. What was the true worth of all these items?

Are the surprise bags worth it? The value of what you get

To verify the app's claims of $10 for $30 (or the manager's $35), I tallied up the standard retail pricing of the items I received according to their printed labels.

The verdict? The value is absolutely there. For a family of four, this bundle was perfect for quick breakfasts, easy dinner sides, and fun snacks in between meals. I also think a bag like this would work well for larger families, weekend brunches, or busy parents looking to feed their kids after school.

And because baked goods freeze well, slicing and individually packing these items for a solo saver or seniors on a budget can stretch this $10 mystery bag into weeks of high-quality baked goods. Therefore, from a strict dollar-value standpoint, the deal is bound to save shoppers money.

Why I won't do it again: The 'surprise tax'

Even though I loved the quality and value of my haul, first-time users should be aware of a few hidden logistical "taxes" — what I call the "surprise tax" of a grocery surprise bag.

These are the factors that sap time and energy, ultimately souring the deal for some shoppers (including me).

1. The scarcity tax

Grocery bundles sell out fast — like really fast. At least, that's how it went on the app that I used. If you don't happen to be looking at your phone the exact time a bag is "dropped," you might find nothing but "sold out" banners when you finally click in. This happened to me multiple times the first night I tried to snag a bag. Shoppers on Reddit have also expressed this deep frustration over missing out on bags, leading some to give up entirely.

2. The variety tax

Because you can't choose the inventory, you risk getting repetitive items. I only bought one bag, but other shoppers have reported receiving the same items multiple times in a row or even products past their expiration date. The app can also be discouraging if you have a food allergy, since few places on the app in my area offered allergy-friendly "Surprise Bags."

3. The relative value tax

The "savings" may be lower than your local grocer's prices. For example, if you're used to buying your blueberry muffins from Walmart, a 4-count might cost around $4.98. That's about $2 cheaper than the retail price of the muffins I received, and I didn't get to choose my flavor or check the expiration date. Plus, some grocery app users have reported receiving bags filled with items that were already marked down on clearance shelves, making the actual "retail value" lower than advertised.

The bottom line

Would I get it again? No.

Although grocery surplus apps are wildly popular, the industry is still growing. Even Too Good to Go, regarded as the market leader, doesn't quite have the coverage it needs yet in many suburban and rural areas.

For example, my closest participating grocery store chain was about a 25-minute drive away (mind you, there were several participating restaurants, however). Spending almost an hour by car burned gas and time, which quickly ate away at the $25 savings margin on my groceries. Combined with the "surprise tax," that tradeoff just isn't worth it to me at this time.

However, if you live in an area with closer shops and find it easier to snag a grocery surprise bag, there are definite savings.

After all, average weekly savings through couponing reaps $5 to $10 (per the Credit Union report), but if you buy multiple surprise bags, you could save $25 to $75 per week.

Either way, the next time you see a shopper flash their phone at a grocery counter and walk away with a bag, know that they aren't just picking up takeout. They could be buying a basket full of groceries very similar to your own — but at a mere fraction of the price.

Read More

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Each week in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter editor, answers questions on topics submitted by readers. This week, she's looking at four tax questions from readers on the Obamacare premium tax credit. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. Changes to the premium tax credit

Question: For the past few years, I purchased my health insurance online through the government marketplace. The generous subsidies I qualified for reduced my monthly premiums. When I bought my 2026 health insurance plan, I saw my monthly premiums were much higher than in prior years and my subsidies were lower. I can't afford this cost, and I ended up dropping the coverage. Why are the premiums so much higher?

Joy Taylor: I am guessing that in prior years you qualified for the premium tax credit (PTC), the Obamacare subsidy available to eligible individuals who buy health insurance through the marketplace. Temporary enhancements to this the PTC ended after 2025, so fewer individuals now qualify for it, and the credit is lower.

Before 2021, the PTC was available to people with modified adjusted gross income (AGI) ranging from 100% to 400% of the poverty level. For 2021-25, some people with higher modified AGIs also qualified, and the credit was higher for many. Congress chose not to act on extending the enhancements, so the rules reverted to those that were in pace for pre-2021 years, beginning with 2026 plans purchased through the marketplace.

This is impacting people, such as yourself, who enrolled in coverage late last year for 2026. It's causing their monthly health insurance premiums to rise dramatically, compared with 2025. Most people who qualify for the PTC generally have the credit paid in advance to the health insurance company to lower their monthly premium payment. They elect this when they go to the marketplace to buy insurance. Many people who enrolled in 2026 coverage are experiencing sticker shock and can't pay, or don't want to pay, the higher premiums.

This has led so far to about 3 million people who have bought health insurance through an Affordable Care Act marketplace, such as healthcare.gov, during open enrollment last year to drop their coverage. Insurers and health policy experts warned that millions would end up uninsured if the temporary PTC easings weren't renewed, and the numbers are proving them right.

2. Forecasting what Congress will do

Question: I bought health insurance through a government marketplace for 2026, and my monthly premiums are much higher than last year because I qualify for a lower PTC. Will Congress act before year-end to make this better for me?

Joy Taylor: It's hard to say what Congress will do. Many Democrats want the 2021-25 expansions to the PTC made permanent. That's one of the reasons last fall's federal government shutdown lasted as long as it did (43 days). But last year's deal to reopen the government did not renew the expiring PTC easings. It only included a promise that the Senate would vote on the PTC by the end of 2025. That did not happen.

Federal lawmakers are now dragging their feet on this issue. Democrats want the pre-2026 easings cleanly extended. Republicans want to narrow the scope of the PTC. The parties appeared close to an agreement earlier this year, but talks have stalled.

Expect rising health care premiums to play a role in November's midterm elections. If Democrats win big, look for expanding Obamacare subsidies to be a legislative priority for them in Congress.

3. Paying back excess PTC

Question: For the first time, I bought health insurance through a government marketplace for 2026, and based on my estimated 2026 income, I qualified for the PTC that reduces my monthly health care premiums. What happens if my actual income for 2026 is higher than my estimated income? Will I have to repay the subsidy?

Joy Taylor: Individuals who opt to have their PTC paid in advance to health insurance companies must file Form 1040 and attach Form 8962 to reconcile the advance payments and the actual PTC they are entitled to. If the PTC is higher, they can claim the credit due on their Form 1040. If the PTC is less than the advances, starting with 2026 returns filed next year, they must repay the full amount of he excess, regardless of their reported income. This is different from pre-2026 years, in which taxpayers with incomes below 400% of the poverty level had to repay only a portion of their erroneous credit amounts.

If you experience a lifestyle or income change that could affect the PTC, I suggest notifying the marketplace of such a change. This could include changes in family size, household income and other circumstances, such as starting a job with an employer that provides health coverage to employees. For example, if you lost a job, the exchange will hike the subsidy for future months. It will lower the subsidy amount if you let it know you expect higher income in 2026.

4. The PTC is an IRS audit red flag

Question: I bought health insurance through the marketplace for 2026 and elected to have the premium tax credit reduce my monthly health insurance premiums. My 2026 income will be below the income threshold for filing a tax return. Do I still have to file a 2026 tax return next year?

Joy Taylor: Yes, if you opt to have the PTC paid in advance to your health insurance company to lower your monthly insurance premiums, you must file Form 1040 even though your income is below the normal filing threshold or you expect a refund. And you must complete Form 8962 and attach it to your return.

Note that erroneous PTC reporting is an audit red flag and is easy for the IRS to catch. Its computers flag filed tax returns showing modified AGIs that exceed the limit to take the PTC. So double-check that you qualify for it and that you accurately report it on your 2026 Form 1040.

About Ask the Editor, Tax Edition

Subscribers of The Kiplinger Tax Letter, The Kiplinger Letter and The Kiplinger Retirement Report can ask Joy questions about tax topics. You'll find full details of how to submit questions in each publication. Subscribe to The Kiplinger Tax Letter, The Kiplinger Letter or The Kiplinger Retirement Report.

We have already received many questions from readers on topics related to tax changes in the One Big Beautiful Bill, retirement accounts and more. We will continue to answer these in future Ask the Editor roundups. So keep those questions coming!

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not, and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

More Reader Questions Answered

• All Ask the Editor Q&As
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• What Medical Expenses are Deductible?
• Ask the Editor: Deductions for Self-Employed Retirees
• Ask the Editor: Tax Breaks for Caregivers
• Ask the Editor: 10-Year Rule for Inherited IRAs
• Ask the Editor: Tax Questions on Roth IRA Conversions

Alabama shoppers have something to look forward to this weekend: Back-to-school savings. Savvy shoppers can purchase school supplies, computers, and clothing free from the state’s sales tax. This is a big deal since Alabama has one of the highest sales tax rates in the U.S.

And this year, the sales tax holiday is bigger than ever.

State lawmakers enacted legislation to raise the qualifying exemption amounts on select clothing, school supplies, computers, books, and more. This means that you can spend more per item without paying state sales tax.

"The expanded exemption limits make this year’s tax holiday even more valuable for Alabama families," Rick Brown, president of the Alabama Retail Association, stated in a release. "These changes help consumers purchase the items they need for the new school year while also supporting Alabama retailers in their local communities."

Here’s what you need to know about the Alabama tax-free weekend to make the most of your shopping trip.

When is the sales tax holiday in Alabama?

The annual back-to-school Alabama sales tax holiday runs from 12:01 AM on Friday, July 17, until midnight on Sunday, July 19.

During this time, many types of school supplies (including computers and tablets) and clothing are exempt from Alabama’s usual 4% sales tax rate. This saves shoppers $4 for every $100 spent.

What's included (and the price limits)

To qualify for the Alabama sales tax exemption, your purchases must fall under specific categories (like clothing, school supplies, books, electronics, etc.) and stay beneath certain price thresholds.

But this year, each category has seen an inflation-adjusted pay bump due to a newly enacted state law. These amounts are indexed for inflation and will increase every five years.

For instance, qualifying clothing is tax-free during the Alabama sales tax holiday as long as each piece does not exceed $156 (up from $100). Computers and software have a newly raised price threshold of $1,173 per single purchase (up from $750).

Here's a quick-reference table of other qualifying items and their increased price limits to help plan your shopping list:

Note: For a complete list of what's included in the 2026 Alabama sales tax holiday, check out the state's Division of Revenue website.

Here's what's not included

Not all items in the above categories are fair game. Here are a few examples of items you still have to pay tax on during the Alabama tax-free weekend:

• Athletic gear (shin guards, shoulder pads, roller skates, athletic shoes, or sports gloves).
• Jewelry, watches, and hair accessories.
• Handbags and briefcases.
• Cosmetics (including makeup).
• Sunglasses, eyeglasses, and contacts (prescription or nonprescription).
• Belt buckles, wallets, and umbrellas.

Additionally, non-educational video games (those solely for recreation) and computer parts that were sold separately do not qualify.

Items used for "clean room apparel and equipment" are also not tax-free, including cleaning supplies, paper towels, and hand sanitizer.

Rules on online shopping & layaway

Fortunately, you don't exactly have to brave the store crowds to take part advantage of Alabama's tax-free weekend.

• Online purchases. Eligible items purchased online qualify for the tax exemption if they're ordered and paid for during the holiday window, even if the actual delivery occurs after the weekend ends.
• Layaway payments. To qualify for the tax exemption, you must either complete a new layaway purchase (including final payment and delivery) before the holiday window closes, or make the final payment on an existing layaway item during the window.

The local tax catch

While Alabama waives its 4% state sales tax during the holiday, local city and county sales taxes may still apply. Alabama municipalities are not required to participate; they must vote annually to opt in. Thus, be sure to check the Alabama Department of Revenue's list of participating municipalities to see whether your city participates.

Happy shopping!

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Many investors know to expect to pay federal capital gains tax when they sell appreciated stocks, mutual funds, cryptocurrency, investment property, or other assets. But state taxes are often an afterthought, even though those levies can significantly impact your total tax bill.

Most states tax capital gains as ordinary income, while others have special rules, exemptions, or separate capital gains taxes. So, depending on where you live and how much you earn, your gains may escape state tax altogether or be taxed at rates as high as 10% or more.

Here's more to know about state capital gains tax rates and how they could impact your total tax burden for 2026

How capital gains tax works

A capital gain occurs when you sell a capital asset for more than you paid for it. (Common examples include stocks, bonds, mutual funds, exchange-traded funds (ETFs), investment real estate, and certain business interests.)

The amount subject to tax is generally the difference between your purchase price (your cost basis) and the sale price.

Whether you owe tax, and how much, depends in part on how long you owned the asset.

• Short-term capital gains apply to assets held for one year or less and are generally taxed as ordinary income.
• Long-term capital gains apply to assets held for more than one year and typically qualify for lower federal tax rates.

While the federal government provides preferential tax rates for most long-term capital gains, many states don't.

Instead, they generally include capital gains in taxable income and apply the state's regular income tax rates. But…other states have their own rules or exemptions that are important to know.

State capital gains taxes

Bottom line first? Where you live can make a meaningful difference in your overall tax bill.

For example, investors in Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Wyoming, and New Hampshire generally pay no state tax on capital gains because those states don't impose a broad individual income tax.

Missouri also now provides a 100% deduction for qualifying capital gains, effectively eliminating the state tax on those gains.

At the other end of the spectrum, taxpayers in states like California, Hawaii, New York, Oregon, Minnesota, and the District of Columbia may face some of the nation's highest state tax rates on investment gains.

Washington also imposes a separate capital gains tax on certain high-dollar long-term gains rather than a traditional income tax.

Still, as mentioned, in most states, capital gains are taxed as ordinary income. As a result, the rates below generally represent the highest state income tax rate that could apply to capital gains for individuals in 2026.

Also, keep in mind:

• This table is based on the most recent 2026 state tax data from the Tax Foundation and state revenue department publications available as of mid‑2026.
• State tax rates and rules can change with new legislation or inflation adjustments that are filed late or implemented mid‑year.
• Some states have special capital gains deductions, tiered rates, or local taxes that are not captured by a single number or have unique rules or exemptions that may apply.

Capital Gains Tax Rates by State

States with special capital gains rules

Note: Not every state with a special capital gains tax rule is listed here.

Under Arkansas state tax law, 50% of long-term capital gains are tax-exempt. Because Arkansas taxes the remaining half at ordinary income rates, the state's maximum effective capital gains tax rate is 1.85%. Arkansas also has a unique "super-exclusion" where any net capital gains exceeding $10 million in a single tax year are 100% tax-free.

Massachusetts taxes capital gains at a 5% base rate, but high-income investors may pay more. A 4% “millionaire’s surtax” applies to income above $1,107,750 in 2026 and can affect certain gains, pushing the effective rate above 5% for some taxpayers.

Montana’s top ordinary income tax rate is 5.65%, but long-term capital gains are taxed at lower rates ranging from 3.0% to 4.1%.

New Mexico’s capital gains deductions can reduce the effective rate below its 5.9% top ordinary income tax rate.

South Carolina allows a 44% deduction on qualifying long-term capital gains.

As Kiplinger has reported, Washington imposes a separate capital gains tax, with taxable gains taxed at 7% up to $1 million and 9.9% above that threshold after applicable deductions.

Wisconsin offers a 30% exclusion for net long-term capital gains (60% for qualifying farm assets), and up to a 100% exclusion for long-term investments in qualified Wisconsin businesses.

In some states, local taxes can raise the overall burden. Maryland counties impose additional income taxes, while many Ohio residents pay municipal income taxes that can increase the total tax bill. Other jurisdictions, including the District of Columbia, may also impose local taxes.

What about states with no capital gains tax? Nine states do not impose a state capital gains tax: Alaska, Florida, Missouri, Nevada, New Hampshire, South Dakota, Tennessee, Texas, and Wyoming.

Missouri is a newer exception when it comes to capital gains taxes. As of last year, individuals can subtract 100% of federally reported capital gains from Missouri taxable income, effectively eliminating the state tax on qualifying capital gains.

Federal Capital Gains Tax Rates for 2026

As mentioned, state taxes are only part of the picture when it comes to navigating capital gains taxes. For federal taxes, most long-term capital gains qualify for one of three tax rates:

• 0%
• 15%
• 20%

The rate you pay depends on your taxable income and filing status.

Taxpayers with higher incomes may also owe the 3.8% Net Investment Income Tax (NIIT) on top of their regular capital gains tax.

Short-term capital gains, meanwhile, are generally taxed at ordinary federal income tax rates rather than the preferential long-term rates.

Ways to reduce capital gains tax

While paying some tax on investment profits is often unavoidable, there are strategies you might consider to help reduce or potentially defer capital gains taxes.

Remember that every investor's situation is different, so you may want to consult with a trusted financial planner or tax professional for strategies tailored to your circumstances.

Holding investments for more than one year. Long-term capital gains generally qualify for lower federal tax rates than short-term gains. Depending on your income, that difference can significantly reduce the tax owed on a sale.

Leveraging tax-advantaged accounts. Investments held in traditional IRAs, Roth IRAs, and many employer-sponsored retirement plans generally are not subject to annual capital gains taxes while the money remains in the account. Qualified Roth withdrawals can be taken tax-free.

Offsetting gains with investment losses. If you sell investments at a loss, those losses can be used to offset capital gains. "Tax loss harvesting" can reduce the amount of gain subject to tax and, in some cases, allow taxpayers to deduct up to $3,000 of excess losses against ordinary income each year. But don't forget about the wash sale rule.

Considering the timing of a sale. Selling an asset in December instead of January — or vice versa — can affect which tax year the gain falls into. Taxpayers expecting a significant change in income might benefit from carefully planning when gains are realized.

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Roth conversions have recently become one of the most popular retirement tax planning strategies. Financial headlines often promote them as a way to create tax-free income, reduce future required minimum distributions (RMDs) and leave a more tax-efficient legacy to heirs.

For many retirees, those benefits are real.

But Roth conversions aren't a one-size-fits-all solution. In fact, as a CERTIFIED FINANCIAL PLANNER® and CEO of Peak Retirement Planning, I can tell you that converting retirement assets at the wrong time can result in paying more taxes than necessary and reduce your long-term wealth.

The key question isn't whether Roth conversions are good or bad; it's whether paying taxes today will save you on taxes in the future (I wrote a bestselling book all about taxes — you can request a free copy here).

Below are six situations where retirees may want to think twice before converting.

1. You don't have a pension

One of the biggest factors in determining whether a Roth conversion makes sense is your expected future tax bracket. For retirees without a pension, their future taxable income is often lower than it was during their working years, as many rely primarily on Social Security and modest withdrawals from retirement accounts.

As a result, they could remain in relatively low tax brackets throughout retirement.

Today's tax code also includes a generous standard deduction (up to $32,200 for 2026). For some retirees, that deduction might shelter most or even all of their taxable income.

If you expect to stay in a lower tax bracket for life, voluntarily accelerating taxes through a Roth conversion might not provide as much benefit.

By contrast, retirees with substantial pensions often face a different reality. Pension income can create a permanent tax floor that follows them throughout retirement, making Roth conversions far more attractive in certain cases.

2. You have less than $500,000 in tax-deferred accounts

Your account size matters. When evaluating Roth conversions, it's important to consider future RMDs. Starting at age 73 (or 75 for many younger retirees), the IRS requires withdrawals from traditional IRAs and other tax-deferred retirement accounts.

However, smaller account balances produce smaller RMDs.

For example, a retiree with $500,000 in a traditional IRA might have an initial RMD of roughly $20,000. Combined with the standard deduction and other available tax benefits, that withdrawal could have little impact on their overall tax situation.

If your retirement savings aren't large enough to create a meaningful future tax burden, converting assets today could mean paying taxes earlier than necessary without generating significant long-term savings.

3. Your tax rate today is higher than it will be in retirement

At its core, a Roth conversion is a tax-rate arbitrage decision. You're choosing to pay taxes now because you believe you'll pay the same or even a higher rate later. This strategy falls apart if the opposite is true.

Consider someone in their peak earning years who is currently in the 32% federal tax bracket. If they have no pension and moderate retirement savings, they may eventually find themselves in the 12%, 22% or even lower brackets after they retire.

In that scenario, converting assets while working could mean prepaying taxes at a significantly higher rate than what would have been owed later.

Before converting, retirees should estimate their likely retirement income rather than assuming their future tax rate will automatically be higher.

4. You're planning to retire early

One reason not to do Roth conversions today is that you could have a better opportunity later. Early retirement often creates what planners call a "tax window": A period after earned income stops but before Social Security, pensions and RMDs begin.

For example, someone retiring at age 58 might have several years when taxable income drops dramatically. During those years, they can often perform Roth conversions in much lower tax brackets than they could while working.

This window can be particularly valuable because it could allow retirees to:

• Convert assets before Social Security becomes taxable
• Avoid increasing Medicare premiums tied to higher income
• Fill lower tax brackets more efficiently
• Reduce future RMDs

Rather than converting aggressively during high-income working years, some retirees may benefit from waiting until these lower-income years arrive.

5. Your children might be in lower tax brackets than you

Many Roth conversion discussions focus on leaving tax-free assets to heirs. This can be an advantageous legacy planning strategy, but it isn't always the right answer.

Today's inherited IRA rules generally require most non-spouse beneficiaries to empty inherited retirement accounts within 10 years. Because of this rule, many parents assume they should convert everything to Roth accounts, but there are considerations to think about.

The better question is: What tax bracket will your children be in when they inherit the money?

If your children have higher incomes than you, significant retirement savings of their own or expect to remain employed during those 10 years, Roth conversions may make more sense because each of these could result in your children paying more taxes down the road than you would have paid.

But if they're likely to be in lower tax brackets than you, allowing them to inherit traditional IRA assets could result in a lower tax bill being paid across generations.

Legacy planning shouldn't focus only on your tax rate, but should also account for the tax situation of the people who will ultimately receive the assets.

6. You're single today but expect to marry

Tax brackets are not static. A single retiree who expects to get married in the near future could gain access to larger tax brackets and a higher standard deduction through married-filing-jointly status.

In some situations, waiting until after marriage to perform Roth conversions can create additional flexibility and allow larger conversions at lower effective tax rates.

This isn't a common planning strategy, but it's one that can be overlooked when evaluating conversion opportunities.

Bonus consideration: You're moving to a lower-tax state

State taxes can significantly influence the math behind a Roth conversion. Someone working in a high-tax state, such as California, may pay an additional 7% to 10% or more in state income taxes on converted dollars.

If that same person plans to retire in Florida, Tennessee or another state with no income tax, waiting would likely generate sizable tax savings.

In some cases, the difference between converting before and after a move can amount to tens of thousands of dollars.

The bottom line

Roth conversions can be an incredibly effective tool, especially for retirees with pensions, large tax-deferred balances and concerns about future taxes. But the goal isn't to convert simply because Roth accounts sound attractive. The goal is to minimize your lifetime taxes.

Related Content

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• This Changes Your Social Security Decision (Especially if You're in the 2% Club)
• 7 Times to Dip Into Your Roth IRA if You Have a Pension (and When to Leave It Alone)
• 3 Questions to Ask Before Deciding if a Roth Conversion Is Right for You

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Tax planning for executives can look very different from standard financial advice. The reason? Your compensation package likely includes a complex mix of salary, bonuses, company stock and deferred compensation — all of which involve tax considerations.

Last year's One Big Beautiful Bill Act (OBBBA) introduced new "tax traps" specifically targeting the executive suite.

In 2026, a $75,000 bonus could lower your net take-home pay if it triggers the wrong phase-out. At this level, what matters isn't what you earn, but what you keep.

The good news from the OBBBA

The OBBBA resolved much of the uncertainty surrounding the expiration of the Tax Cuts and Jobs Act. For high-income earners, there are a few permanent victories:

• Top-rate stability. The 37% top tax rate is now permanent. Without this legislation, the rate was set to revert to 39.6% in 2026.
• QBI deduction. The 20% qualified business income deduction for pass-through entities (S corps, LLCs, partnerships) no longer has an expiration date.
• Estate exemption. The exemption is $15 million per person ($30 million for married couples) in 2026 and is locked in through 2033.
• Bonus depreciation. 100% first-year bonus depreciation has been restored permanently, allowing for the immediate deduction of business equipment costs.

The tax traps to watch out for

While the wins are significant, several new provisions act as a "stealth tax" on executive income.

1. The SALT phase-out.

The OBBBA raised the state and local tax (SALT) cap to $40,400 for joint filers, but it comes with a catch: It only applies to those with a modified adjusted gross income (MAGI) under $505,000.

Above that, the benefit phases out entirely, reverting to the old $10,000 cap by the time you reach $600,000.

Pro tip: Participation in deferred compensation can reduce current-year taxable income.

2. The 2026 AMT reset.

The alternative minimum tax (AMT) is set to kick in harder this year. For married filers, the exemption resets to $140,000 (down from 2025 levels), and the phase-out rate doubles from 25% to 50%.

If you plan to exercise incentive stock options (ISOs) in 2026, you should run an AMT projection first to avoid an unpleasant tax surprise next April.

3. The charitable "cover charge."

Starting in 2026, charitable contributions face a new floor: You can only deduct gifts that exceed 0.5% of your AGI. On income of $800,000, your first $4,000 in donations provides zero tax benefit.

Strategy: Use bunching. Instead of annual gifts, contribute a larger sum (e.g., $50,000) to a donor-advised fund (DAF) in a single high-income year to clear the floor for a meaningful deduction.

4. The 2/37ths deduction limit.

If you're in the 37% bracket, the OBBBA now caps the value of your itemized deductions at 35 cents on the dollar.

This 2% gap makes above-the-line deductions — such as 401(k) contributions and health savings account (HSA) funding — far more valuable because they reduce your income before this cap is applied.

Equity compensation: Where strategy makes the biggest impact

Company stock is often the largest component of executive pay and the primary source of complexity:

Restricted stock units. RSUs are taxed as ordinary income at vesting. If you have the cash to cover the taxes, holding the shares allows future growth to be taxed at lower long-term capital gains rates.

Stock options. Nonqualified stock options (NQSOs) generate ordinary income at exercise. Incentive stock options (ISOs) offer potential capital gains treatment, but the lower 2026 AMT thresholds make them "riskier" than in years past.

Too often, executives, especially those deemed control persons subject to Section 16 reporting, overconcentrate their wealth in company stock.

In addition, there's often internal pressure from the C-suite for high-level executives of publicly traded companies to retain their stock. This can create difficulties in adequately diversifying one's wealth while still indicating confidence in the company.

Advanced executive moves

To maximize efficiency, executives should look beyond the basic 401(k) limits:

The mega backdoor Roth. If your plan allows for after-tax contributions, you can potentially funnel an additional $47,500 into a Roth 401(k) for 2026 (up to the total $72,000 IRS limit), where it grows tax-free.

The PTET workaround. If you're a small-business owner or have consulting income, the pass-through entity tax (PTET) election allows your business to pay state taxes at the entity level. This bypasses SALT income thresholds and remains a key tax strategy under the OBBB.

Deferred compensation (nonqualified deferred compensation or NQDC). These plans allow you to delay income — and the 37% tax hit — until retirement, when you might be in a lower bracket.

However, they're governed by strict Section 409A rules. One wrong move can trigger a 20% excise tax penalty.

Distribution elections under deferred compensation are critical — it makes sense to consult with an adviser to determine how much to defer and what distribution election is most advantageous.

The bottom line

Most executives leave money on the table because their equity, retirement and charitable strategies aren't managed in concert with one another.

In the OBBBA era, these elements are interconnected. Success requires a coordinated look at how a move in one area changes the math in another.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Millions of taxpayers who make certain tax filing or payment mistakes could get a break from IRS penalties without having to ask.

Starting this summer, the IRS will automatically review taxpayers for First-Time Abatement relief, a program that can waive certain failure-to-file, failure-to-pay, and failure-to-deposit penalties for taxpayers with a clean compliance history.

The agency estimates the change could eventually help more than 1.5 million taxpayers each year. That’s compared with roughly 220,000 taxpayers who reportedly obtained similar relief under the previous process, which required taxpayers to request a penalty waiver after the IRS assessed a penalty.

The new system will roll out for eligible 2025 individual federal income tax returns and 2026 quarterly returns, with a full transition expected in 2027.

But…While the IRS is changing how taxpayers receive penalty relief, the rules for who qualifies for so-called first-time relief haven't changed. Here’s what you need to know.

New IRS automatic penalty relief

Under the previous first-time penalty abatement program, taxpayers generally had to wait until an IRS penalty was assessed and then request relief from the agency by phone, in writing, or using Form 843

That meant taxpayers had to know that penalty relief existed and then take action to request it.

The problem? Some eligible taxpayers never received relief simply because they were unaware of the program or didn't know they qualified. Others found it challenging to obtain IRS assistance by telephone or to complete the required forms and processes without professional support.

The new Automatic Exemption from Penalty (AEP) process essentially moves the review earlier in the process and automates it.

• Now, during return processing, the IRS will check a taxpayer’s compliance history to determine whether the taxpayer qualifies.
• If the requirements are met, the IRS will automatically suppress the penalty before it is ever officially assessed.
• The taxpayer will receive a written notice explaining the relief.

“By automatically applying penalty relief, the IRS recognizes that taxpayers who historically pay on time should not have to make a formal request for relief that is routinely granted," IRS CEO Frank J. Bisignano stated in a release.

Although the process is just beginning, the new automated system is intended to replace the First-Time Abatement process for eligible returns due on or after Jan. 1, 2027.

To qualify, taxpayers generally must have:

• Filed required returns or requested a valid extension
• Paid any tax due or established an approved payment arrangement with the IRS
• No significant penalties during the previous three years (or 12 consecutive quarters for quarterly filers) on the same type of tax return

Keep in mind that the new automated process doesn't mean all IRS penalties will disappear.

The relief generally applies only to eligible failure-to-file, failure-to-pay, and failure-to-deposit penalties. Additionally, certain returns, including information returns and some estate and gift tax returns, are not included.

Also worth noting: This new AEP process doesn't eliminate the underlying tax owed or the interest that accrues on that tax.

Why the IRS changed the first-time penalty process

The change addresses a long-standing problem with First Time Abatement: Eligible taxpayers often missed out on relief because they did not know the program existed or that they needed to request it. That can be notable for some taxpayers, since a failure-to-file penalty, for example, is 5% of your unpaid taxes for each month the return is late, up to a maximum of 25%.

The Taxpayer Advocate Service (TAS) has argued that penalty relief should not depend on whether taxpayers understand the process, can reach the IRS, or have access to professional tax assistance.

National Taxpayer Advocate Erin Collins highlighted that concern when discussing the new system, writing the following in a blog post:

"For years, too many eligible taxpayers missed out on first-time penalty relief simply because they did not know it was available, did not understand how to request it, could not get through to the IRS, or did not have a tax professional advising them. That is especially true for low-income taxpayers and taxpayers who cannot afford representation. A penalty that may seem modest to some taxpayers can be financially significant for a taxpayer struggling to pay rent, utilities, groceries, transportation, or medical expenses."

Take, for example, a taxpayer who filed and paid their federal income taxes on time for years but accidentally files a return late. Under the previous system, that taxpayer could incur a failure-to-file penalty, wait for the penalty notice to arrive, contact the IRS, and request First-Time Abatement relief.

Under the new process, the IRS can review the taxpayer’s compliance history while processing the return and automatically remove the penalty if the taxpayer qualifies.

The three-year clean history

When the IRS talks about a "clean compliance history," that generally means the taxpayer hasn't had a significant penalty assessed during the three years before the penalty year. For taxpayers who file quarterly returns, the IRS will generally look at the previous 12 consecutive quarters.

• A clean history also doesn't mean a taxpayer has never made a mistake on their income tax return.
• The IRS will look at whether the taxpayer has generally met their tax obligations.
• As mentioned, that generally includes timely filing required returns and paying taxes owed/establishing an approved payment arrangement when needed.

Additionally, the three-year lookback applies to the specific (same) return type being filed. So a penalty on a business partnership return won't disqualify your individual filing from automatic relief.

According to the IRS, the three-year rule also doesn't mean a taxpayer can receive relief only once. If a taxpayer receives automatic relief and then maintains a clean compliance history for the required period, that taxpayer could potentially qualify for relief again in the future.

However, if a taxpayer fails the automated "clean history" check and doesn't receive AEP relief, they aren’t necessarily out of luck. Taxpayers can still manually request a penalty waiver under the traditional IRS "reasonable cause" framework, which evaluates various sound reasons for non-compliance.

What happens if you receive an IRS penalty relief notice?

Under AEP relief, the IRS will issue a notice explaining that the penalty wasn't assessed because the taxpayer met the relief requirements. Taxpayers who receive that notice generally don't need to contact the tax agency or take additional action, according to the agency.

However, during the transition period, the IRS says some qualifying taxpayers may still receive penalty notices for eligible 2025 tax-year returns or 2026 quarterly returns.

• If you receive a penalty notice, it's important to review it carefully.
• If you believe you qualify for first-time penalty relief and the penalty wasn't automatically removed, you may still need to request relief under the existing process during the transition period.
• There should be a 1-800 number on the penalty notice for contacting the IRS.

If you want to track whether a penalty was removed, you can also review your official IRS Online Account.

Records there should show whether a penalty was assessed, whether relief was applied, and when the three-year compliance period begins for potential future eligibility.

As always, however, consult a qualified and trusted tax professional if you have questions or concerns about IRS penalties.

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I picked up Strangers: A Memoir of Marriage by Belle Burden expecting a juicy divorce memoir. What I got was a thoughtful, sometimes uncomfortable look at how a marriage can unravel so gradually that, by the end, the person you've shared your life with feels almost unrecognizable.

Burden's memoir has all the ingredients of a page-turner: Wealth, privilege, beautiful homes, family dynamics, betrayal and a divorce that becomes increasingly contentious.

More than once, I found myself staying up later than I should have, telling myself I'd read just one more chapter.

As a financial adviser, however, I found myself reacting to different parts of the story than most readers probably would.

At one point, I wanted to reach through the pages and yell, "No! Do not take your money out of your separate property trust and put it into a jointly owned home!"

That's what made the book so compelling to me. Beneath the story of a marriage ending was another story unfolding quietly in the background: The financial decisions being made along the way.

The danger of disengaging with your finances

Burden's story reminded me how easy it is for intelligent, capable people to become passive participants in their financial lives. Not because they lack the ability to understand money, but because life is busy.

Careers demand attention. Children need to be raised. Marriages operate on trust. One spouse naturally takes the lead in certain areas, and before long, financial decisions become something that simply happens in the background — often brushed aside with a comment like, "This is all too complicated for you to understand, anyway."

Most of the time, that arrangement works just fine … until circumstances change.

The reality is that many of the financial pitfalls people encounter aren't obvious. Few people wake up worrying about how property is titled, whether inherited assets have been properly protected, whether a prenuptial agreement still reflects their current situation, or whether beneficiary designations are consistent with their wishes.

Yet these are precisely the kinds of issues that can have life-changing consequences.

What makes Strangers particularly powerful is that Burden doesn't portray herself as a victim of circumstance. Near the end of the book, she reflects on a series of decisions involving her prenuptial agreement, property ownership and her level of involvement in the family's financial affairs.

Reading those reflections, I found myself thinking less about the divorce itself and more about the dozens of moments along the way when a different conversation, a second opinion or a deeper understanding of the financial implications might have altered the outcome.

That's a lesson I see play out frequently in my profession.

Many people assume the greatest financial risks they face involve the stock market. They worry about whether they should buy a particular fund, invest in international stocks or wait for a market correction.

In reality, some of the most consequential financial decisions have little to do with investing. They happen when we sign legal documents we don't fully understand, make changes to ownership structures, neglect to update estate plans or assume someone else is paying attention to details that affect our future.

The value of expert financial advice

This is one of the reasons I believe comprehensive financial planning is so valuable. A good financial adviser doesn't simply manage investments. They help clients identify risks they may not even realize exist.

Sometimes the most important question in a planning meeting isn't, "What should I do?" but rather, "What haven't I thought about?"

And yes, you can use AI chatbots to answer questions, but you need to know what to ask them.

An experienced adviser, however, can prompt the questions that haven't yet occurred to you:

• What happens if circumstances change?
• Does this legal agreement still reflect our intentions?
• Have we unintentionally exposed assets we meant to protect?
• Is the financial structure of our lives still aligned with the reality of our lives?

Those aren't questions most people ask regularly. They're certainly not questions people ask when they're in love. Yet they're often the questions that matter most.

The power of staying engaged

That's ultimately the financial lesson I took away from Strangers. Burden's story is deeply personal, and every marriage is different. But her reflections serve as a reminder that financial security isn't created by avoiding difficult conversations. It's created by having them early, revisiting them often and staying engaged in the decisions that shape your future.

By the end of the book, I wasn't thinking about the divorce anymore.

I was thinking about all the people sitting across from me every year who assume nothing will change.

Most of the time, they're right.

The problem is not planning for the possibility that they're wrong.

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• Forget 'Girl Math': Handle Your Money Like a Woman
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• Estate Planning for Women: Married, Single or Divorced

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

One of the most common questions I hear from clients approaching retirement is also one of the most emotionally loaded: "Should I pay off my mortgage before I stop working?"

The honest answer is: Sometimes.

That's not a cop-out. It's the only answer that respects both sides of this decision.

Paying off a mortgage is not just a math problem. It's a cash-flow problem, a tax problem, an investment problem — and, for a lot of people, a peace-of-mind problem.

The mistake is assuming there's one universal rule. There isn't. The right answer for a homeowner carrying a 2.875% mortgage, a solid brokerage account and a reliable pension looks very different from the one facing someone with a 6.5% loan heading into heavy IRA withdrawals.

Two recent changes make the math worth revisiting.

• Freddie Mac's weekly survey puts the average 30-year fixed rate at 6.51% as of late May 2026.
• The SALT deduction cap increased to $40,000 under the One Big Beautiful Bill Act, with phaseouts starting above $500,000 in modified adjusted gross income.

Both shift the calculus for retirees in ways that weren't in play two years ago.

Start with where you are in your mortgage

By the time most clients ask this question, they're in the last quarter or third of their loans. That matters more than people realize.

Early in a mortgage, your payment is mostly interest. Later, it flips — you're paying far more principal than interest. The amount of interest you'd avoid by paying off early is probably smaller than you expect.

Here's a concrete example. Take a married couple with an original $350,000 mortgage at 6.5% and $111,000 still owed at year 26. Their annual payment runs about $26,547, but only $6,767 of that is interest. The total interest remaining in the next four years is roughly $19,670.

Compare that with the cost of paying off the loan by pulling from retirement accounts. Assuming a 24% federal bracket and 5% state tax, they'd need to withdraw approximately $140,845 to net the $111,000 after taxes, generating about $7,042 in state taxes and $33,802 in federal taxes.

That's more than $40,000 in taxes to eliminate $19,670 in interest. The numbers don't hold up.

The SALT change and why your state tax burden matters

For years, the $10,000 SALT cap made itemizing difficult for most homeowners. The new $40,000 limit changes that, particularly in higher-tax states such as Connecticut, New York or California.

At our firm, a large share of clients come from Connecticut, and this is the kind of question in which having accountants on staff pays off. The answer depends on whether you're itemizing, which depends on your full tax picture.

If you can now itemize under the new cap, your mortgage interest carries more federal tax value. That doesn't automatically mean you should keep the mortgage. It means you should compare your mortgage rate with your investment returns on an after-tax basis, not gross.

Don't drain your liquidity to feel debt-free

This is where a spreadsheet can mislead you.

Say you owe $300,000 and have $350,000 in taxable savings. Paying off the loan might feel like the right move. But if it leaves you with $50,000 outside your retirement accounts, you've traded one risk for another.

Retirees need accessible cash for home repairs, health costs, long-term care planning, tax bills, and market downturns. If paying off the mortgage means pulling more aggressively from IRAs later, you could end up with higher taxable income, steeper Medicare premiums and more of your Social Security subject to tax.

A paid-off house is comforting. But you can't spend your kitchen.

A practical framework for making the call

If your mortgage rate is below 4%, you're taking the standard deduction, and your portfolio is diversified, keeping the mortgage often makes more financial sense.

If your rate is above 6%, you get little or no tax benefit from the interest deduction, and if you have enough liquid assets remaining after payoff, paying it down becomes more compelling.

If you're somewhere in between, run four numbers before deciding:

• The after-tax cost of your mortgage (not the stated rate)
• Realistic after-tax portfolio return expectations
• Remaining liquidity after payoff
• The tax bill from withdrawing retirement funds to make the payoff

The best retirement decisions come from coordinating taxes, income and investments together. A mortgage decision is no different.

The real answer isn't "always pay it off" or "always stay invested." It's: Pay it off when the numbers work, your cash reserves stay healthy, and the peace-of-mind benefit is genuinely worth what you might be giving up.

Sometimes it is. And sometimes the spreadsheet makes that clear before your gut does.

Related Content

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• A Different Way to Approach Your Mortgage in Retirement
• Should You Pay Off Your Mortgage Before Retirement?
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• High Mortgage Rates Are Holding My Retirement Hostage: Can I Still Downsize and Retire?

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Company stock can become one of the largest sources of wealth you'll ever accumulate.

Research from the National Center for Employee Ownership found that employees participating in stock ownership programs accumulated more than double the retirement savings of the average American, underscoring just how powerful equity compensation can be in building long-term wealth and financial independence.

But equity compensation can also quietly become a financial landmine if you don't fully understand how it works.

Without proper planning, you could face massive surprise tax bills, costly alternative minimum tax (AMT) liabilities, underpayment penalties or even pay taxes on wealth that later disappears in a market decline.

You can also become dangerously overconcentrated in your employer's stock, leaving both your paycheck and your investment portfolio exposed to the same company risk.

By the time many employees realize they have a problem, the damage is often already done.

Why equity compensation feels so confusing

You might receive restricted stock units (RSUs), stock options, employee stock purchase plans (ESPPs) or some combination of all three, and many high earners naturally assume they're taxed and managed the same way.

They're not. That confusion can become incredibly expensive.

• RSUs are company shares granted to you over time that become taxable as ordinary income once they vest. When an RSU vests, it means the stock officially becomes yours, and you can keep or sell it.
• Stock options give you the chance to buy company shares later at a price that's locked in today. If the company's stock price goes up, you can buy the shares at the lower locked-in price and potentially profit from the difference. Exercising your options means choosing to buy the shares using that special price.
• ESPPs allow you to buy company stock at a discount, often through payroll deductions.

Each type of equity compensation follows different tax rules, different vesting schedules and different planning opportunities. In some cases, taxes are triggered when shares vest. In others, taxes are triggered when you exercise options or sell stock.

You might not fully realize when those taxable events occur until you're staring at a shocking tax bill.

Once you layer in bonuses, deferred compensation, investment income and potentially multiple state tax filings, it's understandable that confusion can happen.

The tax bill that no one saw coming

One of the biggest mistakes employees make is assuming their company already withheld enough taxes.

In reality, many companies only withhold federal taxes on RSUs and stock option profits at a flat 22% rate, even if your actual tax bracket is 24%, 32%, 35% or 37%. That doesn't include state taxes, city taxes, Medicare taxes, or Social Security taxes.

That gap can quietly snowball into a massive surprise tax bill when April arrives.

Imagine receiving a large vesting event, celebrating what feels like a major financial win, only to later discover you owe the IRS hundreds of thousands of dollars you never planned for.

I recently worked with a senior executive whose RSUs vested during the same year she received a large bonus and significant deferred-compensation payouts. She assumed the taxes had already been handled automatically by her employer. They had not.

When we ran projections before year-end, we discovered she faced a six-figure tax shortfall. Had she waited until tax filing season to discover the problem, she could also have faced underpayment penalties.

The double taxation trap

Another surprisingly common mistake happens after employees sell their company shares.

Many employees don't realize they paid ordinary income taxes on RSUs when the shares vested because that income was already included on their W-2. Later, when the stock is sold, brokerage tax forms can sometimes make it appear that the full value of the sale is taxable all over again.

If your tax return isn't handled properly, you can accidentally pay taxes twice on the same money.

For high earners with large stock grants, this mistake can cost tens or hundreds of thousands of dollars.

When wealth becomes overconcentrated

Taxes aren't the only danger.

One of the biggest risks with company stock is emotional attachment. After years of working at a company, it's natural to feel loyal to the shares that helped build your wealth and career. But that emotional connection is dangerous.

Morgan spent decades building what she believed was a secure financial future through company stock and stock options. Over the years, her holdings grew to nearly $5 million. The shares represented years of hard work, promotions, long nights and professional success.

Like many longtime employees, she genuinely believed the company's best years were still ahead. Then everything started to unravel.

A major product recall triggered lawsuits. Earnings weakened. Headlines became increasingly negative. Employees watched the stock fall day after day while leadership struggled to calm investors.

Shareholders ultimately received only about 6 cents on the dollar in a corporate buyout. Her nearly $5 million position collapsed to roughly $300,000.

In a matter of months, both her career and the wealth she had spent decades building disappeared almost simultaneously.

Turning equity into long-term wealth

RSUs, stock options and ESPPs can either become one of the greatest wealth-building opportunities of your career or one of your biggest financial mistakes.

The employees who handle equity compensation most successfully are usually not the ones obsessing about the next stock surge or trying to perfectly time the market. They're the ones who proactively manage taxes, diversify before risk becomes dangerous and treat company stock as the major financial asset it truly is.

The damage is often already done by the time you realize you have an equity-compensation problem.

Related Content

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• Your 5-Step Guide to Financial Freedom After Divorce, From a Financial Planner

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

With summer temperatures skyrocketing nationwide and utility bills climbing right along with them, the fresh air and vibrant seasonal climate of Oregon might look better than ever.

Offering a high-quality, outdoorsy lifestyle with an overall lower cost of living than California prices, the Beaver State is known for balancing eclectic urban hubs like Portland with famously green, eco-conscious cities like Eugene and Corvallis.

But Oregon's appeal goes far beyond city limits; the state's tax structure is also friendly in a few ways. For starters, there is no state sales tax, meaning you generally avoid standard add-on taxes at checkout for items like clothing and groceries. Plus, Oregon enforces a state property tax cap that limits the growth of a property's assessed value (though local approvals may still apply).

So if you're ready to live in Oregon without draining your savings, here are the ten cheapest places to look.

Cheapest places to live in Oregon

After ranking property tax bills from highest to lowest per county in Oregon, one thing’s for sure: Rural areas win out. You can generally find more affordable living in the countryside than in the hustle and bustle of a big city.

But if you're ready to visit sweeping mountainscapes, archaeological digs, and relax in natural hot springs (and maybe want to commute for other enjoyments), check out these cheap places to live in Oregon.

Note: Kiplinger used the latest data presented by the Tax Foundation (sourced from the U.S. Census Bureau) to find the cheapest counties in Oregon to live.

Harney County

Median property tax bill: $1,943

Median home price: $242,100

Home prices are relatively affordable in Harney County compared to the rest of the state, with the median sitting just over $242,000. Property tax bills are also comparatively reasonable, sliding in just under $1,950 per year according to the latest data from the Tax Foundation.

Outdoor adventurers enjoy exploring more than 10,000 square miles of Harney, the largest county in Oregon. The area is famous for its rugged, high-desert landscapes, including Steens Mountain — which features a scenic loop that climbs over 9,700 feet above sea level, winding past deep glacial canyons and wild horse pastures.

Residents also enjoy wind sailing, land paddling, or flying kites across the super-flat, cracked earth of the Alvord Desert Playa, or going for a relaxing soak in the natural mineral waters of Crane Hot Springs.

And if you're drawn to unique geology and birdwatching, Harney's Diamond Craters Outstanding Natural Area is one of the most volcanically diverse landscapes in the U.S., packed with distinctly shaped lava cones and craters. The Malheur National Wildlife Refuge also provides plenty of opportunities to spot bald eagles, sandhill cranes, and trumpeter swans.

Come to Harney County for the (more) accessible property tax bill, but stay for the wide-open rural charm of it all.

Gilliam County

Median property tax bill: $1,904

Median home price: $189,300

Gilliam County has the most affordable homes on our list, with a median price sitting around $189,300. Located just under three hours east of Portland, the county's median property taxes are also remarkably low, coming in barely over $1,900 per year according to the U.S. Census Bureau.

If you're looking for uncrowded spaces on a dime in Oregon, Gilliam has you covered. As the third-least populated county in the Beaver State, the area offers an authentic blend of small-town living and outdoor recreation.

Year-round, anglers can cast a line for steelhead and bass fishing on the free-flowing John Day River. Alternatively, water lovers may also head up to the Port of Arlington along the Columbia River for paddleboarding and wind-propelled watersports.

And from May to October, residents can dive into the region's deep frontier roots by visiting the Gilliam County Historical Museum in Condon. This historic site highlights 11 historic buildings, including one original 1884 homestead.

So whether you're looking to protect your wallet from the Pacific Northwest's higher cost of living or want to secure some true peace and quiet away from metro areas, Gilliam might just be the option for your family.

Douglas County

Median property tax bill: $1,895

Median home price: $310,300

Homes in Douglas are priced slightly higher than those in other areas on our list, with a median value over $310,000. However, because the county has an effective property tax rate below the national average, the median property tax bill remains under $1,900, according to 2026 Tax Foundation data.

Beyond the numbers, Douglas County offers a high quality of life for foodies. The Umpqua Valley area, known for its rolling orchards and award-winning vineyards, is a local hotspot. And after enjoying a glass, residents can head over to the Dean Creek Elk Viewing Area to watch Roosevelt elk grazing in the open pastures, or visit the region's natural hot springs for a relaxing soak.

Animal lovers are also in for a treat with the Wildlife Safari in Winston. This drive-through animal park allows you to see ostriches, zebras, and other wildlife from the comfort of your own car.

Stop by Douglas County, Oregon, for the rich culture and conservation efforts, but stay to savor the surprisingly manageable property tax bill.

Wheeler County

Median property tax bill: $1,893

Median home price: $272,400

Wheeler is the least-populated county in Oregon, with just around 1,450 people living within its boundaries, according to the U.S. Census Bureau. Reflecting its quiet, rural footprint, the county features a highly affordable median property tax bill of $1,893. Home prices are similarly affordable in the state, with the median value at $272,400, according to the Tax Foundation.

Promoted as a "geologic wonderland," Wheeler sits atop a treasure trove of prehistoric fossils. The county seat, aptly named Fossil, has a public dig site located right on the grounds of Wheeler High School. For a small donation that supports local school programs, it is one of the few places in the nation where the public can dig up authentic 33-million-year-old plant fossils.

Families also love exploring Painted Hills, where stunning, saturated stripes of red and gold clay make the landscape look like giant canvas paintings. And when you're ready to transition back to the present day, the county still offers a rich collection of pastimes like river fishing, mountain camping, and a summer rodeo event.

Check out Wheeler if you're hunting for a unique family destination — and you might just fall in love with the natural history and budget-friendly lifestyle.

Malheur County

Median property tax bill: $1,860

Median home price: $248,900

Nestled along the Idaho and Nevada borders lies Malheur County, home to a relatively low median property tax bill of around $1,860. Prospective buyers will also find that home prices are highly affordable compared to the rest of Oregon, with the countywide median sitting at about $248,900 according to the U.S. Census Bureau.

Oregon Trail enthusiasts and history buffs might become smitten with the region. The historic city of Vale displays deeply carved, authentic wagon ruts left behind by pioneers during the Great Westward Expansion.

The county's high-desert backyard is also full of natural hot springs, excellent boating and camping opportunities, and the famous "Pillars of Rome" — a series of majestic, 100-foot-tall clay cliffs that tower over the town of Rome.

To top it all off, the county is home to the grand Owyhee Canyonlands. This piece of remote wilderness has volcanic rock spires, red-rock chasms, and whitewater rafting, earning it the nickname "The Grand Canyon of Oregon."

Visit Malheur County to explore the rugged wonders of Oregon's hidden "canyon country," and maybe make a home for the affordable property tax bill.

Curry County

Median property tax bill: $1,841

Median home price: $381,300

Curry County has the highest median home price on our list at over $381,000, according to the latest data from the Tax Foundation. But despite carrying higher real estate prices, the median annual property tax bill sits very low at $1,841. This is because the county boasts the lowest effective property tax rate listed here at only 0.50% — well below the national average of .90%.

Home prices sit higher in Curry County because of its coveted location along the southern Oregon coast. Dramatic ocean cliffs give way to expansive sandy shorelines like Gold Beach, where salmon fishing and river jet boat tours are a regular part of local life.

Residents also enjoy beachcombing and tidepooling at Harris Beach State Park to search for colorful starfish, or hunting for rare sea agates along the shores of Port Orford's Agate Beach.

For the avid seafarer, outdoor adventurer, or anyone who simply dreams of waking up to the Pacific Ocean views, Curry may help you to secure a slice of coastal paradise without being weighed down by a heavy property tax burden.

Klamath County

Median property tax bill: $1,752

Median home price: $280,400

Home prices can be quite low in Klamath County compared to other major regions of Oregon, with a median price tag of only $280,400. Annual property tax bills can also be relatively cheap (about $1,752) according to the latest U.S. Census Bureau data. While it may not be the absolute lowest-priced entry on our list, Klamath has lower property tax bills than most surrounding counties.

Located just an hour and a half east of Medford, Klamath offers plenty to do. One shining feature is Crater Lake National Park — Oregon's only national park, formed by a gigantic, collapsed volcano that now contains the deepest, clearest lake in the U.S.. Residents can drive the spectacular 33-mile Rim Drive, hike the Cleetwood Cove Trail to touch the water (which will reopen in 2029), or zipline through the dense surrounding canopy at Crater Lake Zipline.

Plus, nearby, the Lava Beds National Monument features 800 underground lava tube caves open for exploration. Or, you can head indoors to view a collection of over 100,000 Native American artifacts and historic western art at the Favell Museum.

Not for the faint of heart, Klamath attracts current and future explorers alike for its rough-and-tumble natural landscapes, ancient history, and relatively low property tax bills.

Grant County

Median property tax bill: $1,674

Median home price: $229,700

Sequestered near the heart of the state is Grant County, Oregon, where home prices sit comfortably under $230,000. Property taxes are also quite low, costing a median of only $1,674 per year according to the latest data from the Tax Foundation.

Grant is a forerunner for 1860s gold rush history, pioneering, and the great outdoors stretching for miles in every direction. Residents can actually still explore historic mountain towns like Canyon City and John Day, where early prospectors once panned for gold. A major local highlight is the Kam Wah Chun Chinese State Heritage Site — a 19th-century trading post, dispensary, and cultural center that offers a rare look into the early lives of Chinese immigrants.

Additionally, you can easily connect with the county's deep roots at the John Day Fossil Beds National Monument, or hike up to the dramatic wilderness of high-altitude alpine retreats like Strawberry Lakes.

So, if you're a passionate history buff looking for a relaxed lifestyle away from city congestion, Grant offers a destination that might not strain your finances too much.

Sherman County

Median property tax bill: $1,588

Median home price: $211,800

Sherman County home prices are typically on the low side, with the median value hovering around $211,800. Property tax bills are also cheaper, costing roughly $1,588 per year according to the Tax Foundation. To sweeten the deal, the county offers an annual Resident Incentive Program which pays out roughly $600 per household to those who move in and stay for at least one full year.

Home to fewer than 2,000 residents, Sherman is made for those who dream of a pastoral lifestyle. Golden, undulating wheat fields stretch across the landscape, dotted by modern wind turbines and backdropped by a stunning view of snow-capped volcanic peaks.

Locals can catch these famous canyon breezes via windsurfing and kiteboarding along the Columbia River, or head inland to hike the sun-banked canyon trails at Cottonwood Canyon State Park.

Communal ties also run deep here; every summer, the county hosts the Sherman County Fair and Rodeo, complete with livestock shows and local food trucks. Additionally, the Deschutes River (which borders the county) gives residents endless weekend opportunities for whitewater rafting, kayaking, and bass fishing.

Come to Sherman County, Oregon, for a slice of quiet, but stay for the lower property tax burden.

Lake County

Median property tax bill: $1,563

Median home price: $219,500

Lake County stands out as the most affordable place to live in Oregon, boasting a median property tax bill of only $1,563 and an accessible median home price of roughly $219,500.

Appropriately nicknamed "Oregon's Outback," Lake County is vast, with sprawling cattle ranches, dramatic alkali lakes, and a county seat that sits at an elevation of 4,757 feet. Like other areas of Oregon, the region is known for plenty of rock collecting possibilities; rockhounds can hunt for shiny black volcanic glass at Glass Buttes, or head to the Bureau of Land Management public collection area to dig for sunstones — the state's official state gem.

And for the stargazer in all of us, the county's lack of major urban development means it's home to some of the darkest night skies in the U.S.. Out here, the untamed canopy of stars showcases a clear view of the Milky Way that just might perfectly reflect the quiet, ancient beauty of the rocky desert floor below.

If you're hunting for highly affordable property tax bills with Beaver State living, the cheapest place to live in Oregon might be right for you.

More Cheap Places

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A prospective client told me he had it all done. He had a will in place, did his own stock picking and his wife did the taxes. What more did he need?

I went through my checklist. He had a lot of cash sitting in the bank and CDs — not ideal for high earners, since the interest is taxable. His will had no family trust, causing potential probate issues, and his adult children had no estate plan either. He was giving cash to charity, another tax faux pas. And on we went.

On the surface, financial planning can seem simple, if you are unaware of the possibilities. That is where a professional can help. And thanks to improvements in technology, today I am more excited about the opportunities to help high-income earners than ever in my 25-plus years in the industry.

Here are three examples, depending on individual circumstances, where technology may help in financial planning for high earners.

Tax-aware fixed income

High earners were traditionally advised to invest in tax-free municipal bonds in taxable accounts. Municipal bond interest is generally exempt from federal income taxes, and so high-income investors in a high tax bracket can use municipal bonds to avoid having the interest eaten up by taxes.

However, municipal bonds don't always pay the most interest on an after-tax basis. Some non-municipal bonds, such as corporate bonds and federal agency bonds, can pay more interest even after taxes.

Investment managers today can jump between different types of bonds depending on which yield pays the most after-tax interest for the client. Different bonds move at different speeds or valuations.

Munis might rally and become expensive relative to other bonds, and depending on the client's tax bracket, the manager might take gains from the munis and reposition into taxable bonds. Of course, you must pay attention to credit risk too, as different bonds have different risks.

The key is: Don't think municipal bonds always make sense. That might not be the case, and other bonds may offer different after-tax characteristics worth considering.

Robust tax-loss harvesting

If you are staring at a taxable gain on your Schedule D Tax Form, you probably need a more robust tax-loss harvesting strategy. Tax-loss harvesting — selling stock or bond losses to offset gains elsewhere in a portfolio — has been around for a long time.

However, technology has improved trading capabilities immensely. Today, tax-loss harvesting can be implemented more frequently using these tools.

There are other non-traditional tax-loss harvesting strategies appropriate for certain high-net-worth clients that can also be considered. If your tax-loss harvesting is stuck in the old way of doing it once a year around the end of the year, I encourage you to explore the new platforms that are available.

Advanced scenario planning

Moving to a state with a lower income tax? It can seem like a good idea, but it's best to check with a professional beforehand. Tax software can help show the difference in taxes between the two states, and sometimes the savings is less than expected.

I have client who wanted to see the impact of making additional Roth 401k contributions. The scenario planner showed the tax impact assuming different rates of return and different tax rates in the future. This helped put some context into the client's decision.

The software most planners use today is highly intelligent. Most of these scenarios can be done rather quickly and can lend confidence to decision-making.

My advice to high-income investors is this: If you haven't explored wealth management capabilities recently, much has changed in what a planner can do for you. The technology improvements have significantly improved the advice we can provide, and may be worth exploring.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Jim and Pam are a hypothetical couple I use with clients to illustrate what the numbers in a retirement plan can look like. They're both 62, have $2.5 million in pretax retirement accounts and $54,000 a year in combined Social Security benefits when they retire. On paper, they've done everything right.

But when Jim dies at 75, Pam's financial picture changes in ways they never planned for.

Her Social Security does not disappear entirely. The higher of the two checks continues, but one check is gone and her fixed income drops significantly overnight.

Her effective tax rate climbs from approximately 10% to between 15% and 23%, and may reach 28% by the time she is 85. Her total annual tax bill rises by approximately 145%, from roughly $11,000 to roughly $27,000. Within just a few years that increase may exceed 300%, with estimated total taxes of around $46,000 a year driven primarily by required minimum distributions (RMDs).

On top of that, a Medicare IRMAA surcharge begins approximately two years after RMDs start, ranging from an estimated $4,600 to $6,300 a year, deducted directly from her Social Security before she ever sees it.

And her RMDs, around $167,000 a year when they begin and potentially $250,000 a year as the account grows, now land entirely on a single tax return.

Same savings. Dramatically different tax bill — for the rest of her life.

This is the widow's penalty. It is not a fluke or an edge case. It is a predictable consequence of how our tax system treats a surviving spouse, and most retirement plans don't take it into account.

Four financial hits that arrive at once

When one spouse passes away, the survivor faces four simultaneous changes. Each is significant on its own. Together, they reshape the entire retirement picture.

1. Tax brackets compress immediately.

The 22% tax bracket for a married couple filing jointly in 2026 begins at $100,800. For a single filer, that same bracket kicks in at $50,400. The standard deduction also drops, from $32,200 for a married couple to $16,100 for a single filer. The first full tax year after a spouse dies is often the most financially disorienting year a surviving spouse will face.

2. Medicare IRMAA surcharges can jump.

Medicare's income-related premium adjustments are tied to income thresholds that are far lower for single filers than for married couples. A couple may be comfortably below an IRMAA tier, but when one spouse dies, the survivor can suddenly be well above it, paying thousands more a year in Medicare premiums on exactly the same income.

3. One Social Security check stops.

The survivor keeps the larger of the two benefits but loses the other entirely. For many couples, that's a drop of $25,000 to $40,000 in annual income. It doesn't get replaced.

4. RMDs don't stop.

At age 73 or 75, RMDs continue, regardless of what else has changed. The account balance is the same. But those forced withdrawals now land entirely on a single tax return, at single-filer rates, whether the money is needed or not. For a $2.5 million pretax account, that's not a rounding error.

Why don't retirement plans cover this?

Three things work against couples here. First, most retirement planning conversations focus on accumulation — saving more, investing well, managing risk. Tax planning for the surviving spouse is rarely on the agenda.

Second, advisers and clients alike tend to plan for the couple as a unit. The shift to single-filer status feels abstract until it's real, and by then the options have narrowed.

Third, these are uncomfortable conversations. It's easier to defer them. But in tax planning, time is the asset. The window for meaningful action is only open while both spouses are alive, healthy and still in a favorable bracket.

Four things to do while the window is still open

The widow's penalty is predictable. That means it's plannable. Here's where I focus with clients who want to get ahead of it.

1. Roth conversions during the married filing jointly window.

Every dollar converted from a traditional IRA to a Roth while both spouses are alive is a dollar the survivor can access tax-free, without pushing into higher brackets, triggering IRMAA surcharges or increasing Social Security taxation.

The married filing jointly bracket is one of the most valuable tax planning advantages available to couples. Most never use it for this purpose. I'd argue it's the most effective move available for reducing the survivor's future tax burden.

2. Term life insurance sized to replace the lost Social Security check.

This one surprises people. Term insurance isn't just a wealth-transfer tool. It can be a direct replacement for the Social Security income that disappears when a spouse dies. Size it to cover the income gap, put it in place before retirement while premiums are still reasonable, and the survivor has a real financial buffer during the most financially vulnerable period of widowhood.

3. Coordinate Social Security claiming with the survivor in mind.

Delaying the higher earner's benefit increases the survivor's check for life. For couples where one spouse earned significantly more, that delay can materially increase the survivor's annual income for life. The claiming decision that maximizes lifetime income for two people is often different from the one that maximizes the survivor's income alone. That gap deserves explicit attention.

4. Keep the portfolio working.

As a married couple, it can be easy to feel like the investments do not need to work as hard. Two incomes, shared expenses, a plan built around both of you. But that can change at any moment.

While both spouses are still living, keep the portfolio growing. A surviving spouse at 75 may have 20 or more years ahead and may suddenly need to draw significantly more from the portfolio than the couple ever did together.

A portfolio that becomes too conservative too early loses the growth needed to outpace inflation and fund a long retirement. Investment strategy should be built around who is still here and how long they may need it to last, not the couple's age at the time of the first death.

The penalty is predictable. So is the solution

The math behind the widow's penalty isn't complicated. What makes it damaging is that it catches couples off guard, at the worst possible time, with no runway left to act.

Jim and Pam's numbers aren't abstract. They're close to what I see across my client base, with different names. The tax bill Pam faces isn't the result of bad luck or bad investments. It's the result of a plan that was built for two and never updated for one.

The right time to fix that is now, while both spouses are here, the brackets are still favorable and the options are still on the table.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

A growing number of Americans are worried that higher taxes in the future will erode their income in retirement. Yet few people who express this concern are adjusting their financial plans to help meet the challenge.

That’s the conclusion of two recent surveys by financial services companies.

According to an Allianz Life study earlier this year, 70% of Americans are now concerned about the impact of taxes on their income once they stop working, up from 66% in 2025. Gen Xers, on the cusp of retirement at ages ranging from 46 to 61, are the most fearful, with nearly 80% of them sharing this concern.

Yet, as a Nationwide Retirement Institute survey found, only 31% of investors who expect taxes to rise are taking steps to manage their finances accordingly.

"Taxes continue to be in flux, and finding the right strategy to help maximize your retirement income is definitely key," says Kush Kotecha, president of Nationwide Annuity.

Although federal tax rates are currently at historically low levels, the massive budget debt and coming solvency problems for Social Security and Medicare have heightened fears that taxes will head up.

"We cannot continue like this," says Kelly LaVigne, vice president of consumer insights for Allianz Life Insurance.

To minimize the bigger bite of income that higher taxes in retirement could take, experts suggest these steps:

Invest tax-efficiently.

Outside of tax-advantaged retirement accounts such as 401(k)s and IRAs, interest on U.S. government and corporate bonds and short-term capital gains (profits on the sale of assets held for a year or less) are taxed as ordinary income, with rates as steep as 37%.

But the top rate for long-term capital gains is only 20%, and the rate is 0% this year for taxable income below $49,450 for singles and $98,900 for married couples filing jointly.

Actively managed mutual funds tend to trade stocks often, causing their investors to owe short-term and long-term capital gains taxes, but index funds and exchange-traded funds make far fewer transactions, reducing their tax liabilities.

You can also seek out actively managed funds whose mission is to be tax-efficient, or you can put some money in municipal bonds and muni funds, which are generally exempt from federal taxes — and sometimes from state income taxes, too.

Consider a Roth conversion or a Roth IRA.

You’ll pay income taxes now on the amount you convert or invest, but you won’t owe taxes on withdrawals in retirement, when your liability could be higher if rates rise.

"Paying taxes ahead of time isn’t necessarily a bad thing," says LaVigne.

Take RMDs on time.

You must begin making required minimum distributions from traditional 401(k) plans and IRAs beginning at age 73 (age 75 starting in 2033), and your RMD can push you into a higher tax bracket and lead to higher taxes on Social Security benefits.

That may hurt, but so will the penalty for failing to follow the rules: You’ll owe up to 25% of the amount you should have withdrawn.

A Vanguard study of clients 73 and older with traditional IRAs found that about 7% failed to take their RMDs in 2024, and 24% took out less than the required amount. More than half who miss RMDs in one year miss them the next year as well.

Be generous.

After age 70½, you can make a qualified charitable distribution, or QCD, from money in a traditional IRA — up to $111,000 in 2026.

That amount won’t be included in your adjusted gross income, so it won’t be subject to taxes. QCDs after age 73 can satisfy some or all of your RMD, too.

Stash cash in a HSA.

If you’re not yet on Medicare and have a high-deductible health insurance plan, consider contributing to a health savings account.

You’ll be able to lower your taxable income, the funds will grow tax-deferred, and withdrawals for medical expenses are tax-free. Says LaVigne, "An HSA is one of the best deals on the planet."

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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Each week in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter editor, answers questions on topics submitted by readers. This week, she's looking at four tax questions from readers who are still awaiting their tax refunds and problems with calling the IRS. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. Delayed refunds

Question: I electronically filed my 2025 Form 1040 in early April and still haven't received my refund. I received an IRS letter saying my return is under review and that it can take up to 60 days for the agency to process. I checked the IRS website, and it also says my return is under review. What can I do to speed up my refund?

Joy Taylor: We wrote in our last Kiplinger Tax Letter that the 2026 filing season has gone smoothly for most taxpayers, and most filers received their refunds without delay. We also said that despite this, some taxpayers face challenges and have been waiting months to receive their refunds. This group includes victims of identity theft, filers who make errors on their returns, taxpayers whose returns were selected by IRS computers for further review and others. Unfortunately, it appears that you fall within this second group.

My suggestion would be to continue waiting for your refund. The IRS's processing of returns under review is going very slowly, likely because the IRS has lost many of its workers, including those who work in taxpayer assistance. You can try to call the IRS, but you may face a long phone wait time and might find it hard to reach a live person.

• IRS's automated refund hotline phone number is 800-829-1954
• IRS's main phone number is 800-829-1040

If your delayed refund is causing you financial hardship, you might want to contact the office of the IRS's Taxpayer Advocate Service.

2. Erroneous IRS letters

Question: We timely filed our 2025 Form 1040 earlier this year. The IRS sent us a notice adjusting one of the line items on our return. We believe that the IRS made an error. We have tried calling for weeks at all different times and we usually get a recording to call another time. There doesn't seem to be an email we can use. Is there any help you can give us?

Joy Taylor: The IRS has overall operated a successful 2026 filing season, but there are exceptions. And one of those involves the agency's handling of correspondence. The notice you received from the IRS was likely automatically generated. But the IRS doesn't have enough employees to respond to questions that taxpayers have about those notices once they receive them.

There's not much you can do. I suggest continuing to call the IRS. If the agency's mistake is causing you severe financial hardship, then you might want to contact the IRS's Taxpayer Advocate Service for help.

3. Late refunds

Question: I filed my 2025 federal tax return in March, and I am expecting a large refund. I received a letter from the IRS in late April, saying that the IRS was reviewing my return. I haven't received any communication from the IRS since that letter, and I still haven't received my refund. I checked with my tax return preparer, who indicated that many refunds have been late this year. Do you know anything about this?

Joy Taylor: You are not the first reader that I have heard from who is facing a tax refund delay. Unfortunately, because of lack of staffing at the IRS and other factors, some taxpayers have been waiting months to receive their refunds.

You can try calling the IRS, but reaching a live person might be difficult. If your refund delay is causing you financial difficulty, you can contact your IRS Taxpayer Advocate Service office. If the delay continues, you might think about calling your U.S. representative to Congress. Sometimes, a staff member there can be helpful and move things along more quickly then you just waiting for your refund.

There is one small bright side to this. The IRS is required to pay you interest on your delayed refund, so when you eventually see the money, it should be higher than your refund amount.

4. Refund in the form of a paper check

Question: I have a bank account, but I don't like using it for electronic payments or receipts. I filed my 2025 Form 1040, which claimed a refund. I didn't include my bank account information on the return because I want to receive my refund as a paper check. I got a letter from the IRS asking for my bank account information. I didn't respond, and I still don't have my refund. What can I do if I still want a paper check?

Joy Taylor: The IRS is in the process of phasing out paper refund checks in accordance with President Trump's March 2025 executive order. Individuals who request paper refund checks when filing their Form 1040 are seeing their refunds delayed. The IRS mails letters to filers whose 1040s claim a refund but omit bank account details for direct deposit. These notices ask the filers to supply their bank account information within 30 days or say why they can’t. I am guessing this is the letter that you received from the IRS.

You said that you didn't respond to the IRS notice. That's OK. You will eventually get your refund check in the mail, but it can take time. The IRS says it will issue a paper check to nonresponders six weeks after the date it sent the original notice. However, this timeframe can also be subject to delays, as is the case in your situation. I would suggest continuing to wait. You can also check the "Where's My Refund" tool on the IRS's website to see if there is any more information.

About Ask the Editor, Tax Edition

Subscribers of The Kiplinger Tax Letter, The Kiplinger Letter and The Kiplinger Retirement Report can ask Joy questions about tax topics. You'll find full details of how to submit questions in each publication. Subscribe to The Kiplinger Tax Letter, The Kiplinger Letter or The Kiplinger Retirement Report.

We have already received many questions from readers on topics related to tax changes in the One Big Beautiful Bill, retirement accounts and more. We will continue to answer these in future Ask the Editor roundups. So keep those questions coming!

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not, and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

More Reader Questions Answered

• All Ask the Editor Q&As
• Ask the Editor: Will I be Audited by the IRS?
• Ask the Editor: Tax Basis in Inherited Property
• Ask the Editor: Deductions for Self-Employed Retirees
• Ask the Editor: 10-Year Rule for Inherited IRAs
• Ask the Editor: Tax Questions on Roth IRA Conversions
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Carlos owns two parcels on the south side of McAllen, Texas.

The first parcel is located in a Qualified Opportunity Zone, one of the original tracts the federal government designated in 2018. That designation expires on December 31, 2026. Less than six months from now, the line on the map vanishes.

The second parcel, three miles north, is located in a Census tract that didn't make the cut in 2018. But under the new eligibility rules signed into law last summer, that second tract just became eligible for OZ 2.0, and Carlos' governor has until late September 2026 to nominate it, or not nominate it, or pick a different tract entirely.

Carlos can't develop both parcels. He has one window of construction capital, and he needs to put it where the next decade of tax-advantaged capital will flow.

He needs to read the tea leaves. So do you.

Key dates for the 2026 governor OZ 2.0 nomination window

The Opportunity Zone program was made permanent by the One Big Beautiful Bill Act (OBBBA) on July 4, 2025. That's the good news. The complicated news is that every Opportunity Zone designation in America is refreshed every 10 years, and the first refresh is happening right now.

Here's the timeline you need to memorize.

The 90-day designation window opened on July 1, 2026, and runs through September 28, 2026. During that window, every state governor is submitting their nominations to the U.S. Treasury Department. The IRS published Revenue Procedure 2026-14 in April, spelling out exactly how the process works.

Treasury will certify the nominations late in 2026. The new Opportunity Zones take effect on January 1, 2027, and run for 10 years through 2036.

Once that map is set, it's set. Nobody is going to add your tract in March 2027 just because you missed the deadline.

So the question isn't whether your governor is making this decision. The question is whether you know which way they're leaning.

OZ 2.0 vs OZ 1.0: Eligibility changes every investor should know

Before you can guess the map, you have to understand the rules your governor has to follow.

The first big change: The income threshold dropped. Under OZ 1.0, a tract was qualified if its median family income was at or below 80% of the state or metropolitan median. Under OZ 2.0, that threshold drops to 70%. The bar is higher, the field is smaller.

The second big change: The contiguous tract provision is gone. In 2018, governors could include a tract that didn't meet the income test as long as it sat next to a qualifying tract. That loophole stitched together some of the most lucrative zones in the country. It's closed now.

The third big change: There's a new anti-gentrification trigger. A tract is disqualified if its median family income exceeds 125% of the state or metropolitan median. If your neighborhood has already been gentrified between 2018 and 2024, congratulations, but you're probably not getting another OZ designation.

The fourth major change is the rural carve-out, which is significant enough to deserve its own section below.
Net result: Under OZ 2.0, the eligible pool of tracts is about 25% smaller than it was under OZ 1.0. Your governor is making harder choices with fewer chips.

Qualified Rural Opportunity Funds: How the basis step-up works

The biggest structural shift in OZ 2.0 favors rural America. Tracts that qualify as "rural areas" under the new statute unlock a supercharged set of benefits. Investors in a Qualified Rural Opportunity Fund (QROF) get a 30% basis step-up after five years, triple what urban OZ investors receive.

And the "substantial improvement" threshold drops from 100% to 50%, meaning rural developers can renovate properties with half the capital outlay they'd need elsewhere.

That 50% rural threshold went into effect the day the law was signed, July 4, 2025. It's already in play.

For governors with significant rural economies, this is a strong incentive to lean rural in their nominations.

For investors, it offers a fundamentally better economic profile than urban OZ 2.0: A higher step-up, a lower improvement bar and the same 10-year tax-free appreciation.

Lessons from the 2018 OZ designations: What to expect in 2026

We aren't completely flying blind. The 2018 round gave us a behavioral road map.

The average OZ designated in 2018 had a 31% poverty rate, well above the 20% statutory threshold. The average tract had income at 59% of the median area, significantly below the 80% cap they could have used. Governors weren't pushing the edges. They were picking distressed tracts with project pipelines.

The contiguous tract provision, the loophole that's now closed, got used in only about 2.6% of designations. Most governors didn't lean on it.

But here's the pattern that should grab your attention: By 2022, 75% of all OZ investment had gone to urban areas, even though 45% of zones were rural. And 75% of the total investment had been allocated to real estate, mostly residential. About one-third of OZ tracts received zero outside investment over the entire program.

So governors had two failure modes in 2018: They picked tracts where capital never showed up, and they overindexed on urban projects at the expense of rural communities that Congress intended to help.

This time, with rural super-incentives baked into the statute and a smaller eligible pool, expect a meaningful pivot. Governors who got criticized last round for "rich neighborhood" picks will be more cautious. Governors with significant rural economies will lean rural.

How Texas, Washington and other states are running their OZ 2.0 nominations

Different states are running different processes.

In Texas, the governor's Economic Development & Tourism Office asked local economic development organizations and county judges to submit eligible tracts by June 26, 2026. The state is now finalizing its list and intends to send picks to Treasury by August 3. The state is selecting on three criteria: Clear federal eligibility, demonstrable local support, including incentive packages and project viability within 24 to 48 months.

That third criterion is your biggest signal. Texas is picking tracts where private capital is genuinely about to deploy. If your county has a master plan, a TIF zone and a developer with a financed project pipeline, you're in the running. If your county hasn't submitted anything? You're not.

Washington state is publishing its draft application and scoring criteria publicly. New Mexico has spelled out exactly when its final tracts will be locked in. West Virginia plans to submit by late September. Some states are running stakeholder processes you can participate in right now.

In 2018, California revised one-fifth of its nominations after public feedback. Pennsylvania accepted recommendations covering 61% of eligible tracts. The states that ran transparent processes ended up with more deployable maps.

If you want a tract designated, the time to be in the room is this summer, while the governor is still finalizing, not October, after the map is locked.

How investors can influence OZ 2.0 tract selection: A four-step action plan

Carlos has about three weeks until Texas locks its list and sends it to Treasury on August 3. Here's the playbook, and it applies whether your state's window is still open or, like Texas, is down to the final days.

Identify which Census tracts within your project area are eligible under the new rules. Both Novogradac and the Economic Innovation Group publish free interactive mapping tools that overlay the 2020-2024 American Community Survey data that Treasury is using.

Find out whether your local economic development organization has already submitted your preferred tract. If yes, great. If not, you have an urgent phone call to make this week, not next month.

Document your project pipeline. Treasury isn't going to read your business plan, but your governor's office is. The states with the cleanest project documentation are getting the most credibility on their nominations.

Watch what doesn't get nominated (this is the part most investors miss). Tracts that are eligible but ignored become public information once states publish their submissions. Some of those tracts may become opportunities in the next 10-year cycle if conditions shift.

Planning for the December 31, 2026, OZ 1.0 deadline and the OZ 2.0 transition

The end of OZ 1.0 isn't an exit from this strategy. It's a transition.

Investors who deferred capital gains into OZ 1.0 funds have a hard recognition date on December 31, 2026, with the tax bill coming due in April 2027. That's a separate planning problem worth its own conversation with your investment adviser.

But the runway ahead is longer than the runway behind. OZ 2.0 isn't a sunset. It's a permanent program with a rolling deferral, enhanced rural benefits and tightened eligibility, focusing capital where it can do the most good.

The investors who win the next decade aren't going to be the ones who watch the map. They're going to be the ones who help draw it.

Carlos has three weeks. So do you.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

If you get a text message claiming to be from the IRS this week, your first instinct is probably to delete it and block the number.

And that's usually smart. After all, the IRS famously warns that it "will not contact [you] by text message or social media."

But dropping the hammer too quickly might cause you to miss a legitimate government notification — or, worse, an alert that a scammer is trying to compromise your tax data. (According to the U.S. Congress Joint Economic Committee, almost 25% of Americans have reported being victimized by tax scams, including spoofed text messages and QR codes.)

Adding to the confusion is the fact that the IRS can now text you. In recent years, the federal tax agency has introduced three very specific reasons it will text your mobile phone, and one glaringly obvious reason it still won’t.

Here's how to know who's on the other side of that "message received" prompt.

The IRS rolls out text messaging

The IRS only began rolling out SMS text messaging in the last eight years or so. Things like opt-in account updates, initiated system reminders, and requested callback confirmations that may have required paper letters or wait times in the past may now land in your digital inbox.

However, there are two important caveats to receiving an IRS text message.

First, the IRS will only text you if you opt in. Second, the federal tax agency uses strict, dedicated short codes to send texts to your phone.

So if you receive a text claiming to be from the IRS via a standard 10-digit phone number, it's likely a fake. Legitimate short codes are below:

• Short code 91040: Used for official IRS news bulletins (like changes in the tax code), appointment reminders, account notifications, and one-time security codes.
• Short code 34381: Reserved for IRS customer service callback reminders.

(Note: While these are the primary codes deployed by the agency, the list may expand as digital services evolve.)

Furthermore, receiving an unexpected short-code text — like a sudden two-factor authentication code you never requested — doesn't necessarily mean the message itself is inherently fake. Instead, it might be a sign that a hacker is attempting to breach your online IRS portal account.

Never give that security code to any individual, even if they claim to be an IRS agent. If you suspect fraudulent activity, log directly into your IRS portal to check your account status.

To help keep your identity and wallet safe, here are three key reasons you might receive a text claiming to be from the IRS, and one reason you won't.

1. You subscribed to IRS news bulletins

Not many people realize you can subscribe to direct IRS communications and receive a text message.

Everything from new tax law regulations (like those governing the recently launched Trump Accounts) to IRS criminal investigation tax case highlights can be delivered right to your inbox.

Taxpayers initially subscribe to these notifications via email (usually coming from irs@service.govdelivery.com). However, the IRS system allows you to opt in to text alerts as well, as demonstrated by this snapshot of a Tax Stats Dispatch Mailing List email sent from the IRS:

If you decide to receive IRS bulletins via text, the updates will always originate from the secure short code 91040. A different number delivering the tax law updates is likely a phishing attempt designed to steal your credentials.

2. You have an upcoming IRS appointment

When you schedule an in-person meeting at an IRS Taxpayer Assistance Center (TAC), you can opt in to receive text confirmations and scheduling updates about that appointment.

The IRS will also text you a notification once you're checked in at the building or when it is your turn to be seen (a screenshot of what an appointment reminder may look like can be found on Reddit).

Just like news bulletins, these automated operational texts will come from short code 91040.

However, scammers can use fake IRS appointment reminders to trick you into "confirming your appointment" by clicking a link or handing over personal or financial information.

To play it safe, never click a text link. Instead, log directly into your secure IRS online account to verify your appointment status. If you're still unsure, call the IRS customer service line directly at 1-800-829-1040 to double-check your appointment time.

3. You requested an IRS callback

Holding on the line for an IRS agent can feel grueling. According to the Taxpayer Advocate Service, taxpayers this past filing season had more difficulty reaching the federal tax agency than last year, with an average reported wait time of 14 minutes (up from 8 minutes). Only about 21% of calls were answered by an agent.

To alleviate the gridlock, the IRS offers a digital callback service for select high-volume phone topics, like refund inquiries and how to pay the IRS if you owe taxes. So instead of waiting on hold, you can opt in to receive a text when an agent is ready to call you back.

These text alerts generally only come from short code 34381.

But as you might've guessed, scammers can take advantage of this method as well.

Potential fraudsters can impersonate the IRS callback service to gain your trust before trying to extort personal information or demand immediate payment.

You can typically verify the text by its timing: the message should arrive within a predictable window after you personally initiated a call to the IRS. If you get a random "callback" text out of the blue, it's probably a red flag.

The one thing the IRS will never text you

Although the IRS will text you for administrative and scheduling updates you opt into, the federal tax agency will never initiate a text message demanding payment.

The hallmark of a text tax scam is typically a claim that you owe back taxes, have an "unclaimed refund" waiting to be deposited, or must urgently click a link to "fix" a suspended account, per the IRS' latest Dirty Dozen report (an annual list of the current tax scams).

And if an unsolicited message lands on your phone offering "free tax advice," demanding your Social Security number, or asking you to scan a QR code, do not engage. Instead, take a screenshot (or copy the text) and forward it to phishing@irs.gov with the following information.

• Subject line: "Text."
• Sender's phone number and your phone number
• Date, time, and time zone received.

Then forward the text to 7726 (SPAM) to alert your mobile carrier and delete the message.

Stay alert.

Read More

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In many areas of the country, homeowners are feeling the squeeze as property taxes climb at a faster clip than inflation.

In 2025, the average owner of a single-family home, with an estimated value of $494,231, paid $4,427 in taxes, according to a recent study from ATTOM, a provider of property data. That's a 3% increase from the previous year, compared with a 2.7% inflation rate in 2025.

The study, which analyzed property tax data collected from county tax-assessor offices throughout the country, found that some areas saw significantly steeper increases in average tax bills. Large metro areas that had the biggest year-over-year hikes in 2025 included Memphis (up by 34%), Baltimore (27%), St. Louis (11%), Houston (10%) and Kansas City (8%).

Homeowners in the Northeast and Midwest contend with the highest effective tax rates (average annual property taxes expressed as a percentage of the average estimated market value of homes in each area). Illinois had an effective rate of 1.84%, followed by New Jersey (1.58%), Vermont (1.4%), Connecticut (1.36%) and Ohio (1.32%).

Many of the states enjoying the lowest effective rates are in the West: Hawaii at 0.33%, followed by Idaho (0.39%), Wyoming (0.4%), Arizona (0.43%) and Alabama (0.43%).

Get the tax breaks you deserve

Make sure you take advantage of any relief programs that could reduce the total property tax you pay.

Many states offer a homestead exemption of some kind, shielding a portion of residents' assessed home value from tax.

Texas, for example, has a generous $140,000 homestead exemption for all residents. And states and localities commonly offer exemptions to certain groups, such as older adults, disabled individuals and veterans, too. In Texas, disabled residents and those 65 and older can claim an additional exemption of $60,000.

If you itemize on your tax return, you can deduct as much as $40,400 in state and local taxes for 2026, depending on your modified adjusted gross income (MAGI), thanks to a provision in the 2025 reconciliation bill, known as the "big beautiful bill."

The deduction amount increases by 1% each year through 2029, after which it reverts to the pre-2025 SALT deduction cap of $10,000.

Review your assessment

When your locality sends you its assessment of your property's value, gauge whether it's accurate. (Note that your home's assessed value may be some percentage of its full market value, depending on your tax assessor's rules.)

You can review your property's record card, typically available on the assessor's website or by request, to make sure the details are in order. If it lists, say, a higher number of bedrooms than your home has or some other mistake, getting it corrected could reduce the assessed value and, in turn, your tax bill.

Also, pull up the record cards of comparable homes in your area to see how their assessments line up with that of your property. You can use sites such as Zillow or Realtor.com to search recent sale prices of nearby homes similar to yours, too. If you think your home's assessment is too high, you can appeal it. Look for instructions on your assessment notice or your local government's website.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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In today's increasingly politicized financial environment, a growing number of high-net-worth American taxpayers are exploring ways to move abroad — and take their money with them.

While it's tempting to attribute this solely to economic fears or investment optimization strategies, the reality is more complex. Americans who want to reposition their wealth internationally must navigate a labyrinth of regulatory hurdles, tax implications and strategic choices.

Why are U.S. investors going global?

Traditionally, U.S. investors have been heavily U.S.-centric. It's not hard to see why. The American stock market is the most liquid and has historically outperformed most others over long periods.

In contrast, global citizens (those with ties to multiple countries) may naturally own assets across borders.

Increasingly, wealthy Americans are starting to think more like global citizens, seeking not just financial diversification but also geographic, lifestyle, political and various other kinds of diversification.

The ease of international travel, not to mention the proliferation of second passports and the ability to purchase residency visas, are all nudging affluent investors to look outward.

It's not unusual anymore to see U.S.-based clients requesting exposure to assets and currencies beyond the U.S. dollar, even through direct ownership of foreign stocks and offshore custodial accounts.

What are the challenges?

Of course, wanting to move money abroad and actually doing it are two very different things. The Foreign Account Tax Compliance Act (FATCA) has made it very difficult for Americans to open accounts overseas.

Most foreign banks and brokers are simply unwilling to take on U.S. clients, much less U.S. residents, owing to the compliance burden and reputational risks.

That said, it's not impossible. For example, a U.S. resident may be able to open an investment account through a licensed financial adviser in Singapore who is regulated locally (for example, by the Monetary Authority of Singapore), if the advisory firm's employees and Singapore office are registered with the SEC.

There are two broad ways to invest abroad:

1. Custody your assets in a foreign jurisdiction under a non-U.S. legal framework

2. Directly buy foreign-denominated securities, even while staying in the U.S.

The first requires opening a foreign custodial account (no small feat), while the second can be done through select U.S. platforms, such as Interactive Brokers, which offer robust FX conversion and foreign market access.

Most major U.S. brokers — think Schwab, Fidelity, Vanguard — may not support international currency trading or direct foreign stock ownership outside American Depositary Receipts (ADRs). They allow access via U.S.-traded ETFs or mutual funds that hold foreign stocks.

Even when they do, the cost can be prohibitive. Some brokers may charge upwards of $50+ per trade and hundreds more in clearing fees to settle international trades through third-party custodians.

In contrast, a platform like Interactive Brokers allows a client to convert USD into euros or pounds at near spot rates, execute trades on foreign exchanges, and custody assets in those currencies, all at low cost.

This infrastructure gap is one reason sophisticated investors are working with global advisers who understand these nuances and can access compliant, efficient platforms.

Private placement life insurance

Another useful strategy for ultra-high-net-worth families is offshore private placement life insurance (PPLI). Compared with U.S.-based policies, offshore PPLI structures often provide access to a broader universe of investment options, including alternative investments and institutional-quality strategies that may not be available in domestic policies.

Offshore policies also tend to have lower administrative and insurance-related costs, while U.S. policies are generally subject to more restrictive investment rules and higher fee structures.

For globally mobile families, offshore PPLI can provide both investment flexibility and tax-efficient wealth planning when properly structured and compliant with U.S. tax reporting requirements.

Tax and other considerations

Americans abroad also face a unique tax minefield. The IRS classifies most foreign mutual funds and ETFs are classified as passive foreign investment companies (PFICs) — a category subject to punitive tax treatment.

U.S. taxpayers living abroad must avoid these products and instead invest in individual stocks or U.S.-compliant vehicles, or risk expensive tax consequences.

To complicate matters further, U.S. estate plans, health insurance and tax brackets often don't travel well. Medicare doesn't follow you overseas. Most foreign estate laws are dramatically different.

And while Europe might seem appealing, many of its countries have significantly higher effective tax rates than the U.S., plus global taxation on investment income.

Practical advice — and warnings

If you're still keen on moving wealth abroad, consider these guidelines:

• Start with your currency. If you're planning to retire in Europe, build a portfolio denominated in euros, kronas, francs, krones, even sterling. If you're moving to Singapore, consider Singapore dollar-denominated assets. Don't wait until you move — start dollar-cost averaging now.
• Work with the right adviser. Local knowledge matters. If you're American, work with someone who understands both U.S. tax law and local financial systems, or you may find yourself untangling a financial mess later. American CPAs and financial advisers living abroad will understand what you're trying to achieve.
• Avoid the local "flavor of the month." Just because you live in Spain doesn't mean the local adviser's favorite fund is right for you. If it's a PFIC, it could cost you dearly in taxes.
• Reconsider property ownership. The dream of owning a villa in Italy is romantic but rarely practical. From break-ins to opaque ownership laws and maintenance costs, owning overseas property may be more trouble than it's worth. Try renting first.
• Prepare before you leave. Your financial plan should be portable. That means health insurance, estate documents and a U.S. tax strategy that doesn't react to your new life abroad but anticipates it.

The bottom line

Moving money (and life) abroad is not a casual undertaking — it requires strategic planning, legal awareness and the right partnerships. For ultra-high-net-worth individuals, setting up a foreign family office may make sense.

But for most Americans, the most realistic path is working with robust platforms and globally fluent advisers who are licensed in your destination.

And if you're still wondering whether it's worth it? Try renting an apartment overseas for a year. You'll quickly learn that the glamour of foreign residency often gives way to the grit of bureaucracy, and that a good plan is worth more than a good view.

Related Content

• 5 Countries Wealthy People Are Moving to — and What They're Looking For
• Why More U.S. Business Owners See a Second Passport as a Path to the Next Level
• I'm an Estate Planner: Moving Family Assets to a Safe Haven Abroad Could Be a Huge Headache for Your Heirs
• Setting Up a Business Abroad? 6 Mistakes to Avoid, From a Singapore-Based Financial Planner
• Despite Our Grumbles, America Still Delivers on the Dream: Perspective From a Financial Pro Who's Seen Stuff

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

For more than a year, we've been sharing the profiles of millionaires who've generously and honestly recounted how they made their first $1 million.

Our My First $1 Million series is at 61 profiles and counting (with many more to come) — from a novelist in New England and a 37-year-old banking executive (yes, 37), to the owner of a waste-hauling business and a retired middle school teacher.

Many of these millionaires have told strikingly similar stories about how they built their savings, and we noticed some trends among them, some of which we highlighted in the article 5 Key Insights We Learned From 50 First-Time Millionaires.

They've had some retirement regrets, too, which we wrote about in 5 Things 50 Millionaires Wish They'd Known Before They Retired.

This time, though, we want to turn the spotlight on you. Have you been paying attention? Do you know what it takes to become a millionaire yourself (if you're not already one!)?

Take this quiz to find out. Don't worry if you miss an answer: You can follow the links below the quiz to brush up on your knowledge.

Please note that this quiz has been prepared for informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or financial advice.

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A major tax question surrounding new Trump Accounts has now been answered by the IRS.

The federal tax agency recently issued guidance clarifying how contributions to the children’s savings accounts will be treated for federal gift tax purposes. This clarification comes as the accounts officially launched on July 4 with a full-court press on July 6.

Here's more of what you need to know.

Trump Accounts $1,000 seed money

"Trump Accounts" were created under the 2025 Trump-GOP tax overhaul as a new tax-advantaged savings vehicle for kids.

• Eligible children born between Jan. 1, 2025, and Dec. 31, 2028, may receive a $1,000 federal contribution if an account is opened on their behalf and program requirements are met.
• In addition to the federal seed deposit, parents, grandparents, employers, charitable organizations, and others can contribute cash or eligible assets, subject to annual limits and program rules.
• The money is invested and grows on a tax-advantaged basis, with withdrawals restricted to specific permitted uses under the law.

Trump Accounts are designed as long-term investment vehicles to help young people build assets early. Account assets are generally invested in a diversified stock index fund, allowing children to benefit from potential market growth over time. Withdrawals are generally limited until adulthood and subject to rules governing how the money can be used.

Notably, the program has also attracted support from some major employers and philanthropists.

One commitment that gained a lot of attention is a $6.25 billion pledge from Michael and Susan Dell to help fund accounts for millions of children. According to the Trump administration, several large employers also plan to contribute to the accounts as an employee benefit.

Supporters of the program say the accounts could help encourage early saving and broaden access to long-term investing for children, particularly by giving families a structured way to build assets over time.

During a July 6 Oval Office launch event, President Donald Trump touted, "Trump Accounts are absolutely incredible for children. They come into the world with no money and by a certain age end up rich."

Critics, however, have questioned whether the benefits will be widely accessible. They cite contribution limits, withdrawal restrictions, and concerns that higher-income families may be better positioned to take full advantage of the program than households with lower incomes.

Some also question whether other savings vehicles make more sense, as they see Trump Accounts functioning as traditional IRAs minus the up-front tax deduction.

On TikTok, personal finance guru Dave Ramsey said of Trump Accounts: "They're not as revolutionary as a Roth IRA. They're not on the level of a 529. This feels more like a political stunt than a wealth-building breakthrough."

More recently, as Kiplinger has reported, comments by Sen. Ted Cruz (R-Texas) suggesting the accounts could serve as a backdoor to privatizing Social Security have added to the debate.

IRS gift tax exclusion rules for Trump Accounts

Then, there are the practical tax-law questions surrounding how Trump Account contributions would be treated under federal gift tax rules.

Under federal law, individuals can give up to $19,000 per recipient in 2026 without triggering gift tax reporting requirements, provided the gift qualifies for the annual exclusion.

Amounts above that limit generally require filing IRS Form 709, even when no tax is owed due to the lifetime exemption.

So, a key question was whether contributions to a Trump Account would qualify for the annual exclusion. The issue attracted attention because gift-tax reporting requirements can apply even when no gift tax is ultimately due.

• Some tax professionals had raised concerns that the structure of the accounts could cause contributions to be treated as gifts of a future interest.
• Future-interest gifts don't qualify for the annual gift tax exclusion, which can trigger tax reporting requirements even for relatively small amounts.
• If that view had applied, contributors to a child's account could have been required to file a gift tax return.

The IRS guidance resolves that issue by establishing a safe harbor that treats qualifying contributions as present-interest gifts, allowing them to qualify for the annual gift tax exclusion.

As a result, contributions within the annual limit can generally be made without triggering a federal gift tax filing requirement, provided they meet the conditions in the guidance.

Note: The issue here is largely about tax reporting rather than tax liability. Most U.S. taxpayers don't pay federal gift tax because gifts above the annual exclusion generally count against the donor's lifetime gift and estate tax exemption. At $15 million, that exemption is high enough that relatively few households ever owe gift tax.

Trump Account eligibility: Bottom line

Trump Accounts are now in the active launch phase, including an app. That means families interested in participating can begin setting up accounts, depending on which banks and brokerage platforms are offering access.

Administration officials have said millions of accounts have already been registered and that 500,000 children have received their $1,000 deposits. Treasury and IRS officials have also recently outlined how contributions of publicly traded stock may be made to the accounts.

Still, before making contributions, interested families may want to compare and understand each provider's account-opening process and work with a trusted financial planner to consider the pros and cons of contributing to these or other savings accounts.

Related

• Gift Tax Exclusion for 2026: How Much Can You Give Tax-Free?
• How to Claim a $1,000 Trump Account for Your Kid
• The Estate Tax Exemption Amount for 2026
• What's in the 2025 Trump Tax Bill?

Traditional retirement planning has long assumed a household of at least two people and often the involvement of adult children in managing financial decisions later in life.

But more and more, that assumption no longer applies to a growing share of retirees. Surveys and data show that many people living in the U.S. are charting a different course, with roughly 1 in 5 over the age of 50 living alone. (That number rises to 27% for those age 60 and older.) And about 23% never had children.

The reasons why are varied. Some are widows or divorced. Others never married or had kids. Whatever the personal situation or choice, aging alone can change how retirement taxes work in practice, particularly when it comes to income, required minimum distributions, and estate-planning tax strategies.

Curious? Here's more of what you need to know.

Avoiding solo aging tax traps in retirement

Despite how it might feel sometimes, the federal tax code is not explicitly designed to penalize single taxpayers. However, the structural rules create practical headwinds for those aging and living alone.

Because a single filer cannot pool income or coordinate the timing of financial events with a spouse, a solo ager faces a much shorter runway before reaching higher income tax rates, Medicare premium surcharges, and other phase-out thresholds for tax deductions and credits.

Consider the following examples.

Filing status changes the way income is taxed

One key difference between single and married filing status is how quickly taxable income can move into higher federal income tax brackets.

Married couples filing jointly do generally benefit from wider income thresholds before higher marginal tax rates apply. And in retirement, that difference often shows up when income is drawn from multiple sources at once.

For example, a single retiree with $80,000 in annual income, e.g., from IRA withdrawals, Social Security, and part-time work, is more likely to push part of that income into higher marginal tax brackets than a married couple filing on a joint return.

The system is the same, but there’s less room to spread income across lower tax brackets for the single filer.

One of the clearest differences is how quickly income reaches higher tax brackets.

For example, for the 2026 tax year (returns you'll file in early 2027), the 22% federal income tax bracket begins at very different income levels depending on filing status.

Ultimately, a single taxpayer transitions into the 22% marginal tax bracket with half the taxable income allowance of a married couple filing a joint federal income tax return.

Deductions and credits introduce lower phase-out cliffs

A similar structural gap appears across various tax deductions and credits.

While tax credits reduce a filer's final tax bill dollar-for-dollar and deductions reduce overall taxable income, many of these provisions feature phase-out rules that, in practice, can restrict single filers.

Consider the temporary new senior bonus deduction available through 2028. This provision allows taxpayers aged 65 and older to claim an additional $6,000 deduction on top of the standard deduction and the existing extra standard deduction for older adults, allowing an eligible single retiree to shield up to $24,150 of income from federal taxes in 2026.

However, for those aging alone, the planning challenge lies in how quickly this benefit disappears.

The full $6,000 deduction begins to phase out once a single filer’s modified adjusted gross income (MAGI) exceeds $75,000 and is eliminated at $175,000. For married couples filing jointly, the phase-out doesn't begin until MAGI reaches $150,000.

Because a solo retiree's resources are measured against the individual filer threshold, a routine financial decision — like an RMD or a capital gain — can easily push them past the $75,000 threshold.

In contrast, a married couple filing jointly has twice the income runway to absorb potentially similar lifestyle expenses before their deductions begin to phase out.

Taxes on Social Security benefits can increase despite modest income changes

Social Security becomes taxable based on what the IRS calls "provisional income," which includes adjusted gross income (AGI), nontaxable interest, and half of Social Security benefits. Once certain thresholds are exceeded, up to 85% of benefits may be subject to tax.

What often surprises retirees is how quickly changes in routine income can move them closer to those thresholds.

A retiree living alone with a mix of Social Security and IRA withdrawals may find that even modest additional income — like portfolio rebalancing or capital gains from selling appreciated assets — increases the taxable portion of benefits.

What makes this a particularly tight rope for single retirees is that the thresholds for taxing Social Security benefits, unlike standard tax brackets, are not indexed for inflation.

• For a single filer, provisional income above just $25,000 triggers taxation on up to 50% of benefits, and it jumps to 85% at just $34,000.
• Because these thresholds have remained the same since they were enacted decades ago, even modest retirement incomes quickly expose a retiree's benefits to tax.

So with Social Security impacts, it’s not a single trigger, but the stacking of income in a single year that often drives the tax outcome.

Required minimum distributions can create concentrated tax years

Required minimum distributions (RMDs) force withdrawals from tax-deferred accounts regardless of retiree spending needs. Under current SECURE 2.0 rules, the required age to begin taking RMDs is 73 (and will rise to 75 for individuals who turn 74 after 2032).

Take a retiree with a $900,000 traditional IRA. The first RMD may fall in the $35,000–$40,000 range. When combined with Social Security and other income sources, total taxable income can rise into a range where multiple effects begin stacking:

• More of your Social Security benefits become subject to tax.
• Marginal income moves into higher federal income tax brackets.
• Future Medicare premiums may increase due to IRMAA.

What matters a lot here is timing. A single RMD can push income just high enough to trigger multiple tax thresholds at the same time.

Medicare premiums can reflect one-time income decisions

Medicare IRMAA surcharges are based on prior-year MAGI, which means today’s decisions affect premiums two years later.

A single retiree can cross into a higher IRMAA tier through what looks like a normal planning decision — like a Roth conversion, a large capital gain, or a high-RMD year — even if income is lower the following year.

Because the thresholds are fixed, timing becomes critical. A single spike can have a longer financial tail than expected.

Income and estate planning start to overlap earlier

For single retirees, estate planning tends to become less of a separate step and more closely tied to income decisions throughout retirement.

Without a spouse as a built-in transfer point for retirement assets, the timing of withdrawals and the structure of accounts often influence both current tax outcomes and future inheritance outcomes at the same time.

Partial Roth conversions are an example.

• They are often discussed as an estate strategy, but they also function as an income management tool — filling lower tax brackets before RMDs begin and potentially reducing future taxable withdrawals.
• Similarly, deciding whether to draw from taxable or tax-deferred accounts first can affect not only current-year taxes but also the size and timing of taxable income passed to heirs.

Beneficiary designations also take on added importance earlier in retirement.

For a solo ager, non-spouse heirs usually must withdraw inherited retirement accounts within 10 years. That can create higher taxable income in shorter bursts for heirs. It also places greater weight on account-type and withdrawal-timing decisions during life, since there is no spouse to help smooth those tax impacts over time.

The overall shift is toward integration: fewer separate “phases” of planning, and more overlap between income management and legacy decisions.

Solo aging bottom line: What single retirees can do

Aging alone doesn’t change the tax code, but it does make timing decisions important. Because every financial situation is different, it’s worth working with a trusted tax professional or certified financial planner to tailor strategies to your circumstances.

Still, when dealing with a single-filer tax return, there’s a tradeoff. Fewer built-in buffers can make income feel more exposed in certain years. But it can also give you a complete, unified view of your financial picture. That can make it easier for some to see how each decision affects taxes and adjust accordingly.

In practice, that often comes down to some core considerations:

• Spreading withdrawals and gains across years rather than clustering them
• Using lower-income years for targeted Roth conversions
• Coordinating account draws to manage tax brackets
• Staying mindful of Medicare thresholds that respond to prior-year income

State taxes also matter. Where you live — and how your state taxes retirement income — can change the outcome of these decisions.

Related

• 6 Things to Know About Taxes on Social Security Benefits
• How the New $6,000 Senior Bonus Deduction Works
• Retirement Taxes: How All 50 States Tax Retirees
• Avoiding the Widow's Penalty Tax Trap When a Spouse Passes

Most affluent retirees don't have an investment problem. They have a structure problem. That distinction matters.

As a financial adviser with more than three decades of experience in investment strategies, tax-efficient retirement income planning and legacy wealth building, I've seen many portfolios that look strong on paper but leak wealth in retirement.

The account balances may be high, the allocation may look reasonable and the investment performance may be acceptable. But if the structure is wrong, money can quietly drain away through taxes, forced distributions, Medicare surcharges, Social Security taxation, poor withdrawal sequencing, survivor-tax penalties and inefficient legacy planning.

That is the retirement tax trap. And it usually does not show up as one dramatic mistake. It shows up slowly. These are some ways that the trap can appear:

• A larger tax bill than expected
• A required minimum distribution (RMD) that pushes income higher
• A Roth conversion window that closed too soon
• A surviving spouse suddenly paying more tax on similar income
• Children inheriting a large IRA that is far less efficient than the parents had assumed

None of this feels urgent while the accounts are still growing. The most dangerous retirement tax problems are often created when people feel financially safest.

Accumulating vs income engineering

Most successful retirees spent decades doing exactly what they were told to do — save, defer taxes, max out retirement accounts, reinvest, avoid debt and build the portfolio. That advice helped them accumulate wealth. But accumulation is not the same as retirement income engineering.

A retirement portfolio tells you what you own. A retirement income structure tells you how much control you actually have. Those are not the same things.

If most of your wealth is inside IRAs, 401(k)s, 403(b)s, deferred compensation or other tax-deferred accounts, you do not own that money with complete freedom. You own it with a future tax claim attached.

That does not make those accounts bad. It just means that they are incomplete without a distribution strategy.

IRA expert Ed Slott has warned for years that tax-deferred retirement accounts can become a tax time bomb when people confuse tax deferral with tax elimination. His core point is simple: Tax-deferred money is not tax-free money.

Emotionally, many retirees still treat a $2 million IRA like $2 million of spendable wealth. It's not. Part of that account belongs to future taxes. The only questions are how much, when and under whose tax rates.

That is where structure matters.

If you have never modeled how your IRA withdrawals, Social Security, pension income,

investment income, Medicare thresholds, Roth conversions and future RMDs interact over time, you may not have a retirement tax plan — you may only have a portfolio. That's a dangerous distinction.

The IRS does not tax your retirement based on how hard you worked, how responsibly you saved or how badly you want the money to last. It taxes the structure.

And a weak structure creates leaks. Some leaks are obvious; others stay hidden until the planning window has already narrowed.

Preventing leaks: How to strengthen your plan structure

Wade Pfau, a professor at the American College of Financial Services, has written extensively about retirement income planning as a different discipline from traditional accumulation investing.

He argues that retirement is not just about maximizing returns. It's about building an income structure that can support spending, manage risk, preserve flexibility and survive uncertainty. That is the point that many retirees are never shown clearly enough. A pile of assets is not a plan.

A plan requires coordination:

• The investment account has to work with the tax return
• The tax return has to work with Social Security
• Social Security has to work with Medicare thresholds
• IRA withdrawals have to work with Roth conversions
• Roth conversions have to work with future RMDs
• Income planning has to work for both spouses, not just while both are alive
• Legacy planning has to account for what children actually inherit after taxes

If those pieces are not coordinated, the plan may still look fine. Until the leaks begin.

The solution is a retirement tax map. It should show:

• Where income will come from
• Which accounts will be used first
• When Roth conversions may make sense
• How future RMDs may grow
• How Social Security taxation fits in
• Whether Medicare thresholds are being managed
• What happens to the surviving spouse
• How heirs may inherit assets after taxes

That kind of planning does not guarantee perfection. But it gives the family something most retirees desperately want: Control over timing, taxes, income, survivor outcomes and how much of the family's wealth is preserved.

As you create a retirement tax map that gives you the strong structure you need, bear in mind the following:

There is an optimal mathematical balance to keep in your tax-deferred account that allows you to get your future RMDs tax-free. Creating a systematic Roth conversion timeline will help solve this.

Creating a portion of your retirement income that's not market-dependent is one of the strongest mathematical financial structures you can build.

Stress-test your retirement structure

The worst retirement mistakes are rarely obvious when they are being made.

They look responsible. They look normal. They look like what everyone else is doing until years later, when the tax bills, forced distributions, survivor issues and legacy problems finally reveal what the account statements never showed.

By then, the issue is not just money. It's regret. The feeling that the family worked for decades, saved responsibly and still overlooked a problem that could have been mitigated with better structure.

If your retirement structure has never been stress-tested for taxes, widowhood, forced distributions, Medicare thresholds, long-term income sequencing and after-tax legacy outcomes together, you may be seeing your portfolio but not your future exposure.

That is the real retirement tax trap. Not taxation itself, but waiting too long to see where the leaks are.

Dan Dunkin contributed to this article.

The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Each week in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter editor, answers questions on topics submitted by readers. This week, she's looking at five tax questions for investors, including queries on capital gains and qualified small business stock. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. 0% capital gains rate

Question: I generally have about $60,000 of taxable income from pensions and other sources of ordinary income when I file my tax return. However, this year I sold a large investment, generating a $150,000 long-term capital gain. I am married and file a joint return. Will any of my capital gains be taxed at the 0% capital gains rate?

Joy Taylor: For 2026, if taxable income other than long-term capital gains and qualified dividends doesn’t exceed $49,450 for single-filed returns, $66,200 on head-of-household returns or $98,900 on joint returns, then qualified dividends and profits on sales of assets owned more than a year are taxed at a 0% federal income tax rate until they push you over the threshold amounts.

In your situation, it appears that part of your capital gains would be taxed at the 0% capital gains rate and the rest at the 15% capital gains rate. Based on your facts, you would have $210,000 of taxable income ($60,000 of ordinary income and $150,000 of long-term capital gains). $38,900 ($98,900 - ($210,000 - $150,000)) of your long-term capital gain would get the 0% rate and $111,100 is taxed at the 15% rate.

Note that although these 0%-rate capital gains might not be taxed at the federal level, they do increase your adjusted gross income. Also, capital gains may be taxed differently at the state level. For example, some states tax capital gain as ordinary income.

2. Stock mutual funds and capital gains distributions

Question: I invest in stock mutual funds. Every year, I pay a lot of tax on capital gains distributions from these funds at ordinary income tax rates. I’m told by my accountant that this income doesn’t qualify for the lower tax rates on long-term capital gains. Why is this the case?

Joy Taylor: Net short-term capital gains are taxed at ordinary income rates up to 37%. This applies to gains from the sale or exchange of capital assets held for a year or less, which can include capital gains distributions from stock mutual funds. Some of these funds frequently buy or sell holdings that can potentially generate big short-term capital gains distributions.

Before you invest in a stock mutual fund, check its turnover ratio. The higher the ratio, the higher the potential for tax-inefficient short-term capital gains distributions.

One way around this hazard is to keep high-turnover stock mutual funds in an IRA or another tax-deferred account instead of in a taxable investment account.

3. Qualified small business stock

Question: I keep reading about tax breaks for owners of qualified small business stock. Can you explain the tax benefits and rules?

Joy Taylor: This tax break is generally for people who invest in a start-up corporation and then sell their stock at a gain several years later.

The main tax benefit is 100% gain exclusion for many investors when they sell. Individuals who acquire qualified small business stock (QSBS) after Sept. 27, 2010, and sell more than five years later, can exclude 100% of their capital gains from the sale. The amount of the excludable gain is capped at the greater of 10 times your stock basis or $10 million ($15 million for QSBS bought after July 4, 2025). The gain exclusion is 50% or 75% for QSBS that you acquired between August 11, 1993, and September 27, 2010.

Last year's "One Big Beautiful Bill" gives a partial exclusion for QSBS bought after July 4, 2025, and held less than five years before the sale date. It's 50% for QSBS sold after three years and 75% for QSBS sold after four years.

There are many QSBS requirements. Here are the main ones:

• Only stock in a regular C corporation qualifies. Stock in an S corporation is not eligible.
• You must acquire the shares in an original issuance from the corporation. Stock bought from an existing shareholder or in a secondary market doesn't count.
• The corporation must be a qualified small business when you acquire the stock. The firm's gross assets at the time of the stock issuance and immediately thereafter cannot exceed $50 million ($75 million for QSBS acquired after July 4, 2025).
• There is an active trade or business rule. At least 80% of the corporation's assets must be used in the active conduct of one or more qualified trades or businesses.
• Stock of corporations in certain lines of business doesn't qualify as QSBS. Those businesses include banking, leasing, insurance, financing, investing, hotels, restaurants, oil and gas, and farming. Also excluded are personal service businesses in the fields of health, law, engineering, architecture, accounting, consulting, brokerage and more.

4. One Big Beautiful Bill

Question: Did last year's "One Big Beautiful Bill" make any changes to the taxation of capital gains or losses?

Joy Taylor: The OBBB, which was enacted a year ago on July 4, 2025, made many tax changes for individuals, estates, businesses and nonprofits. But there were not big changes to capital gains taxation.

Some Republican lawmakers and free-market groups backed the idea of indexing capital gains to inflation each year, but this didn't make it into the final law. Others wanted a 15% top federal capital gains tax rate. This proposal also was not included.

5. Investing in gold

Question: I am thinking of investing in gold. If I buy the physical product, will any gains when I sell get the favorable capital gains tax rates? Is the answer different if I invest in an exchange-traded fund?

Answer: The tax law treats physical holdings in precious metals, such as gold, silver, platinum, etc., as collectibles. This is true whether you hold coins, bars, ingots or other forms of physical holdings.

When you sell, your gain or loss is the difference between the selling price and your cost basis in the metal. Most people who sell will have capital gain or loss. Capital gains from the sale of precious metals held over a year are taxed at a capital gains rate of up to 28%. Capital gains from the sale of precious metals held for a year or less are taxed at ordinary income rates. If you sell for a loss, then you will have a capital loss.

If you invest in an exchange-traded fund that holds gold or silver in physical form, and you sell your interest over a year later, then your gain will often be taxed at a top 28% tax rate, similar to if you outright owned the physical gold and sold it. The 0%, 15% or 20% capital gains rates generally don't apply because you are treated as holding a collectible.

About Ask the Editor, Tax Edition

Subscribers of The Kiplinger Tax Letter, The Kiplinger Letter and The Kiplinger Retirement Report can ask Joy questions about tax topics. You'll find full details of how to submit questions in each publication. Subscribe to The Kiplinger Tax Letter, The Kiplinger Letter or The Kiplinger Retirement Report.

We have already received many questions from readers on topics related to tax changes in the One Big Beautiful Bill, retirement accounts and more. We will continue to answer these in future Ask the Editor roundups. So keep those questions coming!

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not, and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

More Reader Questions Answered

• All Ask the Editor Q&As
• Ask the Editor: Will I be Audited by the IRS?
• Ask the Editor: Tax Basis in Inherited Property
• Ask the Editor: Deductions for Self-Employed Retirees
• Ask the Editor: 10-Year Rule for Inherited IRAs
• Ask the Editor: Tax Questions on Roth IRA Conversions
• Ask the Editor: Reader Questions on QCDs

Social Security benefits have always been designed to protect individuals from a loss of income due to retirement, disability or the death of a primary income earner, but how much you receive might be changing soon.

Current Social Security Administration (SSA) projections predict the program will face a funding shortfall by late 2032, triggered by a wave of retiring baby boomers outnumbering the younger workers paying into the system.

While the program survived a similar insolvency scare via a bipartisan overhaul in 1983, critics argue the current administration's approach makes the upcoming crisis feel different. The SSA has faced shrinking staff, shuttered regional offices and budgetary constraints — downsizing that advocates label as "efficiency," but critics view as an attempt to "gut" the program.

Enter: Trump Accounts. Launching July 4, 2026, the federally seeded vehicles were originally designed, supporters say, to help children build generational wealth.

However, the narrative about the accounts shifted when Sen. Ted Cruz (R-Texas), a key advocate, admitted the program's "dirty little secret" is that these child savings vehicles are actually personal accounts intended to eventually privatize Social Security.

Here's what you need to know.

Trump Accounts: The new face of Social Security?

Trump Accounts, which officially debut this month and are a key component of the 2025 Trump tax bill, were initially pitched as standard child savings accounts meant to help families save for a child's future housing, higher education, or other qualifying expenses.

That definition was broadened last month during a panel on economic mobility at the Milken Institute Global Conference.

Cruz, who originally proposed the Trump Account initiative, elaborated on how these child savings vehicles could be utilized.

Cruz told the audience, according to a transcript of the event.

For decades, various free-market think tanks and lawmakers have tried to overhaul Social Security by shifting it to private investment accounts. These efforts — most famously backed by then-president George W. Bush in 2005 — have historically failed due to prohibitive transitional costs and the risks of exposing retirees to market volatility (more on that later).

But Cruz outlined a strategy to bypass some potential roadblocks: Start at the cradle.

"Babies grow up." Cruz reasoned. "And that little girl who is born this year, she is going to be 70. And the math is, if you contribute regularly to [a Trump Account], by the time she is 18, she will have $170,000 in that account. By the time she is 35, she'll have $700,000 in that account. And … very quickly after that, you get into the millions."

• This strategy aligns with comments made nearly a year ago by U.S. Treasury Secretary Scott Bessent.
• Speaking at a Breitbart News event, Bessent similarly remarked, "In a way, it is a backdoor for privatizing Social Security."

Facing subsequent criticism from Democratic lawmakers, Bessent later clarified on X that the proposed accounts were intended to supplement, rather than replace, existing Social Security benefits.

The push toward privatizing Social Security

Historically, the biggest roadblock to privatizing Social Security has been the "pay-as-you-go" transition problem.

Current workers' payroll taxes fund current retirees' benefits. If younger workers suddenly diverted their payroll taxes into private accounts, the government would be left with a $1 trillion to $3 trillion deficit, according to data from the Center on Budget and Policy Priorities (CBPP) and the Center for American Progress (CAP).

Trump Accounts, supporters claim, could circumvent this problem by building a parallel, privately funded program before Social Security benefits are ever disrupted.

"We're going to be able to go to parents and say, 'Hey, you know that Trump account your kid has….and you're seeing this compound growth? Wouldn't you like to be able to keep a portion of your tax payments…wouldn't you like to have a Trump account just like your kid does?' " Cruz suggested.

Yet, critics argue that the seeming magic of compound interest on a Trump account would look a lot less magical during a market crash.

• Unlike private investment accounts, Social Security benefits have very low administrative overhead and provide a guaranteed, lifelong inflation-adjusted benefit.
• Meanwhile, Wall Street management fees can silently erode a retirement nest egg, disproportionately threatening low-income beneficiaries who lack financial literacy or access to alternative wealth management tools.

According to data from the U.S. Congress Joint Economic Committee (PDF), Social Security accounts for roughly 79% of income for the poorest 20% of "elderly" Americans. Half of women age 65 and older would drop below the poverty line without guaranteed monthly checks. Under a privatized model, these citizens could be more susceptible to market risk and run out of funds early.

Social Security vs Trump account taxes

The Social Security privatization debate isn't just about how you accumulate wealth, but how that wealth is eventually taxed. Traditional Social Security benefits and private retirement accounts (like Trump Accounts) are taxed very differently.

Although the definitive tax rules for Trump Accounts are still being finalized, their structural similarity with traditional IRAs reveals stark contrasts to the tax treatment of Social Security benefits:

For example, a single retiree with provisional income above $34,000 can have up to 85% of their Social Security benefits included in their taxable income.

Meanwhile, proposed IRS rules dictate that the tax bill for a $34,000 distribution from a Trump Account depends entirely on who funded the account.

• If the beneficiary made $5,000 in after-tax contributions, that portion might be withdrawn tax-free.
• However, if the remaining $29,000 consisted of government-contributed amounts, market earnings, and compound interest, it would be 100% taxable at ordinary federal income tax rates.
• Each withdrawal would be roughly 14.7% income tax-free ($5,000/$34,000), and 85.3% taxable income ($29,000/$34,000).

Distributions from Trump Accounts must follow traditional IRA rules, including required minimum distributions (RMDs) once the beneficiary reaches the RMD age threshold.

The bottom line on Social Security benefits

If the U.S. Congress fails to act by the early 2030s, Social Security won't vanish into bankruptcy. Instead, the system will trigger automatic benefit cuts, reducing payouts to roughly 78 cents on the dollar, according to the latest Social Security Board of Trustees Report.

For the average recipient, that translates to losing several hundred dollars a month, which can be a significant blow to the roughly one in five Americans who rely on the program.

The outlook is even more uncertain for late-career Gen Xers (currently ages 46 to 61), who are closing in on retirement. According to AARP polling, 41% of Gen Xers plan to rely on Social Security as their primary source of retiree income — meaning a sudden 22% benefit cut could derail their retirement.

History suggests that panic might be an effective motivator. The last major legislative rescue in 1983 passed just months before the trust funds ran dry. Proposals for the current crisis are rolling in.

• For instance, Sens. Elizabeth Warren (D-Mass.) and Bernie Moreno (R-Ohio) published a joint plan in the New York Times to eliminate the $184,500 payroll tax cap on high earners to fund the shortfall.
• Supporters say this could inject $3 trillion into the program over a decade.
• But some fiscal models, such as those from the Tax Foundation, warn that raising the tax cap alone won't be sufficient to guarantee long-term solvency, returning the system to annual deficits in only a few years.

At the same time, alongside child savings account vehicles, the Trump administration recently signed an executive order establishing TrumpIRA.gov to help adult workers without workplace plans to invest privately for retirement.

The IRS also recently issued guidance establishing a "safe harbor" for Trump Account gift tax reporting, meaning grandparents and relatives can contribute up to $5,000 without needing to file federal gift tax returns.

While the total elimination of Social Security might be unlikely, the launch of parallel private programs could mark a distinctive shift. The next iteration of American retirement security could rely less on traditional federal guarantees and more on private, market-driven accounts. Stay tuned for updates.

Read More

• Taxes on Social Security Benefits: 6 Things to Know for 2026
• Social Security Tax Limit: What the Higher Cap Means for Your Paycheck
• How to Calculate Taxes on Social Security Benefits

The United States Supreme Court has concluded its current term with the usual flurry of rulings. This year, SCOTUS heard arguments in disputes ranging from gun rights to birthright citizenship, and, as usual, there's been no shortage of controversy.

However, the Court also issued decisions that can ultimately affect the financial bottom lines of everyday people across the country. These rulings, which involve property rights, the independence of monetary policy, and tariff authority, alter key rules for investors, consumers, and homeowners.

Additionally, a separate tax case that the High Court declined to review leaves heightened IRS audit risk in place for some taxpayers…

Curious? Here’s more of what you need to know about what some of the latest SCOTUS cases mean for your finances.

U.S. Supreme Court opinions 2026

Not every Supreme Court ruling necessarily affects your wallet. But the following decisions could have significant consequences for taxes and personal finances at a time when many people are facing financial uncertainty due to inflation and rising costs of housing, food, and gas.

Note: These are not the only decisions from the Court this term that could affect your finances.

#1. Supreme Court property tax ruling

Local governments don’t have to pay fair market value for foreclosed homes

In Pung v. Isabella County, the U.S. Supreme Court held that when a municipality forecloses on a property for unpaid taxes, “just compensation” under the Fifth Amendment to the U.S. Constitution is measured by the actual auction price — not fair market value.

What happened in the case?

A homeowner, Michael Pung, fell behind on roughly $2,200 in property taxes on his home in Isabella County, Michigan. The county foreclosed and sold the home at public auction for $76,008, despite an assessed market value of approximately $194,400.

Pung argued that keeping the difference between the tax debt and the home's fair market value amounted to an unconstitutional taking of equity. So the dispute centered on how to measure any surplus equity owed to a property owner after a tax foreclosure.

Pung said that compensation should be based on the home's market value, while the county maintained that any surplus should be measured using the amount actually realized at auction.

In a 9-0 ruling issued on June 23, 2026, the Supreme Court agreed with the county, holding that surplus equity from a tax foreclosure is measured by the amount realized at a lawful public auction, not by an estimate of the property's market value.

How this may affect your home

Tax foreclosure risk isn't just about losing a home. It can also mean losing equity.

What this means in practice:

• Property tax debt can put your home and your home equity at risk, even if the amount owed is relatively small.
• If a home is sold at tax foreclosure, you might not get back the difference between what it’s worth and what it sells for.
• Setting up a payment plan or resolving delinquent taxes before foreclosure may help.

Note: This case follows a 2023 ruling in Tyler v. Hennepin County, where a unanimous Supreme Court ruled that it’s unconstitutional for a state to take your home to cover your property tax bill while pocketing the profit from your surplus home equity.

Now more than a dozen states allow what some call “home equity theft.”

#2. Supreme Court tariff decision

Presidential authority is limited when it comes to imposing broad tariffs

In Learning Resources, Inc. v. Trump, the U.S. Supreme Court held that the International Emergency Economic Powers Act (IEEPA) does not authorize the executive branch to impose broad tariffs.

What happened in the case?

As Kiplinger has reported, in 2025, President Donald Trump imposed sweeping tariffs on imports from a wide range of countries, with some duties reaching 25%–60% on certain goods. The administration invoked emergency declarations under the International Emergency Economic Powers Act (IEEPA) to justify the measures, arguing that the statute authorized broad action to address national economic and security concerns.

Importers challenged the tariffs, arguing that the executive branch exceeded its statutory authority. Lower courts, including the U.S. Court of International Trade and the Federal Circuit, ruled that IEEPA does not grant tariff-setting power.

The Supreme Court affirmed those courts in a 6-3 decision on February 20, 2026, holding that tariff authority remains a core congressional power tied to taxation and revenue.

How this could impact your finances

Tariffs function as embedded costs within everyday goods and supply chains.

What this could mean in terms of potential benefits:

• Fewer surprise tariffs or sudden consumer cost spikes due to emergency executive tariff declarations
• More predictable pricing for import-heavy goods
• Tariff refunds for some importers

#3. Supreme Court Federal Reserve ruling

There may be limits on removal power when it comes to the Federal Reserve

In Trump v. Cook, the U.S. Supreme Court held that statutory “for-cause” protections limit the executive branch’s ability to remove Federal Reserve governors.

What happened in the case?

The Trump administration attempted to remove Federal Reserve Governor Lisa Cook over alleged discrepancies in financial disclosures, a move seen as part of an effort to assert greater control over the Fed.

Lower courts blocked the removal, and the Supreme Court affirmed in a 5-4 ruling on June 29, 2026, holding that Congress may limit removal authority to protect the Federal Reserve’s independence.

How this could affect your finances

Federal Reserve independence is central to how interest rates and credit conditions are set.

• An independent Fed can fight inflation even when it’s politically unpopular to do so.
• That helps keep inflation expectations more stable over time, which supports steadier borrowing costs and economic planning.

Note: This case was part of a broader decision (consolidated with a case involving the FTC) in which the 6-3 conservative majority expanded presidential power. The Court overturned decades of precedent (known as Humphrey’s Executor) to rule that a President can fire the heads of most other independent regulatory agencies at will. The Fed was essentially treated as the exception in the Cook case.

IRS audit Supreme Court case: Honorable mention

IRS audit risk can be indefinite for fraudulent returns

In Murrin v. Commissioner, the U.S. Supreme Court declined to review an interesting Third Circuit federal court ruling. That leaves in place a decision allowing the IRS to assess taxes beyond the standard statute of limitations when a tax return contains fraud, even if the taxpayer was unaware of the fraud.

What happened in the case?

A taxpayer, Stephanie Murrin, received a notice of deficiency nearly 20 years after filing her federal income tax returns. (The IRS determined that her tax preparer had inserted fraudulent items that significantly understated her tax liability.)

The court found that she acted in good faith and had no knowledge of the preparer’s misconduct. Still, a $65,318 tax deficiency ultimately grew to more than $328,000 once the IRS applied interest and penalties.

The central dispute was whether the normal three-year statute of limitations barred the IRS from assessing additional tax when fraud was present, even if the taxpayer wasn't personally aware of it.

The Third Circuit Court of Appeals held that Internal Revenue Code Section 6501(c)(1) applies to the return itself — meaning fraud on the return removes the standard three-year limitation period regardless of the taxpayer’s intent or knowledge.

Note: This ruling applies in jurisdictions under the Third Circuit, including Pennsylvania, New Jersey, Delaware, and the U.S. Virgin Islands.

How this might impact your taxes

In Third Circuit states and territories, fraud on a tax return can potentially eliminate the normal IRS audit deadline.

What this means for some taxpayers:

• In Pennsylvania, New Jersey, Delaware, and the U.S. Virgin Islands, fraud-related returns may remain open indefinitely.
• Taxpayers remain responsible for accuracy even when using paid preparers.
• Long-delayed IRS assessments could accumulate significant interest and penalties.
• Strong tax recordkeeping and preparer oversight become more important.

SCOTUS decisions: Bottom line for taxpayers

Supreme Court decisions about money and property often don’t drastically change financial conditions right away, but they set the rules for how taxes are enforced, how agencies are regulated, and where power sits in the financial system.

Over time, those rulings shape how predictable things feel for "regular people" and the balance of authority between Congress and the executive branch.

So, as always, stay tuned as the effects of these and other rulings ripple through everyday life in the months and years ahead.

Related

• What a New Fed Chair Can Mean for Your Taxes
• Who Benefits From the Supreme Court's Home Equity Theft Ruling?
• How Long Should You Keep Tax Records?
• U.S. Supreme Court Strikes Down Most of Trump's Tariffs

I've chosen to defer my tax payments until I die.

That's not a loophole. It's not evasion. It's a sequence of decisions built on top of existing tax code, executed over decades.

Depreciation is just half the story. The real game is chaining deferrals across a lifetime so you never pay the recapture — and neither do your heirs.

Here's how the sequence works.

The recapture problem

When you sell a depreciated asset, the IRS collects recapture tax at 25%. If you've spent years zeroing out your income through depreciation, the accumulated liability can be enormous.

Sell a $10 million property with $3 million of depreciation taken, and you owe $750,000 in recapture alone, plus capital gains tax on any appreciation.

Every investor eventually asks: Is there a way to avoid triggering recapture?

Yes. Don't sell.

The 1031 exchange: Selling without selling

Section 1031 of the tax code lets you exchange one piece of real estate for another of "like kind" without triggering a taxable event. You use a qualified intermediary who holds the proceeds and transfers them into the replacement property. You never touch the money, so the IRS doesn't treat it as a sale.

"Like kind" is broad for real estate. Apartments for industrial. Retail for ranch land. A duplex for a 50-unit complex. Real estate for real estate.

One critical limitation: Since 2017, you can no longer exchange equipment, vehicles, aircraft or boats. You used to be able to swap your yacht for another yacht, your plane for another plane. That's gone. Real estate is the last category standing.

The growth sequence

The 1031 exchange isn't a one-time move. It's a repeatable mechanism for scaling.

Buy a 10-unit apartment. Operate it, take depreciation, build equity through appreciation and debt paydown. Exchange into a 20-unit. Then 50. Then 100. Each exchange resets depreciation — you get a new cost segregation study on the replacement property — while deferring all prior gains and recapture.

Over a lifetime, this compounds into a large portfolio built substantially with deferred tax dollars.

But bear in mind that these properties aren't mailbox money. Apartments are active businesses with tenants, maintenance, management and capital calls. The tax benefit doesn't change the fact that you're running a business.

The mineral rights exit

At some point, you get tired of being a landlord.

The final 1031 exchange converts real estate holdings into deeded mineral rights. Mineral rights are real property — deeded interests in land — so they qualify for exchange. And unlike apartments, minerals are truly passive: No capital calls, no expenses, no management obligations. Operators drill on your mineral rights and pay you a royalty, typically 10% to 25% of gross revenue. Not profit. Revenue.

That's the endgame. You've gone from active apartment operations to passive mineral royalties without ever triggering a taxable event. Maybe you started when you were 30. Now you're 70. You've deferred all of your income and all of your taxes through your entire investing career.

And then you die.

The generational reset

When assets pass through your estate — not a trust, and that distinction matters — your heirs receive what's called a stepped-up cost basis. The IRS revalues the asset at its current fair market value on the date of death, not the original purchase price.

Here's what that looks like. You bought properties over your lifetime for a combined $1 million. Through decades of 1031 exchanges, appreciation and reinvestment, your portfolio is now worth $30 million. You've deferred millions in recapture and capital gains.

When you die, you and your spouse's heirs inherit the portfolio at a $30 million basis. The prior $1 million basis is gone. The deferred recapture is gone. The capital gains are gone. Your heirs could sell the entire portfolio the next day and owe zero in capital gains tax.

Under the One Big Beautiful Bill Act, the estate tax exemption is now $15 million for individuals and $30 million for married couples, permanently. As long as the total estate is under that threshold, the assets pass to heirs with no estate tax and a full stepped-up basis.

Fair warning: Never place 1031 exchange assets into a trust. Assets must remain in the estate to receive the step-up. If they're in a trust, heirs will inherit the original low basis, and all that deferred recapture comes due. That's the kind of mistake that undoes decades of planning. Coordinate with your estate attorney and CPA.

What could change

It's worth remembering that none of these provisions is guaranteed forever. Bonus depreciation has survived every administration for 25-plus years, across both parties, but it has changed form repeatedly — 50% versus 100%, new-only versus used, permanent versus temporary.

1031 exchange rules already narrowed in 2017 when equipment exchanges were eliminated. The $30 million estate exemption for married couples is new. The stepped-up basis provision has been a target for reform in multiple past legislative proposals.

The strategy works under current law. Build the plan, but keep a pulse on the tax code and be quick to adapt when you must.

The full arc

The sequence is straightforward: Earn income, offset with depreciation, 1031 exchange into larger properties, exchange into minerals, hold until death.

At no point in this chain does a taxable sale occur. Tax deferral, executed correctly across a lifetime, starts to look a lot like tax elimination.

Legally. Across generations.

Related Content

• 5 Options for That Stock You Have Too Much Of (Plus, the Risks to Know)
• What Is Capital Gains Tax Deferral?
• Don't Defer Retirement if You're a Landlord, Defer Taxes Instead
• 10 Ways Your 1031 Exchange Can Go Horribly Wrong
• How Investing in Oil and Gas Mineral Rights Can Help You Step Off the 1031 Exchange Treadmill

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

The United States Supreme Court has concluded its current term with the usual flurry of rulings. This year, SCOTUS heard arguments in disputes ranging from gun rights to birthright citizenship, and, as usual, there's been no shortage of controversy.

However, the Court also issued decisions that can ultimately affect the financial bottom lines of everyday people across the country. These rulings, which involve property rights, the independence of monetary policy, and tariff authority, alter key rules for investors, consumers, and homeowners.

Additionally, a separate tax case that the High Court declined to review leaves heightened IRS audit risk in place for some taxpayers…

Curious? Here’s more of what you need to know about what some of the latest SCOTUS cases mean for your finances.

U.S. Supreme Court opinions for 2026

Not every Supreme Court ruling necessarily affects your wallet. But the following decisions could have significant consequences for taxes and personal finances at a time when many people are facing financial uncertainty due to inflation and rising costs of housing, food, and gas.

Note: These are not the only decisions from the Court this term that could affect your finances.

#1. Supreme Court property tax ruling

Local governments don’t have to pay fair market value for foreclosed homes

In Pung v. Isabella County, the U.S. Supreme Court held that when a municipality forecloses on a property for unpaid taxes, “just compensation” under the Fifth Amendment to the U.S. Constitution is measured by the actual auction price — not fair market value.

What happened in the case?

A homeowner, Michael Pung, fell behind on roughly $2,200 in property taxes on his home in Isabella County, Michigan. The county foreclosed and sold the home at public auction for $76,008, despite an assessed market value of approximately $194,400.

Pung argued that keeping the difference between the tax debt and the home's fair market value amounted to an unconstitutional taking of equity. So the dispute centered on how to measure any surplus equity owed to a property owner after a tax foreclosure.

Pung said that compensation should be based on the home's market value, while the county maintained that any surplus should be measured using the amount actually realized at auction.

In a 9-0 ruling issued on June 23, 2026, the Supreme Court agreed with the county, holding that surplus equity from a tax foreclosure is measured by the amount realized at a lawful public auction, not by an estimate of the property's market value.

How this may affect your home

Tax foreclosure risk isn't just about losing a home. It can also mean losing equity.

What this means in practice:

In Pung v. Isabella County, the U.S. Supreme Court held that when a municipality forecloses on a property for unpaid taxes, “just compensation” under the Fifth Amendment to the U.S. Constitution is measured by the actual auction price — not fair market value.

What happened in the case?

A homeowner, Michael Pung, fell behind on roughly $2,200 in property taxes on his home in Isabella County, Michigan. The county foreclosed and sold the home at public auction for $76,008, despite an assessed market value of approximately $194,400.

Pung argued that keeping the difference between the tax debt and the home's fair market value amounted to an unconstitutional taking of equity. So the dispute centered on how to measure any surplus equity owed to a property owner after a tax foreclosure.

Pung said that compensation should be based on the home's market value, while the county maintained that any surplus should be measured using the amount actually realized at auction.

In a 9-0 ruling issued on June 23, 2026, the Supreme Court agreed with the county, holding that surplus equity from a tax foreclosure is measured by the amount realized at a lawful public auction, not by an estimate of the property's market value.

How this may affect your home

Tax foreclosure risk isn't just about losing a home. It can also mean losing equity.

What this means in practice:

• Property tax debt can put your home and your home equity at risk, even if the amount owed is relatively small.
• If a home is sold at tax foreclosure, you might not get back the difference between what it’s worth and what it sells for.
• Setting up a payment plan or resolving delinquent taxes before foreclosure may help.

#2. Supreme Court tariff decision

Presidential authority is limited when it comes to imposing broad tariffs

In Learning Resources, Inc. v. Trump, the U.S. Supreme Court held that the International Emergency Economic Powers Act (IEEPA) does not authorize the executive branch to impose broad tariffs.

What happened in the case?

As Kiplinger has reported, in 2025, President Donald Trump imposed sweeping tariffs on imports from a wide range of countries, with some duties reaching 25%–60% on certain goods. The administration invoked emergency declarations under the International Emergency Economic Powers Act (IEEPA) to justify the measures, arguing that the statute authorized broad action to address national economic and security concerns.

Importers challenged the tariffs, arguing that the executive branch exceeded its statutory authority. Lower courts, including the U.S. Court of International Trade and the Federal Circuit, ruled that IEEPA does not grant tariff-setting power.

The Supreme Court affirmed those courts in a 6-3 decision on February 20, 2026, holding that tariff authority remains a core congressional power tied to taxation and revenue.

How this could impact your finances

Tariffs function as embedded costs within everyday goods and supply chains.

What this could mean in terms of potential benefits:

• Fewer surprise tariffs or sudden consumer cost spikes due to emergency executive tariff declarations
• More predictable pricing for import-heavy goods
• Tariff refunds for some importers

#3. Supreme Court Federal Reserve ruling

There may be limits on removal power when it comes to the Federal Reserve

In Trump v. Cook, the U.S. Supreme Court held that statutory “for-cause” protections limit the executive branch’s ability to remove Federal Reserve governors.

What happened in the case?

The Trump administration attempted to remove Federal Reserve Governor Lisa Cook over alleged discrepancies in financial disclosures, a move seen as part of an effort to assert greater control over the Fed.

Lower courts blocked the removal, and the Supreme Court affirmed in a 5-4 ruling on June 29, 2026, holding that Congress may limit removal authority to protect the Federal Reserve’s independence.

How this could affect your finances

Federal Reserve independence is central to how interest rates and credit conditions are set.

• An independent Fed can fight inflation even when it’s politically unpopular to do so.
• That helps keep inflation expectations more stable over time, which supports steadier borrowing costs and economic planning.

Note: This case was part of a broader, sweeping decision (consolidated with a case involving the FTC) where the 6-3 conservative court majority expanded presidential power. The Court overturned decades of precedent (known as Humphrey’s Executor) to rule that a President can fire the heads of most other independent regulatory agencies at will. The Fed was essentially treated in the Cook case as the exception.

IRS audit Supreme Court case: Honorable mention

IRS audit risk can be indefinite for fraudulent returns

In Murrin v. Commissioner, the U.S. Supreme Court declined to review an interesting Third Circuit federal court ruling. That leaves in place a decision allowing the IRS to assess taxes beyond the standard statute of limitations when a tax return contains fraud, even if the taxpayer was unaware of the fraud.

What happened in the case?

A taxpayer, Stephanie Murrin, received a notice of deficiency nearly 20 years after filing her federal income tax returns. (The IRS determined that her tax preparer had inserted fraudulent items that significantly understated her tax liability.)

The court found that she acted in good faith and had no knowledge of the preparer’s misconduct. Still, a $65,318 tax deficiency ultimately grew to more than $328,000 once the IRS applied interest and penalties.

The central dispute was whether the normal three-year statute of limitations barred the IRS from assessing additional tax when fraud was present, even if the taxpayer wasn't personally aware of it.

The Third Circuit Court of Appeals held that Internal Revenue Code Section 6501(c)(1) applies to the return itself — meaning fraud on the return removes the standard three-year limitation period regardless of the taxpayer’s intent or knowledge.

Note: This ruling applies in jurisdictions under the Third Circuit, including Pennsylvania, New Jersey, Delaware, and the U.S. Virgin Islands.

How this might impact your taxes

In Third Circuit states and territories, fraud on a tax return can potentially eliminate the normal IRS audit deadline.

What this means for some taxpayers:

• In Pennsylvania, New Jersey, Delaware, and the U.S. Virgin Islands, fraud-related returns may remain open indefinitely.
• Taxpayers remain responsible for accuracy even when using paid preparers.
• Long-delayed IRS assessments could accumulate significant interest and penalties.
• Strong tax recordkeeping and preparer oversight become more important.

SCOTUS decisions: Bottom line for taxpayers

Supreme Court decisions about money and property often don’t drastically change financial conditions right away, but they set the rules for how taxes are enforced, how agencies are regulated, and where power sits in the financial system.

Over time, those rulings shape how predictable things feel for "regular people" and the balance of authority between Congress and the executive branch.

So, as always, stay tuned as the effects of these and other rulings ripple through everyday life in the months and years ahead.

Related

• What a New Fed Chair Can Mean for Your Taxes
• Who Benefits From the Supreme Court's Home Equity Theft Ruling?
• How Long Should You Keep Tax Records?
• U.S. Supreme Court Strikes Down Most of Trump's Tariffs

It's no secret that retirement tax rules can be tricky to master, especially since they often change significantly from how our income was taxed during our working years. And if older adults find retirement taxes confusing, younger workers — who are decades away from retiring — likely feel less prepared.

A study by the Teachers Insurance and Annuity Association of America (TIAA) Institute, a financial research organization, and the Global Financial Literacy Excellence Center (GFLEC) recently highlighted this knowledge gap.

The study revealed that Generation Z (those born between 1997 and 2007) scored an average of just 29% on a "retirement fluency" test. By comparison, Baby Boomers (those born between 1946 and 1964) answered only 44% of the questions correctly.

Inspired by this finding, we decided to look at a specific, crucial piece of the retiree puzzle: retirement taxes. Can retirement-aged individuals prove their experience, or will a younger worker surprise us?

To find out, we tested a Gen Z working professional (28 years old) outside the financial sector with five retirement tax questions.

That person scored a 40%. Now, it's your turn. Good luck!

Hint: This quiz covers federal retirement tax rules and doesn't include how states tax retirees.

Explore More

• Learn about how to save on taxes with education tax breaks.
• Here's how the IRS actually taxes retirement income.
• Passing on or inheriting a home? 40% of heirs say they can't afford it.
• Gen X, Boomers, Millennials, or Gen Z: which generation pays the most taxes?

For millions across the country, the 2026 midyear mark is as much a time for financial planning as it is for celebration. This summer marks America's 250th birthday — a historic milestone for our country's independence.

But while the nation was founded on a rebellion against unfair taxes, tossing your computer into the nearest harbor probably wouldn't work when it comes time to pay the IRS; December 31st is the final deadline for most 2026 tax year money moves.

Instead, you might just want to look to the wisdom of founding father and financial thinker, Benjamin Franklin, this planning season.

Franklin famously noted that, "nothing can be said to be certain except death and taxes." And though you can't escape either, you can control how much you overpay the government.

By applying Ben Franklin's wisdom to midyear tax planning today, you could help secure your retirement nest egg, fund intergenerational wealth, and potentially lower your tax bill in 2026. Here's how.

1. "The Doors of Wisdom are never shut."

Popularized in the 1755 edition of the Almanac, Franklin quoted this proverb to challenge the status quo in how we do things; it's easy to fall into a routine of wash, rinse, and repeat.

But routinely doing your taxes the same way every year can cost you. Gain a little midyear tax wisdom through the following ways:

• Learn midyear strategy. You don't have to wait until April to learn a new tax strategy. Platforms like the IRS Video Learning Portal and tax software academy portals offer free, year-round webinars to help you spot planning opportunities before the year-end deadline strikes.
• Revitalize your filing plan. Your revenue streams may change, and so should your taxes. For instance, if your financial situation has simplified, you might no longer need an expensive tax professional anymore. Alternatively, if you've bought property or started a business, doing taxes yourself might cause you to overlook certain tax deductions and credits.
• Save with free tax tools. There are several ways to file your taxes for free each year. For example, the IRS reports that millions of taxpayers have saved over a billion dollars collectively using IRS Free File alone. Evaluate free filing tools available to you now, while you're outside of the chaotic tax season stress.

2. "Beware of little expenses; a small Leak will sink a great Ship."

In the Almanac, Poor Richard warns that "a little punch" or extra tea now and then might seem like "no great Matter," but accumulated tiny expenses can sink your long-term financial ship.

In terms of midyear tax planning, the lesson is simple: Don't miss the small stuff. Now is the perfect time to audit your tax records before the end-of-year holiday chaos.

• Audit your health accounts. Check your Flexible Spending Account (FSA) or Health Savings Account (HSA) balances. Ensure your medical procedures, prescriptions, and qualifying purchases are properly documented with clean receipts (no matter how small), and budget out your remaining FSA funds if your plan has a strict year-end deadline.
• Track new tax provisions. If you plan on claiming provisions from the 2025 Trump tax bill, tracking documentation is key. For example, the car loan interest deduction allows you to deduct up to $10,000 in interest, but only if the vehicle was bought new, is used primarily for personal use, and had its final assembly in the U.S. Make sure you qualify for all the tax deductions and credits you plan on claiming.
• Organize the paper trail. Start digging through your kitchen junk drawer or email folders. You'll want to make sure you have your tax mileage log on file if you're, say, a ride-share driver, or have your gambling tax documentation if you've placed a bet this year. Start the family's designated "tax folder" now to avoid unnecessary stress later.

3. "Early to Bed and early to rise, makes a Man healthy, wealthy, and wise."

Printed in the 1735 edition of the Almanac, this phrase originally praised the discipline of an industrious lifestyle. Let's modernize that approach and polish it into a midyear tax mantra:

"Early to check and early to optimize makes you more planned, less stressed, and energized."

Corny, sure.

But a midyear checkup ensures you aren't accidentally giving Uncle Sam an interest-free loan — or worse, setting yourself up for an IRS underpayment fee or penalty. Here's the phrase broken down:

For more information on how to plan your tax payments and optimize your withholdings, check out Kiplinger's reports on Estimated Tax Payments and 13 Things Every Worker Needs to Know About Withholding.

4. "Having been poor is no Shame, but being ashamed of it is."

Printed in 1749, this quote reminds us that financial struggle is often a consequence of shifting circumstances, not a lack of virtue. In tax planning, knowing how to handle these financial pivots — and leveraging the IRS code to protect your downside — can be a key tool in your tax toolbelt.

Here's how we can relate that to our midyear tax planning strategy:

• Harvest your investment losses. Know when a position isn't working out. Through tax-loss harvesting, you can sell underperforming equities to counteract your capital gains. If your losses exceed your gains, you can use them to offset up to $3,000 of ordinary income, carrying the rest over to future years.
• Strategize charitable giving. If you want to support a cause close to your heart, plan those donations now rather than scrambling in December. Strategizing early helps you maximize itemized charitable deductions and navigate the new 2026 rules on charitable giving.
• Utilize a QCD. If you're age 70½ or older, you can make a qualified charitable distribution (QCD) directly from your IRA to an eligible charity. This counts toward your required minimum distribution (RMD), the minimum annual amount you must withdraw after reaching a certain age, and also helps keep that money out of your AGI, potentially lowering your tax bill.

5. "Money can beget Money, and its Offspring can beget more."

Moving away from the Almanac, this quote comes from Franklin's 1748 essay, "Advice to a Young Tradesman." Franklin was explaining compound interest, noting that money is of a "prolific generating nature."

Retirement accounts and legacy planning are perfect examples of compounding wealth while avoiding high taxes. And midyear is a great time to double-check that your savings vehicles are on track.

• Maximize pre-tax contributions. If you're currently working and in a higher tax bracket than you expect to be in retirement, maximize your traditional 401(k) or other traditional IRA contributions now. It lowers your taxable income today and gives you more immediate cash flow to save or invest. Later, when your federal tax bracket is (hopefully) a little lower, you'll be taxed on the contributions when you withdraw them.
• Plan the "perfect" Roth conversion window. If you anticipate an upcoming low-income year — maybe you're freshly retired but haven't started drawing Social Security or reaching your RMD age yet — plan a potential Roth IRA conversion ahead of time. Converting traditional retirement funds into a Roth during a low-income year allows you to pay a low tax rate on the conversion, but while there are six reasons to convert to a Roth, there are reasons not to.
• Evaluate your estate tax plan. Check in with your financial advisor about your new estate tax exemption amount. Are you optimizing for the stepped-up basis of inherited assets, leaving appreciated equity without capital gains after death? Also, review whether you should use the annual gift tax exclusion to pass tax-free assets to children or grandchildren in 2026.

From shifting brackets to new legislative bills, tax planning is typically a moving target that requires at least a bi-annual checkup.

While a great financial professional can help you tailor these moves to your specific roadmap, keeping these five pieces of financial wisdom in mind may help you avoid being caught off guard and keep you focused on what matters most this summer — celebrating.

Happy planning!

This article is for informational purposes only and does not constitute professional tax or financial advice. Tax laws (including state taxes) are subject to change and vary by individual circumstances. Consult with a qualified tax professional regarding your specific situation.

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The death of a partner often forces a surviving spouse to face two challenging and conflicting timelines at once: The open-ended process of grief and the immediate reality of financial and tax deadlines and consequences.

Chief among these is the so-called "widow’s penalty."

Despite the name, we're not talking about an official IRS penalty or surcharge. Rather, the widow's penalty is a series of tax and financial shifts that occur when a surviving spouse's tax filing status changes from married filing jointly to single.

The amount of tax-friendly space available to the surviving spouse changes as the standard deduction shrinks, federal income tax brackets compress, and Medicare income thresholds become less favorable.

Meanwhile, tax returns still have to be filed. Retirement accounts continue generating required distributions, and Medicare premiums are recalculated according to established rules and deadlines.

To visualize this, imagine traffic flowing on a four-lane highway suddenly merging into one. The number of cars remains the same, but there is far less room to move.

Understanding these changes and how they interact can help surviving spouses anticipate surprises before they appear on a tax return, Medicare notice, or unexpected bill. Here's more of what you need to know.

The reality of single filing status after a loss

At the center of the widow’s penalty is a deceptively simple shift: moving from married filing jointly to filing as a single taxpayer.

In the year a spouse dies, the surviving spouse can generally still file a joint tax return. By the following tax year, however, many widows and widowers begin facing a very different tax landscape.

Wider federal income tax brackets, a larger standard deduction, and other advantages available to married couples may no longer apply, potentially increasing the taxes owed on the same retirement income.

You can see the differences in the following table.

2026 Tax Thresholds: Single vs Married Filing Jointly

For 2026, the 12% federal tax bracket extends to $100,800 for married couples filing jointly. For single filers, that same bracket tops out at $50,400.

Federal income tax brackets compressed. A widow whose retirement income once fit comfortably within the 12% bracket while married may suddenly find any income over $50,400 pushed into the 22% bracket the very next year.

The standard deduction is cut in half. Even if the surviving spouses' total household income drops slightly, a much larger portion of it is exposed to higher tax rates. This is because the surviving spouse is now claiming a smaller standard deduction; they often end up paying taxes on a much larger share of their remaining income than they expected.

In short, the widow's penalty shift isn’t necessarily driven by more income. Instead, it often reflects the reality that the tax code provides fewer advantages once a surviving spouse begins filing as a single taxpayer.

Your income may fall, but taxable income often doesn’t

One of the most common misconceptions surrounding the widow’s penalty is the assumption that household income is automatically cut in half after the death of a spouse.

Retirement finances, however, are rarely that simple, and a lower income does not automatically result in a lower tax bill.

A surviving spouse may lose one Social Security benefit and potentially a portion of pension income. Other sources of retirement income may continue unchanged, including:

• Investment income continues, survivor benefits may kick in, and retirement accounts must still generate Required Minimum Distributions (RMDs).
• These mandatory withdrawals increase adjusted gross income (AGI), which can further complicate the picture by triggering higher Medicare premiums and increasing the taxable portion of Social Security benefits.

Ultimately, household income may decline, but the tax advantages that once helped shelter that income decline as well.

For instance, if both you and your spouse qualified for the new "senior bonus" deduction, your total tax break might have been $12,000. Now, that tax deduction is capped at $6,000.

Other overlooked tax deductions and credits might be lower with just one individual in the household rather than two.

Why more of your Social Security benefits may become taxable

Many retirees assume that if they’re receiving fewer Social Security benefits after the death of a spouse, they’ll owe less tax on those benefits. In reality, the opposite can sometimes occur.

• Although a surviving spouse may lose one Social Security check, they often continue receiving the larger of the two benefits.
• At the same time, they may be filing as a single taxpayer under a different set of income thresholds.
• As a result, a larger percentage of Social Security benefits may become subject to federal income tax.

For single filers, the thresholds used to calculate taxable Security benefits are significantly lower than those available to married couples filing jointly.

But the rule of taxability remains the same. Up to 85% of their Social Security benefits may be taxable, depending on a survivor’s income, including from retirement accounts, pensions, and other sources.

That is another example of how the widow’s penalty can emerge through changes elsewhere in a surviving spouse’s financial picture.

Medicare premiums can rise even if income falls

For many retirees, Medicare premiums are one of the last places they expect to encounter the widow’s penalty. Yet for some surviving spouses, healthcare costs can become part of the equation.

In many cases, the answer lies in a Medicare surcharge known as the Income-Related Monthly Adjustment Amount, or IRMAA. Higher-income beneficiaries pay additional Medicare Part B and Part D premiums, and those surcharges are based on income reported on a tax return from two years earlier.

• Because IRMAA uses a two-year income lookback and lower income thresholds for single taxpayers, some surviving spouses may find themselves paying higher Medicare premiums even if household income has declined.
• In some cases, surviving spouses may be able to request an IRMAA adjustment based on a qualifying life-changing event, including the death of a spouse, by filing Form SSA-44 with the Social Security Administration (SSA).

Still, IRMAA is another example of how several separate rules can quietly stack on top of one another, exacerbating the widow's penalty.

What surviving spouses can do now

Even though every situation is different, there are some planning opportunities worth discussing with a qualified tax professional or financial advisor who can advise you on your specific situation. Here are a few to get you started.

Taking advantage of the final joint-filing year. The year a spouse passes away provides a final opportunity to leverage the wider "married filing jointly" tax brackets and a larger standard deduction before your filing status changes.

Exploring strategic Roth conversions. Converting portions of a traditional IRA into a Roth IRA during the final joint-filing year — or during lower-income transition years — can help shrink future mandatory distributions and reduce long-term taxable income.

For example, converting $25,000 from a traditional IRA to a Roth IRA during a lower-income year may allow a surviving spouse to lock in a lower tax rate and create a source of tax-free income later in retirement.

Monitoring Medicare income thresholds. Because Medicare relies on a two-year lookback to determine IRMAA surcharges, spikes in taxable income today can dramatically increase your future Part B and Part D premiums.

Working with a tax professional to spread large withdrawals or Roth conversions over multiple years may help avoid crossing into a higher IRMAA bracket.

If your income falls due to a qualifying life-changing event, you may be able to request a new IRMAA determination using Form SSA-44.

Coordinating Social Security survivor benefits. Deciding when to switch from your own retirement benefit to a survivor benefit (or vice versa) requires careful timing to maximize lifelong guaranteed income while managing the sudden shift to single tax brackets.

Reviewing your Social Security claiming strategy may help optimize survivor benefits while minimizing potential tax consequences.

And keep in mind, this piece discusses federal income tax rules and changes, but state income tax consequences may differ. So always consult a trusted advisor who can help with your individual circumstances.

Related

• Taxes on Social Security Benefits: 6 Things You Need to Know
• 2026 Federal Tax Brackets and Income Tax Rates
• Filing a Deceased Person's Final Income Tax Return

The aphorism "If you fail to plan, you're planning to fail" is commonly attributed to Benjamin Franklin.

Even if the words are his, he wouldn't have been thinking about income taxes when he wrote them. Those were introduced in 1862 to temporarily fund the Civil War. The 16^th Amendment made them permanent in 1913.

Today's income taxes are quite complex compared to the type of taxation people would have known in the days of the Founding Fathers. And you'll need to take an active, strategic approach to managing them if you want to optimize your financial position.

In general, for income of $150,000 or under, there are specific concerns and ways to approach the planning. For those with $500,000 and more in income, there are different concerns and approaches.

There is no doubt that proper tax planning helps at any level, but in the "messy middle," between $150,000 and $500,000, there is more complexity than necessary.

The challenges of active tax management

One of the biggest challenges in active tax management is synthesizing all the information to uncover what can reduce your tax burden as much as possible in the future, and not just in the current year.

You might be unaware of various deductions, state-specific rules and thresholds that can kick you into a higher bracket, eliminate or phase out a deduction, or cause other unforeseen expenses now or later.

It is a balancing act that is based on and informed by income sources, assets, ways assets are owned, taxation attributes of types of assets, financial goals, expectations about the future of taxes and sometimes even legacy intentions.

For many, the complexity requires a professional to dig into the details, ask the right questions and help devise the best strategy or mixture of strategies. An expert can provide objective analysis that identifies missed deductions and potential opportunities, ensures regulatory compliance, mitigates risks and increases net after-tax long-term wealth.

Whether you do your own tax planning or hire a tax professional, the important point is being intentional — making tax planning a priority in your financial plan (at the very least giving it equal importance to investment, income, legacy and protection planning) and making choices to ensure you are protecting as much of your savings and assets as possible for the long term for the best possible taxation.

Learning the tax implications of your income range

The starting point in active tax management is figuring out your likely income range and optimal tax strategies for now and for retirement. Tax rates can change in the future, but the important approach now is to identify an income range where you think you could settle tax liability at reasonable rates, avoid paying unnecessary taxes and set up a future where you have some flexibility to manage brackets later.

Let's focus on the tricky messy middle — those with between $150,000 and $500,000 in income. For the 2026 tax year, that range of income spans three tax brackets (22%, 24%, 32%) for married couples filing jointly and three for single/married filing single (24%, 32%, 35%).

That range points out the importance of active tax management not only because of the various tax rates, but also because there are numerous deduction phase-outs and additional tax triggers.

Here are just some of those (based on the 2026 tax year).

Net investment income tax (NIIT). This is an additional 3.8% federal tax on certain types of investment income. It applies to individuals with modified adjusted gross income (MAGI) exceeding $200,000 (for single filer/head of household) and $250,000 (married filing jointly/surviving spouse).

Once you cross into these ranges, every dollar of investment income becomes less efficient, making proactive tax planning significantly more valuable. The NIIT applies to income such as interest and dividends, capital gains (stocks, real estate, funds), rental and passive income and certain annuity income.

Long-term capital gains rates. Another negative impact of the NIIT: It effectively raises long-term capital gains rates to 18.8% (15% + 3.8%) or 23.8% (20% + 3.8%), depending on your filing status and income level.

Qualified business income (QBI) deduction. The QBI deduction is a tax break allowing eligible self-employed individuals and pass-through business owners (partnerships, LLCs, S corps) to deduct up to 20% of their qualified business income from their personal taxes.

In 2026, the phase-out range (for some in specified trades or businesses) is $403,500 to $553,500 for married joint filers, $201,775 to $276,775 for single filers.

Child tax credit. The phase-out starts at $200,000 for single/head-of-household filers and $400,000 for married couples filing jointly. The credit amount is reduced by $50 for every $1,000 of income above these thresholds.

Deduction for those who are 65-plus. A new $6,000 deduction for individuals aged 65-plus phases out between a MAGI of $75,000 to $175,000 for singles and $150,000 to $250,000 for married joint filers. The deduction reduces by six cents for every dollar over the limits.

State and local tax deduction (SALT). With MAGI just over $505,000, you begin to lose the increased SALT deduction, but for now, for many with income under $500,000, a higher deduction may mean itemizing for the first time in a while.

Charitable contributions. Donations are only deductible to the extent they exceed 0.5% of your adjusted gross income (AGI). For example, with an AGI of $300,000, only donations over $1,500 are deductible as an itemized deduction, and then only if you itemize. There is now a small "above the line" deduction for those not itemizing. (A note for those in the top tax bracket: A limitation on itemized deductions comes into play for you.)

Increased Medicare premium surcharges. The income-related monthly adjustment amount (IRMAA) is a surcharge added to Medicare Part B and Part D. It is based on your MAGI from two years prior. Single filers with income ranges from $109,000 to $500,000+ pay progressively higher surcharges, as do those filing married jointly from $218,000 to $750,000+.

For example, a married couple filing jointly with a MAGI of $280,000 would pay approximately double for Medicare premiums relative to those who make $215,000.

This is an especially tricky one to navigate and is not felt until two calendar years later, based on how Medicare premiums are determined. You go over a threshold by just a dollar, and it could cost you hundreds, if not thousands.

The widow's tax penalty. This is a surge in federal income tax liability and Medicare premiums that occurs when a surviving spouse shifts from married filing jointly to single status, typically one year after their spouse passes away.

For higher-income individuals, the penalty can be severe because they often have income sources (pensions, IRAs, investments) that do not decrease when a spouse dies.

Most often, the surviving spouse spends about the same money and needs the same amount of funds to accomplish that, which means the same amount of income while the brackets have been cut in half. The IRMAA charges are higher at lower income levels, too, for the surviving spouse.

Take control and reap the rewards

Active tax management is no longer beneficial for just the ultra-wealthy; it is a necessity for anyone and beneficial for those navigating the increasingly complex $150,000 to $500,000 income range.

This bracket is filled with hidden triggers, phase-outs and surtaxes that can quietly erode wealth if left unaddressed. The difference between reactive and proactive planning can mean thousands of dollars kept or lost each year and over a lifetime.

Understand what you have, what you can do now and what you can do later, so you can either defer income or settle tax liability when it makes sense. That approach allows you to optimize your current and future tax situation.

By understanding how the various ingredients and thresholds interact — and by making intentional, forward-looking decisions around income, investments and timing — you can take greater control of your financial outcomes and your net after-tax dollars.

Remember, you do not get to spend pre-tax dollars — it is only the after-tax dollars you get to spend. As the great Yogi Berra once said, "If you don't know where you are going, you'll end up someplace else."

Dan Dunkin contributed to this article.

Appearances on Kiplinger.com were obtained through a paid public relations program. The author received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.

The information contained herein is for educational purposes only. It is not intended to provide, and should not be relied on for, any tax, legal or investment advice. You are advised to seek the advice of a qualified professional prior to making any decision based on any specific information contained herein. The specific tax consequences of any investment or strategy will depend on your specific tax situation.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Each week in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter editor, answers questions on topics submitted by readers. This week, she's looking at four tax questions on amended returns and penalties for filing your tax return late. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. Refund on amended return

Question: I filed Form 1040-X in early May to amend my 2024 federal tax return. I am expecting a refund, and I haven't received it yet. What is the delay?

Joy Taylor: I generally advise taxpayers to have lots of patience when filing an amended federal tax return with the IRS. The agency says you should allow at least 8 to 12 weeks for your Form 1040-X to be processed. However, in some cases, processing could take up to 16 weeks. Note that the IRS website also says that the Service is beginning to process paper-filed Forms 1040-X that were filed in April.

Maybe the processing speed will pick up later this year. The IRS's CEO, Frank Bisignano, testified before Congress that the IRS is using artificial intelligence to reduce processing times of amended returns to as little as three days. We'll see how this plays out over time.

You can use the IRS's "Where's My Amended Return" online tool to check the status of your amended return filing.

2. Amended return filing deadline

Question: I am thinking of amending my 2023 Form 1040, which I filed in February 2024. When is the due date for filing Form 1040-X to amend that return?

Joy Taylor: You generally have (1) three years from the due date of your original Form 1040 or (2) two years from the date you paid any tax due, if later, to amend it by filing an amended return on Form 1040-X. If you filed your original Form 1040 before its due date, it is considered filed on April 15. So, in your case, you would have to file an amended return no later than April 15, 2027.

3. Filing a late refund return

Question: I haven't yet filed my 2024 Form 1040. I plan to do so soon. I know I will get a refund when I do file. But will I have to pay any penalties for my late filing?

Joy Taylor: No, you will not have to pay any delinquency penalties for filing your 2024 Form 1040 late. That’s because taxpayers owe late-filing or late-payment penalties only if they owe tax, and you say you will receive a tax refund. Note that you must file your 2024 return by April 15, 2028, to get your refund. Otherwise, you have essentially ceded the money to the government.

4. Penalty abatement

Question: I haven't yet filed my 2025 Form 1040. I know I will owe tax, and I didn't request a filing extension nor did I pay the tax by the April 15 due date. I hope to file my return next month. This is the first time I have ever filed a late return with the IRS. How much will the agency penalize me for my late filing?

Joy Taylor: You may be in luck. The IRS has a little-known first-time penalty abatement policy. It will approve a waiver of the late-filing and late-payment penalties for filers who pay or arrange to pay the tax due and have been tax-compliant for the past three years. The penalties for late payroll-tax deposits and delinquent returns of S corporations or partnerships are also eligible for the waiver if the conditions are satisfied. But the estimated-tax penalty (also called the underpayment penalty) doesn't qualify for this penalty abatement program.

You may have to request the waiver. If you get a notice from the IRS showing a late-payment or late-filing penalty due but not abated, follow the instructions in the letter or call the phone number on the notice. The IRS has said that it will begin to automatically provide first-time penalty abatement to taxpayers who qualify for relief, starting with 2025 tax returns filed this year. But I am not sure whether the IRS has yet implemented this automatic procedure, which the agency will refer to as automatic exemption of penalties. If the IRS has implemented this program, then you should receive a letter after you file your late 2025 tax return, noting that the IRS didn't assess a penalty.

About Ask the Editor, Tax Edition

Subscribers of The Kiplinger Tax Letter, The Kiplinger Letter and The Kiplinger Retirement Report can ask Joy questions about tax topics. You'll find full details of how to submit questions in each publication. Subscribe to The Kiplinger Tax Letter, The Kiplinger Letter or The Kiplinger Retirement Report.

We have already received many questions from readers on topics related to tax changes in the One Big Beautiful Bill, retirement accounts and more. We will continue to answer these in future Ask the Editor roundups. So keep those questions coming!

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not, and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

More Reader Questions Answered

• All Ask the Editor Q&As
• Ask the Editor: Will I be Audited by the IRS?
• Ask the Editor: Deductions for Self-Employed Retirees
• Ask the Editor: 10-Year Rule for Inherited IRAs
• Ask the Editor: Tax Questions on Roth IRA Conversions
• Ask the Editor: Reader Questions on QCDs

As 2026 rolls on and families prepare for the upcoming school year, household budgets may face a tight squeeze.

Inflation continues to drive up everyday expenses like groceries, gas, and utilities. But for parents of young children, the most significant financial burden often comes from early childhood care.

The years from birth to age five are typically the most expensive. This is largely driven by center-based infant and preschool care, which contributes to an average annual cost of $29,325, according to a recent LendingTree study.

However, local tax structures and regional economics may influence how much you pay.

In some tax-friendly states, the average annual price of full-time care drops closer to $18,000 — roughly 38% below the LendingTree average. Yet a lower childcare price tag doesn't necessarily help if high sales taxes or the cost of living drag your budget back down.

To see how different regions balance these trade-offs, we analyzed ten low-tax states for middle-class families and ranked them by early childcare costs and cost-of-living indices.

Tax-friendly states ranked by childcare affordability

To determine the baseline for "affordability," we looked at how much families spend on state taxes as a percentage of their income (basing "middle-class" on the latest U.S. Census Bureau median household income data).

Next, center-based data from Child Care Aware® of America (CCAoA) was used to measure average annual early childcare costs for one child (ages 0 to 4) as a percentage of the median household income for a married couple.

The childcare cost calculations account for five key factors:

• Infant care pricing
• Toddler care pricing
• 4-year-old preschool pricing
• Before- and after-school care
• Summer programs

Kiplinger factored in the U.S. Bureau of Economic Analysis (BEA) cost-of-living index, which uses regional price parities (RFPs) to measure local prices for essentials like housing, food, transportation, and healthcare. On this scale, 100 represents the national average; a score of 88 means a state is 12% cheaper than average, while 102 indicates it is 2% more expensive.

Property tax figures were sourced from PropertyShark.

Yet it's important to note that family size, educational opportunities, and other factors can influence how "affordable" a state is, and "middle-class" may be subjective. Consult with a tax professional for your specific financial situation.

Note: Where before-and-after-care or summer program pricing data were unavailable, Kiplinger used a national average as a baseline.

1. South Dakota: Best overall value and lowest cost-of-living

Average annual childcare costs: $17,030

Childcare costs as a % of income: 14.2%

Cost-of-living index: 88.6

If you're a parent and you hate paying taxes, South Dakota is the most affordable state on our list for middle-class families. Everyday expenses track about 11.4% below the national average, potentially saving new parents on must-haves like formula and baby clothes.

Total annual childcare costs average around $17,030 (well below the national average, according to LendingTree), helping keep the overall income-to-cost ratio manageable at 14.2%.

Middle-class family taxes to consider:

• There is no personal income tax in South Dakota, allowing families to take home more of their earnings.
• To compensate for this, the state relies heavily on property taxes, which hover right around or above the national average, per PropertyShark data.
• Additionally, the 4.2% state sales tax applies to both groceries and diapers — everyday essentials that many other states exempt.

The bottom line? South Dakota's no-income-tax policy and low property taxes could help with your long-term family tax planning, but a large volume of goods for young children could offset some of your state tax savings.

2. Louisiana: Low cost of living and childcare costs

Average annual childcare costs: $18,252

Childcare costs as a % of income: 15.6%

Cost-of-living index: 88.2

Louisiana claims the second spot on this list thanks to its low cost of living. Average annual childcare costs total just over $18,200, consuming a modest 15.6% of median household income for married couples. Plus, the everyday living expenses — like food and gas — are 11.8% cheaper than the national average, according to the BEA.

Middle-class family taxes to consider:

• While considered a "tax-friendly" state for the middle-class family, Louisiana barely made our list, since its average combined sales tax is the highest in the nation at a whopping 10.11%.
• On the other hand, property taxes are among the lowest in the country, with a median bill of just $1,180 — significantly below the national average of $3,119.
• And the Bayou State has a low flat income tax of just 3% in 2026, among the lowest in the nation, according to the Tax Foundation.

The bottom line? If you don't mind higher sales taxes for lower property tax bills, a potentially cheaper cost of living, and reduced childcare costs compared to other states, Louisiana could be the second "most affordable" state to live in.

3. North Dakota: Average taxes, but cheaper childcare affordability

Average annual childcare costs: $21,292

Childcare costs as a % of income: 16.2%

Cost-of-living index: 89

North Dakota secures third by offering low costs and high savings. Families spend roughly 16.2% of their income on early childhood care in the Peace Garden State, a rate lower than most on this list. Plus, below-average costs for healthcare and groceries are common in the state, per the BEA.

Middle-class family taxes to consider:

• Unlike its southern neighbor, North Dakota levies a state income tax, though it's quite low, ranging from 1.95% to 2.5%.
• The state sales tax is a moderate 5%, and, importantly, groceries are state-tax exempt.
• Property taxes are also pretty average compared to the national median, according to PropertyShark data.

The bottom line? North Dakota's financial landscape may represent a stable, "middle-of-the-road" path for middle-class families, with few tax "surprises" and potentially low early childcare costs.

4. Wyoming: Low cost of living balances the national average

Average annual childcare costs: $21,080

Childcare costs as a % of income: 17.5%

Cost-of-living index: 92.7

Early childhood care costs can be low for Wyoming families. Center-based infant care averages just $13,120 annually, and summer care programs typically run below $2,400, according to the CCAoA. Plus, the overall cost-of-living index sits 7.3% below the national average.

Middle-class family taxes to consider:

• Wyoming has no state income tax, which can provide relief for middle-class paychecks.
• Also, the state features very low property taxes, with a median property tax bill of just $1,767 (significantly below the national average of $3,411), according to PropertyShark.
• On the other hand, Wyoming still taxes diapers at its moderate 4% state sales tax rate.

The bottom line? Wyoming can provide significant tax relief, especially if you hate paying high state income taxes or property taxes; daily essential costs can also remain low, unless you venture into more rural areas.

5. Alaska: High local costs drag down cost-to-salary ratio

Average annual childcare costs: $20,178

Childcare costs as a % of income: 14.7%

Cost-of-living index: 102.4

Alaska features the second-lowest childcare cost-to-income ratio on the list, requiring just 14.7% of a typical married couple's salary, per the latest data from CCAoA.

But it ranks fifth overall because its remote geography significantly inflates the cost of daily necessities like food and heating utilities, pushing its overall cost of living above the national average.

Middle-class family taxes to consider:

• Alaska is another no-income-tax state, which means capital gains, salaries, and bonuses are exempt from state tax.
• The Last Frontier also levies no statewide sales tax, according to the Tax Foundation.
• However, because Alaska doesn't collect income or sales tax, local and property taxes can vary widely by region.

The bottom line? For families who can navigate long winters and high retail prices, Alaska's early childhood programs can be affordable depending on the area and household income level.

6. Florida: Moderate costs with a higher cost-of-living

Average annual childcare costs: $19,520

Childcare costs as a % of income: 16.9%

Cost-of-living index: 103.4

It might come as a surprise that Florida lands in the bottom half of the rankings on our list.

But the Sunshine State's cost of living sits nearly 4% above the national average according to the BEA, driven up by rising costs in healthcare, food, and utilities. According to the CCAoA, childcare accounts for 16.9% of the median family income, providing some relief for middle-class budgets.

Middle-class family taxes to consider:

• All forms of personal income are state tax-free, which is one of the reasons people move to Florida.
• State officials are also looking to greatly reduce or even eliminate property taxes, though for now, the median bill is just below the national average, per PropertyShark.
• The statewide sales tax rate is relatively high, at 6%, yet diapers and groceries aren't subject to state sales taxes.

The bottom line? While the cost of living on items like groceries, home insurance premiums, and healthcare is higher in Florida than in other places on our list, middle-class families may still find early childhood care affordable in less expensive areas.

7. Arizona: Higher cost of living, but low taxes on everything else

Average annual childcare costs: $21,909

Childcare costs as a % of income: 18%

Cost-of-living index: 100.7

Arizona's placement reflects a combination of an above-average cost-of-living index and steep upfront childcare fees.

Per the CCAoA, middle-class families can expect to dedicate 18% of their annual income to early childhood care, which is only 2% below the national average. Center-based programs for infants and toddlers are more costly than other states so far, averaging $16,384 and $13,742 per year, respectively.

Middle-class family taxes to consider:

• Arizona has a flat income tax rate of 2.5%, making personal individual returns perhaps a little simpler for families.
• Plus, the Grand Canyon State has some of the lowest property taxes in the nation, with a median bill of only $1,879 — 55% below the national average, according to PropertyShark.
• At the same time, the state's 5.6% sales tax is relatively average; Arizona still taxes diapers.

The bottom line? Despite a higher cost of living, Arizona could be an affordable option for parents with slightly higher incomes who want lower property tax bills. But the overall financial and tax environment requires careful cash-flow management for growing families.

8. Tennessee: Low childcare costs except in the summer

Average annual childcare costs: $23,371

Childcare costs as a % of income: 20.8%

Cost-of-living index: 91.9

Despite boasting a relatively low cost-of-living index that is 8.1% below the national average, Tennessee ranks low on our list due to the state's shortage of licensed childcare facilities. Because of this, summer childcare costs alone can reach over $8,000, pushing total annual care to nearly 21% of a family's household income, per CCAoA data.

Middle-class family taxes to consider:

• Tennessee has no state income tax, meaning your wages, salaries, and tips are state tax-free.
• Property taxes are also among the lowest in the U.S., with a median bill of around $1,442, according to 2026 PropertyShark data.
• High sales taxes are the norm in the Volunteer State. At 7%, Tennessee's base rate is the second-highest in the nation and applies to diapers. Groceries are also taxed, although at a lower rate of 4%.

The bottom line? Tennessee's lower cost of living offers potential savings on most everyday expenses. However, middle-class families with young children should factor in the higher sales tax rates and elevated summertime care costs into their annual budgets.

9. Nevada: Middle ground cost of living, with higher childcare costs

Average annual childcare costs: $24,102

Childcare costs as a % of income: 21.1%

Cost-of-living index: 100

Nevada represents a somewhat flat baseline for everyday living, with housing, food, and medical costs landing right around the national average, according to the BEA. Yet early childcare eats up more than one-fifth (21%) of the median middle-class household income, making these costs a heavier burden than in other areas on our list.

Middle-class family taxes to consider:

• Like many other states on this list, Nevada has no state income tax, helping middle-class families keep their entire paycheck (at least from a state tax perspective).
• Per PropertyShark data, property taxes are also low, with a median bill of about $2,027.
• Sales taxes are a bit higher, around 6.85%, though Nevada doesn't tax groceries or diapers at the state level.

The bottom line? Nevada families enjoy zero state income tax and highly reasonable property taxes, which offer some relief, but the high cost of childcare means that while families keep their full paychecks, a substantial portion is immediately redirected to local care facilities.

10. Washington: Least affordable, high cost of living

Average annual childcare costs: $28,436

Childcare costs as a % of income: 19%

Cost-of-living index: 107

Washington closes out the list as the most expensive tax-friendly state for middle-class families with young children. A cost-of-living index of 107 means families pay a 7% premium on necessities like housing and utilities.

While high median incomes keep the childcare-to-salary ratio at 19%, the annual average childcare cost of $28,436 makes it the most expensive baseline care price on the list, according to the CCAoA.

Middle-class family taxes to consider:

• Though there is no personal state income tax, Washington imposes a 7% to 9.9% tax on long-term capital gains over $262,000.
• The Evergreen State also has a high sales tax, ranking among the highest in the nation.
• Property taxes, too, are expensive, with a median bill above the national average at $4,556, according to PropertyShark data.

The bottom line? Although childcare costs are comparable to a couple of other states on this list, property taxes, an elevated cost of living, and high sales taxes create significant financial hurdles for middle-class families.

Read More

• The 9 No-Income States Ranked by Cost-of-Living
• Frugal Habits People In Different States Are Using to Save in 2026
• A New Type of Trump Account Has Been Unveiled in 23 States

Virginia has approved what appears to be the nation’s first tax on data center electricity use.

A legislative deal, which ends months of budget negotiations, imposes a new charge on the power used by data centers in the Commonwealth as of July 1.

But…the compromise stops short of rolling back the long-standing and controversial sales tax exemption on equipment that has helped fuel Virginia's massive data center industry.

Here's more of what you need to know.

Virginia data center tax compromise

The new data center tax emerged from negotiations during this year’s General Assembly session, as Virginia lawmakers struggled to reconcile competing views on how to tax one of the Old Dominion state's fastest-growing industries.

For months, some state senate lawmakers pushed to scale back or eliminate Virginia’s sales tax exemption for data center equipment.

Supporters of repealing the billion-dollar tax exemption argued that the incentive — first enacted in 2008 — has become increasingly costly as data center construction has accelerated across Northern Virginia. State estimates show the exemption now reduces revenue by more than $1.5 billion annually and is expected to rise further as new facilities come online.

Still, some House of Delegates lawmakers and Gov. Spanberger opposed eliminating the incentive outright. A concern was reportedly that eliminating or changing the exemption before its slated end in 2035 could undermine Virginia’s reputation as a destination for stable technology investment.

The disagreement had stalled broader budget negotiations until lawmakers reached a compromise earlier this week: keep the exemption in place, but add a new tax tied directly to electricity consumption.

Under the FY 2027–FY 2028 biennial budget agreement:

• Data centers will pay 1.1 cents per kilowatt-hour of electricity consumed, billed monthly.
• The tax will begin on July 1, 2026.
• Revenue is capped at $600 million annually, with excess collections refunded to the data centers at the end of the fiscal year.

Virginia's Data Center Alley: Why this matters

As Kiplinger has reported, Virginia is home to the largest concentration of data centers in the world, with Northern Virginia’s “Data Center Alley” anchoring a global hub of cloud computing and digital infrastructure.

Around 200 facilities are currently operating in Loudoun County alone, with more planned. These facilities handle over one-third of the world’s daily internet traffic.

But the scale of the data center industry has sparked debate over everything from electricity and water usage to noise concerns.

• Utilities and grid planners have warned that data center electricity demand is growing rapidly, driven in part by artificial intelligence (AI) workloads that require more computing power than traditional cloud services.
• In some forecasts, data centers could account for roughly 20% to 30% of electricity demand in parts of Virginia over the next decade if current growth trends continue.
• For some Virginia residents living near data centers, the constant hum from cooling systems, back-up generators, and other equipment has become a quality of life issue.

Data centers also typically rely on large diesel-powered backup generators to ensure uninterrupted operations during power outages, which raises concerns about local air quality in some communities.

And, depending on the design and cooling technology, large facilities can consume hundreds of thousands of gallons of water per day to cool server racks. Some large campuses reportedly use volumes comparable to those of a small town, raising sustainability questions in some communities.

Adding to the debate, the existing data center sales tax exemption in Virginia cost an estimated $1.6 billion last fiscal year, according to the Commonwealth’s tax disclosures.

That massive exemption and the growing backlash over the more than 600 data centers already in the Commonwealth have made data centers a politically sensitive issue.

But Virginia isn't alone. Similar data center debates have erupted across the United States.

A recent Gallup poll finds that 71% of Americans now oppose the construction of AI data centers in their local communities (with 48% strongly opposed). The pollsters note that local data center construction is more unpopular in the U.S. than building a nuclear power plant.

As of June 2026, according to various online trackers, more than 25 states are either advancing data-center-related legislation or have enacted measures that address grid cots, reporting requirements, utility regulation, tax incentives, or local authority over data centers.

Virginia data center tax exemption: What's next?

For most residents, the immediate impact of the new tax will likely be indirect, since the data center tax revenue will flow into the Commonwealth's general fund.

Notably, under the budget compromise, the Virginia Department of Environmental Quality (DEQ) would play a larger role in regulating data centers. The agency, currently responsible for protecting Virginia's air, water, and land resources, would study data center impacts, create rules, and oversee limits on issues including noise and water use.

Gov. Spanberger's signature on June 30 ended this year’s fiscal standoff, but not the broader debate over how and whether the data center industry should be taxed or constrained. So stay tuned.

Related

• The Hidden Toll of Data Centers on Local Communities
• New Poll Shows People Hate Data Centers: Tax Breaks Are One Reason Why
• The Burger Tax? 13 States Where Your Summer Cookout Costs More

Many retirees rely on their homes for financial security. According to the Federal Reserve’s Survey of Consumer Finances, home equity accounts for a substantial share of net worth among households aged 65–74.

But when it comes time to tap that value, often through a sale, converting housing wealth into cash doesn’t always go as planned for older adults.

A recent study finds that even when home prices are relatively strong, the proceeds older sellers receive can differ meaningfully from those of younger homeowners. Though timing and how the sale is managed play a role.

And while the research doesn’t point to a single cause for the disparity, it raises broader questions about how home-sale outcomes can affect retirement income and, yes, taxes. Here’s more to know.

Why older homeowners get less money for their homes

A study from the Center for Retirement Research at Boston College finds significant variation in sale outcomes for older homeowners. It analyzed roughly 10 million repeat home sales using CoreLogic deed records linked to demographic data to estimate sellers’ ages.

Researchers compared outcomes across age groups while controlling for home type, location, and broader market conditions and found a consistent gap.

A key takeaway? Older homeowners tend to realize lower proceeds when they sell compared with younger sellers with similar observable characteristics.

According to the study's findings:

• "Older sellers get less starting at age 70," with the gap "increasing with each additional year."
• There is an estimated 5% gap in realized sale proceeds over the average 11-year holding period for some cohorts.
• For a typical home, the differences can amount to tens of thousands of dollars, depending on market conditions. Per the study, for a median $400,000 home, that is roughly a $20,000 reduction in proceeds.

There appear to be several explanations for the gap. But the study points to two primary factors.

• First, older homeowners are more likely to sell homes with fewer recent updates, which can affect pricing even in strong markets.
• Second, the researchers report that in some cases, older adults are more likely to use off-market or less competitive listing channels than the Multiple Listing Service (MLS), which can result in fewer bidders.

Also worth noting: Some home sales at older ages are driven by life transitions like downsizing, health changes, or moves into assisted living, where speed and certainty matter more than maximizing the price. In some cases, that can mean accepting an early offer rather than waiting through a longer listing process.

How a lower home sale price affects retirement income

The impact of lower home proceeds can show up in how retirees adjust their broader financial picture after the sale.

A retiree may expect a home sale to generate a certain amount of cash, enough, for example, to fund a year or two of spending without significantly tapping retirement accounts. But if the actual sale comes in lower than expected, that shortfall might be covered elsewhere, e.g., through additional withdrawals from traditional IRAs, 401(k)s, or taxable investment accounts.

• Those withdrawals are generally taxed as ordinary income. As a result, a larger-than-planned draw in a single year can push a retiree into a higher marginal tax bracket, even if only part of their income crosses the threshold.
• The same increase in reported income can also eventually affect Medicare premiums (IRMMA surcharges), since those costs are tied to income levels from two years prior.

As a result, a lower-than-expected home sale price can have retirement planning implications beyond the transaction itself.

Capital gains tax on home sales over age 65

Even though the tax impact here is primarily about how income replacement flows through the rest of the retirement portfolio, capital gains are an important consideration in retirement.

The tax treatment of a primary residence remains unchanged, including the capital gains home sale exclusion of up to $250,000 for single filers and $500,000 for married couples. That tax break can shield many homeowners entirely from tax on the sale.

Note: A 2026 analysis by the Tax Policy Center and Brookings Institution finds that about 90% of households age 65 and older will likely remain within the current home-sale capital gains exclusion, while roughly 10% would have gains large enough to exceed it.

Still, other recent data indicate that approximately 8% of home sales resulted in gains that exceeded the home exclusion threshold. That's more than double the percentage over the last five years or so, according to a report from the consumer information and analytics company CoreLogic.

That rising share of taxable gains has prompted several proposals on Capitol Hill, including bills that would eliminate capital gains taxes on home sales and a recent legislative proposal to increase the capital gains exclusion to $1 million for homeowners age 65 and older.

Why is this happening? One issue is that the exclusion limit hasn't been adjusted for inflation, so the value of the tax relief provided by the home sale exclusion has eroded over time.

As a result, homeowners across the U.S., but more often in states with high property values, like California, New York, New Jersey, Massachusetts, Florida, and Colorado, are likely to see gains exceed the exemption limit.

Selling a home in retirement: Bottom line

If you're considering a home sale, it may help to speak with a financial planner or tax professional first to understand how the proceeds could affect your retirement finances.

Every individual's financial situation is different, and a trusted professional can help with a tailored strategy.

However, a few considerations:

• How the sale fits into your broader retirement income strategy
• Whether the proceeds could affect taxable income or Medicare premiums
• How the proceeds will be used, saved, or reinvested

It may also be worth considering whether the timing of the sale allows enough time to attract multiple buyers. As the study suggests, urgency can limit a seller's options and make it harder to maximize the sale price.

Related

• New Bill Proposes $1 Million Capital Gains Tax Exclusion for Those Over Age 65
• The Capital Gains Tax Exclusion for Homeowners Explained
• Capital Gains Tax Rates for 2026: What to Know Now
• Retirees Face a Growing Capital Gains Tax Trap

Each week in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter editor, answers questions on topics submitted by readers. This week, she's looking at five tax questions on federal estimated tax payments and federal income tax withholding. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. Underpayment penalty

Question: How much federal income tax must be withheld to avoid paying a tax penalty to the IRS when I file my Form 1040 each year?

Joy Taylor: You are off the hook from the underpayment penalty if you prepay, through estimated tax payments or withholding, at least 90% of your current year's tax bill or 100% of the tax that you owed for the immediately preceding year (110% if your adjusted gross income for the immediately preceding year exceeded $150,000).

2. Due dates for estimated tax payments

Question: I have to start making estimated tax payments to the IRS this year. What are the due dates for the payments, and how can I make them?

Joy Taylor: Estimated tax payments are for people with income that is not subject to withholding. Taxpayers usually make estimated tax payments to the IRS in four equal installments. The first remittance for 2026 was due April 15. The other dates are June 15, September 15 and January 15, 2027. Victims of federally declared disasters may have more time to pay their estimated taxes.

There are several ways to make estimated tax payments.

• If you have an online individual account set up with the IRS, you can log in and pay through the account.
• You can pay online with the IRS's Direct Pay or, if you currently have an account, with the Treasury Department's Electronic Federal Tax Payment System.
• You can use your phone to pay with the IRS's app.
• You can pay by debit or credit card, but know that you will be charged a fee.
• Payment by paper check is also accepted for now, but this option will soon disappear.

3. IRS withholding calculator

Question: Do you know whether the IRS has a federal income tax withholding calculator on its website, and is the calculator updated for changes in tax laws?

Joy Taylor: The IRS does have a withholding estimator on its website. It helps you figure out whether you are having the right amount of federal income tax withheld from wages and pensions. The tool asks about various sources of income, provides tips on credits and deductions, and estimates how much withholding to request. And it is usually updated to account for tax law changes.

4. IRS forms to request withholding

Question: Can you tell me the various IRS forms I would use to request more or less income tax withholding from Social Security, wages, IRA distributions, etc.?

Joy Taylor: Employees who want more or less income tax withheld from their wages can submit a new Form W-4 to their employers. People receiving pension or annuity payments can submit Form W-4P. IRA owners use Form W-4R. Social Security recipients have two options. They can fill out Form W-4V and mail it in. Or, if they have an online Social Security account, they can request through their account that more or less tax be withheld from their monthly Social Security payments.

5. Withholding tax from a late-year IRA distribution

Question: I am retired, and most of my income is from IRA required minimum distributions (RMDs), Social Security, and dividends and capital gains from taxable investments. Someone told me that I don't have to make quarterly estimated tax payments. I can instead wait until year-end and request that my IRA custodian withhold a lump sum amount of income tax from my year-end IRA distribution to satisfy my federal income tax liability for the year. Is that true?

Joy Taylor: Pretty much, yes. For federal income tax purposes, tax withheld at any point in the year is treated as if evenly paid throughout the year. Some retirees rely on this rule to have federal income taxes that they expect to owe for a year withheld from a December RMD instead of making quarterly estimated tax payments. Kiplinger regularly advises retirees who are falling short on their tax withholding to have more tax withheld from a year-end IRA payout. Read more in our article on RMD withholding strategies.

State tax rules may differ, and some sponsors don't withhold state income taxes, so be sure to check your specific state law.

About Ask the Editor, Tax Edition

Subscribers of The Kiplinger Tax Letter, The Kiplinger Letter and The Kiplinger Retirement Report can ask Joy questions about tax topics. You'll find full details of how to submit questions in each publication. Subscribe to The Kiplinger Tax Letter, The Kiplinger Letter or The Kiplinger Retirement Report.

We have already received many questions from readers on topics related to tax changes in the One Big Beautiful Bill, retirement accounts and more. We will continue to answer these in future Ask the Editor roundups. So keep those questions coming!

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not, and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

More Reader Questions Answered

• All Ask the Editor Q&As
• Ask the Editor: Will I be Audited by the IRS?
• Ask the Editor: Deductions for Self-Employed Retirees
• Ask the Editor: 10-Year Rule for Inherited IRAs
• Ask the Editor: Tax Questions on Roth IRA Conversions
• Ask the Editor: Reader Questions on QCDs

If your weekend barbecue shopping trip feels more expensive this year, you’re not alone.

The biggest culprit? High beef prices, which are up about 14% year over year, according to the Bureau of Labor Statistics. This cost is sometimes referred to as the "burger tax."

This burger sticker shock comes as shoppers across the U.S. have been dealing with higher grocery bills for years, especially when buying staples like meat, eggs, and dairy products.

And if you live in a state that still taxes groceries, the number on your receipt is even higher. Here's more of what you need to know.

Why is the price of beef so high?

While overall grocery prices are up 3.1% over last year due to inflation, the long-term impact is significant. Food prices at home have jumped 27% over the last five years.

And…the United States Department of Agriculture (USDA) expects food-at-home prices to continue rising in 2026, with beef among the categories projected to see some of the strongest price growth.

As a result, feeding 10 guests at a backyard barbecue could now cost roughly $15 (or more) per person. Ground beef, up 70% since 2021 and now reportedly averaging about $6.90 a pound, is responsible for much of that increase.

Declining cattle numbers, high feed costs, drought, and consistent beef consumption in the U.S. all contribute to soaring prices.

Grocery tax by state

If rising food prices weren't enough, residents in 13 states face an additional expense because some states continue to tax groceries.

In some cases, that means full statewide tax; in others, reduced rates or hybrid systems that still add a charge at checkout.

For example, Mississippi, Idaho, South Dakota, and Hawaii apply full or near-full state tax rates to grocery purchases. But over the last few years, several states (Oklahoma and Kansas are just two) have eliminated their state-level grocery taxes (though local municipal taxes still apply at checkout in many areas).

Below is what that looks like in dollar terms for a typical cookout basket.

Note: Prior estimates from the Wells Fargo Agri-Food Institute put the cost of a typical 10-person backyard barbecue at about $130. With ground beef prices up roughly 14% over the past year, a comparable cookout basket today would likely be closer to $150, or more, depending on menu choices and substitutions.

States with Statewide Grocery Tax This Year (Assumes a $150 grocery basket for a 10-person cookout)

*Note: Additional city, county, or transit district taxes may apply on top of these base numbers.

** Hawaii imposes a general excise tax rather than a traditional sales tax.

Here's where things stand in the remaining states that still technically tax groceries but have eliminated or reduced state-level tax.

Oklahoma: The Sooner State repealed its 4.5% state grocery tax in 2024, though local sales taxes may still apply.

Kansas: Kansas fully phased out its state grocery tax last year after gradually reducing the rate over several years. Local taxes may still be charged on food purchases.

Virginia: Virginia taxes groceries at a reduced rate of 1%, split between state and local governments.

Illinois: Illinois ended its statewide 1% grocery tax as of 2026, but local governments can impose their own grocery taxes, meaning some shoppers still pay tax at checkout.

Arkansas: Arkansas eliminated its state grocery tax in 2025, although some cities and counties continue to levy local taxes on food purchases.

Bottom line: Why some states still tax groceries in 2026

Most states exempt groceries from sales taxes because food is considered a necessity. However, a handful continue to tax groceries at either the full state sales tax rate or a reduced rate.

• Supporters argue that grocery taxes provide a stable source of revenue that helps fund schools, roads and other public services. They also contend that broad-based sales taxes allow states to keep other taxes lower.
• Critics counter that grocery taxes disproportionately affect lower-income households because food purchases consume a larger share of their budgets.

The debate has intensified in recent years as inflation pushed food prices higher, and as a result, several states have reduced or eliminated grocery taxes.

In Alabama, lawmakers have temporarily suspended the 2% state sales tax on most groceries until June 30, to alleviate high food prices, though local sales taxes remain in place. Similarly, as Kiplinger has reported, Illinois and Arkansas have recently eliminated their state-level grocery taxes, while local taxes still apply in some areas.

Notably, some cities are exploring targeted approaches to making food more affordable and accessible. For example, San Francisco's “Affordable Groceries Act” has recently been proposed by District 5 supervisor Bilal Mahmood.

Modeled after Mayor Zohran Mamdani's city-owned grocery store initiative in New York City, the San Francisco bill is designed to support new grocery stores in underserved neighborhoods through an affordable grocery fund and a vacancy tax imposed on large chains that close stores in the city.

Read More

• Food Tax: Which States Still Tax Groceries in 2026?
• 9 No-Income-Tax States Ranked by Cost of Living
• States With the Lowest Sales Taxes

Weeks away from the official launch of "Trump Accounts," the child savings vehicles from the 2025 tax bill, a targeted spinoff is set to roll out.

Dubbed "Fostering the Future Accounts," this new initiative is designed to help children in foster care save for future housing, educational, and career development costs as they transition to adulthood.

First lady Melania Trump and U.S. Department of the Treasury Secretary Scott Bessent announced in a press release that these new accounts will open on July 4, 2026.

“Fostering the Future Accounts give foster children the same chance for asset ownership and long-term wealth building as every other American child," Mrs. Trump remarked. "By investing in our foster youth now, we help strengthen America’s workforce, communities, and economic future."

But because these accounts will be opened and managed by state infrastructure, states must opt in. Not everyone is on board. Read on for who qualifies and what's holding back the remaining 27 states.

New: Low-Tax States For Middle-Class Families Ranked by Childcare Affordability

Fostering the Future Accounts for kids

The Trump "Fostering the Future Accounts" are an offshoot of standard Trump Accounts structured to help children in foster care save for long-term financial goals, like a down payment on a home or higher education expenses.

To qualify, a child must be:

• Under age 18
• A U.S. citizen with a Social Security number

These accounts might be opened by a state, territorial, or tribal child welfare agency. They can also be opened by designated foster parents or other legal guardians in the foster care system.

Which states are participating?

Because Fostering the Future Accounts are managed at the state level, access depends on local legislative approval. So far, governors in the following 23 states have pledged to offer the program, according to White House officials:

Participating state child welfare agencies must submit IRS Form 4547 (Trump Account Election) to formally open an account for each eligible child in their custody.

Fostering the Future Accounts vs standard Trump Accounts

Although Fostering the Future accounts function the same as a standard Trump Account — investing in stock market index funds to grow tax-deferred savings — there are some nuances in how each is opened and funded.

For instance, when a parent or guardian opens a standard Trump Account, they can claim a $1,000 federal seed deposit directly into the newborn's account, provided their child is born from 2025 to 2028.

However, "a child welfare agency cannot elect to receive the $1,000 pilot program contribution to the child's [Fostering the Future] Account," as the IRS reported in a recent update. Instead, only a foster parent or other qualifying individual who anticipates caring for the child might claim this federal seed money for the child's account.

Here's a table highlighting several other key differences between the two types of accounts:

The Fostering the Future Accounts also have unique funding methods that the federal government doesn't offer for standard Trump Accounts.

For example, state officials can redirect existing state resources — such as unused Temporary Assistance for Needy Families (TANF) block grants — into a foster child's savings, according to the Administration for Children and Families (ACF).

Why isn't my state on the list?

Notably, all 23 states opting into Fostering the Future Accounts are GOP-led, reflecting the partisan divide surrounding Trump Accounts, which were a key component of the 2025 Trump tax bill.

But beyond partisan lines, several other reasons exist for why states might heavily debate signing on:

• Strained budgets. State child welfare departments often depend on federal funding streams such as TANF and the Social Services Block Grant (SSBG) to operate. Because most states have already finalized their budgets for the upcoming fiscal year, adding new, unplanned programs midcycle might be too financially constrained.
• Administrative hurdles. Fostering the Future Account documentation, including individual investment portfolios and private donations for every child, must be monitored. As such, participating state agencies are required to establish new protocols to continuously update this information, which might prove difficult given that children frequently shift between foster homes.
• Legal challenges. Legally, a state, territorial or tribal child welfare agency might open a Fostering the Future account, but the timeline of who holds account management authority can be constantly in flux. If a child is in temporary emergency care, for instance, then switches to kinship care or transitions between different county jurisdictions, it might be unclear who is legally authorized to update the account. (Note: the Treasury and ACF released joint guidance related to this issue.)

Ultimately, the Trump administration has set a target for all 50 states to sign on to Fostering the Future Accounts by December 2027.

However, some child welfare advocates worry that a prolonged state-by-state rollout will deepen economic disparities for children aging out of foster care — especially for children who move across state lines due to interstate adoptions or structural changes in their care.

Ruth Anne White, executive director of the National Center for Housing and Child Welfare, told independent news outlet, The Imprint. "But it's right there in the Child Welfare Policy Manual [released guidance] — as clear as day."

According to data from the National Council for Adoption, there are roughly 330,000 children in the U.S. foster care system. Statistics from the National Foster Youth Institute show that one in five foster youth face homelessness after aging out of the system, and only half secure gainful employment by age 24.

Supporters of the new initiative hope these accounts will disrupt those outcomes.

Yet while supporters have framed Fostering the Future Accounts as a solution to the financial hardships facing youth aging out of care, states will need to overcome complex questions surrounding budget allocations, administrative hurdles and bipartisan support.

Until then, foster parents and child welfare agencies will find that state lines dictate whether children in their care are eligible for these accounts.

Read More

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It's a tale as old as time: If you live in a high-cost area like Long Island, San Francisco, or Seattle, your paycheck doesn't stretch nearly as far as it would in, say, Pittsburgh. Yet, the IRS taxes your income exactly the same.

A new bill from lawmakers on Capitol Hill would flip that script by linking your federal tax obligations to your home address.

The Cost of Living Tax Cut Act, introduced by House Reps. Laura Gillen (D-NY-04) and Mike Lawler (R-NY-17) would adjust federal income tax brackets based entirely on where a taxpayer lives.

"This bipartisan bill would help lower taxes for families in high-cost areas [like Long Island] by accounting for regional differences in the cost of living and ensuring taxpayers can keep more of what they earn," Gillen said in a recent release.

Lawler echoed the sentiment for his constituents in Hudson Valley, New York, arguing that the tax code should reflect the economic reality of high-cost regions.

Yet while the prospect of localized tax relief sounds promising to families in expensive ZIP codes, the proposal is likely to face heavy scrutiny over who will ultimately foot the bill for the corresponding drop in federal revenue.

Here is a breakdown of how this plan could change your take-home pay, which areas stand to benefit, and what this means for the upcoming mid-term election season this fall.

How the bill adjusts the tax brackets

The Cost of Living Tax Cut Act is designed to prevent households in more expensive regions from being pushed into higher tax brackets when their real purchasing power is relatively low compared with the rest of the U.S. If passed, the bill would take effect after December 31, 2026.

The bill's framework relies on localized data to determine your federal tax liability:

• The index: The bill directs the Secretary of Commerce to use regional price parities (RPPs) to calculate an annual cost-of-living index for metropolitan and rural areas.
• The adjustment: Instead of applying uniform national tax thresholds as it does now, the IRS would expand tax brackets in regions with an above-average cost of living.
• The savings: By widening the lower tax brackets, more of a household's income would be shielded from higher tax rates.

Who wins the affordability contest?

If passed, the Cost of Living Tax Cut Act would provide the most significant relief to major metropolitan statistical areas (MSAs) where the local purchasing power of a dollar is typically lower than the national average.

Per the most recent regional economic metrics from the Tax Foundation, the primary beneficiaries of this new bill would live in regions where a typical $100 has the real purchasing power of only $84 to $90. For example:

• California metros: The San Francisco Bay Area (Oakland, Berkeley, San Jose, Santa Clara), Los Angeles, Orange County, San Diego, and Santa Barbara.
• The Pacific Northwest: The greater Seattle-Tacoma-Bellevue metro area in Washington.
• Northwest corridor: The broader New York-Newark-Jersey City metro area (spanning NY, NJ, and PA), Boston-Cambridge-Newton (MA/NH), and high-cost zones in Connecticut.
• Hawaii and South Florida: Urban Honolulu and the Miami-Fort Lauderdale-Pompano Beach metroplex.

Under the proposed framework, families in the affected ZIP codes would see their tax brackets widened proportionally. Conversely, regions where the cost of living is at or below the national average — like parts of Arkansas, Louisiana, or Ohio — would see no changes to their baseline brackets.

However, federal policy historically requires an offset for targeted tax cuts. Since the legislation bars lawmakers from adjusting tax brackets downward in lower-cost regions, the federal government would have to absorb the resulting deficit, which could eventually lead to spending cuts or the search for alternative federal revenue sources.

The hidden cost of geographic tax cuts

Data published by the Rockefeller Institute of Government reveals that high-wage coastal states subsidize spending in the rest of the nation. For instance, in a single fiscal year, New York residents paid $19.4 billion more to the federal government than the state received, while California taxpayers contributed an extra $72 billion.

So if the federal tax code were to cut taxes for some areas and not others, that might lead to several potential long-term risks:

• A structural drop in federal revenue. Think tanks like the Center on Budget and Policy Priorities often note that targeted tax cuts substantially reduce federal funding for key national obligations like infrastructure, Social Security, and defense.
• Ripple effects in the tax code. Drops in federal revenue could lead to raising baseline tax rates nationwide, implementing broad surtaxes, or risking an increase in the national deficit. This fiscal pressure isn't unique to the federal government; for example, a state-level structural deficit was one reason Washington enacted a millionaire's tax on its wealthier residents.
• Porous boundaries and "tax cliffs." Relying on regional price indexes could create tax spikes right at city borders. For example, a taxpayer living just outside a high-cost metropolitan boundary line who works inside it could face a higher federal tax burden than a neighbor living just one mile away. A similar dynamic already plays out with commuters who live in one state and work in another.
• Increased regulatory burdens. Shifting to an address-based tax system forces the IRS to track, audit, and dynamically update tax brackets across hundreds of MSAs. In an era of $1 billion IRS funding cuts, managing localized federal brackets would heavily strain resources. Furthermore, tax preparation software would need to become more complex, potentially driving up filing costs for everyday taxpayers and increasing the risk of location-reporting errors or geographic fraud.

Bottom line: Will the legislation pass?

Even though the Cost of Living Tax Cut Act addresses a very real financial pressure point for millions of voters, it will most likely face a steep climb to become law.

The proposal must compete against much broader fiscal blueprints, like the 2025 Trump Tax Bill, which focused on making previously enacted individual tax cuts permanent and revamping the federal standard deduction. Adding a localized layer to the IRS tax code could complicate revenue projections and require extensive bipartisan negotiation and spending offsets.

With several congressional seats on the ballot this November and a recent 3.8% inflation surge reported by the U.S. Bureau of Labor Statistics, targeted affordability proposals may take center stage. Even if this specific bill stalls, it highlights a growing legislative focus on how your ZIP code impacts your wallet.

So, before making any sudden moving plans for a cheaper area, wait to see how these fall tax proposals shake out. Your bracket might not change, but your vote could shape future local tax policy.

Read More

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• New Bill Proposes $1 Million Capital Gains Tax Exclusion for Those Over Age 65
• Are No-Income Tax States Better to Live In?

The financial professionals who contribute to Kiplinger's Adviser Intel are always here to make sure you have the information you need to make critical decisions about your retirement planning, estate planning and tax planning.

They've recently written about the growing number of Americans working past retirement age — and why the consequences can be more complicated than you might think in terms of Social Security, healthcare and tax.

This quiz is designed to test what you've learned. Let's see what you know! (And don't worry if you miss an answer: You can follow the links below the quiz to brush up on your knowledge.)

Please note that this quiz has been prepared for informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or financial advice.

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After lawmakers approved HJR 1-F during a special session on June 2, a proposed constitutional amendment aimed at expanding property tax relief for homeowners is headed to the November ballot, setting up one of the most closely watched tax debates in recent Florida history.

For homeowners, the proposal could mean significant savings. Under the measure, Florida’s existing $50,000 homestead exemption would increase to $150,000 in 2027 and $250,000 in 2028, reducing the portion of a home’s value subject to tax.

A homeowner with a $400,000 primary residence could save thousands of dollars annually, depending on local tax rates. And for supporters, that potential savings is exactly the point.

Critics, however, have raised questions about how local governments would replace the revenue currently generated by property taxes, which a legislative analysis projects could drain local municipalities of up to $8.4 billion annually by 2028.

And…a nonprofit group, naming two former South Florida mayors as plaintiffs, has filed a lawsuit against the measure, arguing that the ballot summary is "unconstitutionally biased, misleading, and inaccurate."

These tensions have emerged as central questions surrounding the proposal as it heads toward a statewide vote. Here's more of what you need to know.

The HJR 1-F property tax exemption for Florida homeowners

The passage of HJR 1-F moves the long-debated property tax relief conversation in Florida from Tallahassee to the ballot box.

• If approved by at least 60% of Florida voters this November, the amendment would significantly expand the state’s homestead exemption for qualifying homeowners.
• The proposal applies to owner-occupied primary residences that qualify for Florida’s homestead exemption and would not extend to second homes or investment properties.
• The measure also introduces a tiered structure based on residency duration.

Current Floridians and those who establish permanent residency by December 31, 2026, would be eligible for the full tax break immediately, while anyone moving to the state after that date would have to wait five years before becoming eligible for the full $250,000 exemption.

Gov. Ron DeSantis has framed the measure as a way to provide relief for homeowners facing rising housing costs, insurance premiums, and other housing-related expenses.

“I think a lot of people need relief,” DeSantis told reporters in a recent presser, adding, "I think a lot of people have been wondering, where can we get it? We’re showing a pathway to be able to get that done that I think is going to be transformational for people."

To justify that relief, the administration points to an aggressive surge in local property tax collections.

According to data released by the governor’s office, property tax revenue collected by Florida local governments has nearly doubled over the past seven years, climbing from $32 billion to $60 billion. It is currently projected to reach $83 billion by 2032.

Why property taxes matter

Property taxes have become an increasingly visible part of the cost of homeownership, particularly in fast-growing areas where home values have climbed sharply over the past decade.

For retirees, fixed-income residents, and longtime homeowners, the appeal of lower property tax bills is easy to understand. Many are already balancing rising insurance premiums, HOA fees, utility costs, and other housing-related expenses.

Supporters argue homeowners should not continue paying higher taxes simply because their property values have increased. They view the amendment as long-overdue relief that would allow residents to keep more of their own money while strengthening Florida’s reputation as a low-tax state.

For many households, even modest savings could have a meaningful impact on annual budgets.

Tradeoffs for Florida voters

The debate surrounding the amendment extends beyond annual tax bills and potential savings.

Former State Sen. Jeff Brandes has described the proposal as "a tax shift, not a tax cut," arguing that while homeowners may pay less directly, the costs associated with funding local government services do not simply disappear.

Property taxes currently help support many of the services and infrastructure residents rely on every day, including public safety, road maintenance, infrastructure improvements, and emergency preparedness.

Notably, HJR 1-F legally requires local governments to prioritize remaining property tax revenues strictly on designated "core services," such as law enforcement, fire protection, and flood control.

However, the lawsuit filed by Save Our Voters From Misleading Ballot Language argues that the ballot summary's promise of "ensuring funding for core services" is misleading when the policy itself cuts the revenue available to pay for them.

In a state that regularly faces hurricanes and severe weather events, how local governments would replace billions of dollars in projected revenue reductions remains one of the proposal’s biggest unanswered questions.

Cragin Mosteller, spokesperson for the Florida Association of Counties, told the Miami Herald that "one of the things that is easy to overlook sometimes is that we move to a community not only because it’s safe but because it’s wonderful, because it has a great quality of life."

For opponents, the question isn’t whether homeowners deserve lower taxes. It’s whether communities can continue delivering that quality of life if one of their largest sources of funding is significantly reduced.

Ultimately, the decision comes down to how homeowners view property taxes: as a recurring cost of homeownership or an investment in the neighborhood surrounding that home.

Infrastructure and public safety are easy to take for granted when they work seamlessly, but their true value becomes clear the moment those services are stretched thin.

What happens next

The amendment must receive at least 60% voter approval to become part of the Florida Constitution — assuming the text first survives its current legal challenge. So between now and Election Day in November, debate over the measure will continue as those on both sides try to win over voters.

Floridians will ultimately have to weigh historic tax savings for their household budgets against long-term funding concerns and the certainty of local services they rely on every day.

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If you have retirement savings in an IRA or 401(k), Uncle Sam is your partner on that money because every dollar you pull out of it is taxed.

Consider this common scenario: One spouse in a retired household passes away and the surviving spouse becomes a single taxpayer, which affects their overall tax liability, even though their income goes down.

Let's say the couple's total income was $200,000 a year. While they were married, this meant they had an effective tax bracket of about 15%.

When the husband passes away, the wife's income goes down to $180,000 because she loses the smaller of their two Social Security checks. But going forward, she will file as a single taxpayer, so she is now in the 20% tax bracket.

Additionally, if her RMDs and her income grow each year, her tax rate could keep climbing. And that doesn't even factor in future tax increases. (It's unlikely taxes will stay as low as they are now, considering our nation's debt of $39 trillion.)

Proactive tax planning could have helped protect her from the impact of higher taxes after losing her partner.

For retirees in higher tax brackets looking to help their spouse (or adult children) avoid this kind of tax trap in the future, partial Roth conversions now can help.

1. Protecting the surviving spouse

If you're a married couple, you're in a joint taxpayer bracket. And once both spouses reach age 65, you become eligible for specific additional tax benefits.

For example, with a taxable income of $148,300, you fall within the 12% tax bracket for married couples filing jointly after the deductions.

The $148,300 figure includes a $32,200 standard deduction based on your filing status. You would also receive the $3,300 additional standard deduction for both being over age 65 – this consists of $1,650 for each spouse, as determined by the One Big Beautiful Bill for taxpayers over 65. On top of this, there is an additional $12,000 bonus deduction for those over age 65 (up to a certain income limit).

However, when one spouse dies, the surviving spouse (usually the wife) jumps up to the 24% tax bracket.

If your income is higher, it's an even larger jump in taxes for the surviving spouse.

For example, if your taxable income as a married couple is $250,000 a year, you can see on the chart below that you're in the 24% tax bracket because you're "married filing jointly."

However, if the husband dies first, the surviving spouse is now a "single filer" with taxable income of $250,000. You can see she has now jumped up into the 32% tax bracket.

A Roth IRA may help protect the surviving spouse from higher taxes as a single taxpayer because you already paid the taxes while you were both alive as joint taxpayers.

2. Protecting non-spouses

When you die and leave your IRA to your children, they only have 10 years to empty your IRA completely.

Let's assume the IRA you leave to your children will earn 4% annual returns over the 10-year period after you leave it to them. This means that your children will have to take out approximately 14% of the IRA balance every year.

This would allow them to take out the 4% annual earnings along with 10% of the principal, so the entire IRA is drained over that 10-year period without a potential big tax hit in year 10.

However, this 14% annual IRA withdrawal could put your heirs in a higher tax bracket.

While a Roth conversion would mean paying income tax now, that could be a bargain compared to the potentially higher income tax brackets your heirs might have to deal with after you're gone — and any state income taxes they may also have to pay.

Additionally, if your children live in a state that has a state income tax (such as New York, which has a 10.9% top state tax bracket), they may be subject to federal income taxes and up to an additional 10.9% in state income taxes as well.

We use software called Holistiplan that helps identify the maximum amount to withdraw year by year to take advantage of today's tax brackets, and will work alongside an accountant or a tax professional.

When appropriate, we recommend our Strategic Roth Integration (SRI) plan to clients so that they can take advantage of today's income tax rates and never pay taxes on their Roth IRA again.

If you'd like to learn more, check out my new book, IRA Owners: Help Defuse Your Ticking Time-Bomb, co-authored with Steven Kao.

The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

I've worked with enough successful business owners to know that almost every one has the same gap in their plans.

Take a scenario I see all the time: Dave built a widget company from nothing into a $30 million business. He's sharp, disciplined and completely focused on growth.

But when I ask him what his plan looks like after the company's sale, he stares at me like I've asked him to solve a riddle in an unknown language.

Dave isn't unusual. Most successful entrepreneurs pour every ounce of energy into building a business and almost none into planning for what happens when it turns into liquid wealth.

It's not carelessness. Building the company is the priority. If it doesn't succeed, there's nothing for which to plan.

The problem is that by the time the exit is real and there's a signed contract and a closing date, the biggest wealth-building opportunities have already passed. The cost of that timing gap can run well into the millions.

Three things business owners aren't considering

The same three blind spots come up again and again:

• The first is business structure. How the company and the owner's personal stake are organized for tax purposes. Whether you're a C corp, S corp, LLC or LLP affects not just annual income taxes but the tax treatment of any future sale. Get this wrong at formation, and you could be locked in for decades.
• The second is succession planning. For a business to command a strong valuation, it needs to be transferable. This means there is management in place, client relationships are institutional rather than personal, and operations can run without the founder. Buyers pay a premium for businesses they can take over immediately.
• The third is exit and estate planning. This one costs families the most money. A successful sale creates a massive tax event. Without years of advance planning, your options to reduce that burden shrink dramatically.

Why the math gets worse as the business grows

Valuation multiples expand as revenues grow. A company with $200,000 in EBITDA might sell for five times, or $1 million. Scale to $3 million in EBITDA and a 10-times multiple puts the value at $30 million. At $35 million in EBITDA, a 20-times multiple can push it to $700 million.

Industry and revenue quality directly impact these numbers, but the pattern holds: The bigger the exit, the bigger the tax event.

The federal estate tax rate above the exemption is 40%. The current lifetime exemption is $15 million per person ($30 million per couple), which is the most generous in U.S. history.

But Congress can change that number. A sale that pushes your estate above the exemption can trigger an enormous tax bill for your heirs if you haven't planned ahead.

What early planning looks like

If a business owner shows up with a signed purchase agreement and asks what can be done to reduce the tax hit, the honest answer is: Not much. The valuation is set. The structure is locked. The die has been cast, as we say.

The difference between the business owner who plans five years out and the one who plans five months out can easily be eight figures.

Let's revisit Dave's scenario. Five years before his planned exit, we started working on a strategy. Dave created an irrevocable trust for the benefit of his wife and children and transferred 50% of his company, valued at $15 million at the time, into that trust.

When the company sold for $60 million, the trust's half was worth $30 million, and that $30 million was outside Dave's taxable estate.

He paid long-term capital gains of 20% on the sale rather than ordinary income rates of 37%, and by moving assets out of his estate at a much lower valuation years earlier, he avoided what could have been $12 million in estate taxes on the growth alone. All told, early planning saved Dave's family north of $20 million.

Two types of trusts come up most often in these conversations:

• A spousal lifetime access trust (SLAT) is an irrevocable trust that names the spouse as beneficiary during their lifetime, then passes to children and grandchildren. It works well when the business owner might still need access to income or assets from the trust.
• An intentionally defective grantor trust (IDGT) skips the spousal access and goes directly to children and grandchildren.

Both of these options share the same critical advantage: The assets are valued when they go into the trust. For a growing business, that means transferring at a relatively low valuation years before the exit and letting all that appreciation happen outside the taxable estate.

Charitable strategies can strengthen the plan further. Donating appreciated stock to a donor-advised fund — or, for private company shares, to an organization that accepts them — delivers meaningful tax benefits over donating cash. These tools work best when built into the strategy early.

Four things to do now

If you own a business and think you might sell it someday (even if "someday" feels like a decade away) here's where to start.

1. Find the right wealth manager. Look for someone who works specifically with business owners and can help you build a long-term plan that connects your business goals to your personal financial picture. This isn't a one-meeting exercise, it's an ongoing relationship.

2. Assemble your full team and get them on the same page. Alongside your wealth adviser, you also need an attorney and an accountant, all working from the same playbook. These professionals shouldn't be operating in silos. The value comes from coordination. To ensure this, I encourage you to ask your team four questions:

• What is the plan?
• How are we going to get there?
• Who else needs to be involved?
• What are we not thinking about? This is the one most people forget.

3. Start three to five years before any potential sale. This is the window when the most powerful strategies, including trust planning, ownership restructuring, estate tax reduction, are still available to you. If you wait until a deal is on the table, most of those doors close.

4. Execute aggressively. An unexecuted plan is worthless. Once the strategy is in place, move on it. Every year of delay is a year that asset values grow inside your taxable estate instead of outside it.

The future will arrive faster than you think. Time is your single greatest ally in wealth planning but only if you use it.

The entrepreneurs who start early, build the right team and execute with urgency are the ones who keep the wealth they spent a career creating.

The ones who wait? They pay for it.

Related Content

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• When Starting a Business, the End Is a Very Good Place to Start
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• Planning to Leave Your Business? How to Find the Right Buyer
• To My Small Business: Well, I've Been Afraid of Changin', 'Cause I've Built My Life Around You
• The Most Important Number for a Business Owner Considering a Sale

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

In 2024, Bob DeSmidt, 78, of Sioux City, Iowa, wanted to help his adult son buy a home in an area that was closer to his new job. DeSmidt, a retired chief financial officer for a construction company, could afford to help his son with the purchase, but the contribution he and his wife wanted to make exceeded the annual gift tax exclusion — the amount of assets that individuals can transfer to each recipient without filing a gift tax return or reducing their lifetime exemption for federal gift and estate tax.

The gift tax exclusion in 2024 was $36,000 for a married couple, or $18,000 per individual. The DeSmidts ended up giving their son more than $36,000 and filing a gift tax return with the IRS. But that doesn't mean they had to pay tax on the gift, or that their assets will be subject to federal estate tax after they die.

In fact, it's highly unlikely that will happen. The One Big Beautiful Bill Act, signed into law in 2025, permanently increased the federal exemption for gift and estate tax. For 2026, it's $15 million per person, or $30 million for a married couple, and the exemption is indexed annually to inflation. DeSmidt says that while he and his wife are financially comfortable, their estate's value is well below that threshold. Iowa has no estate tax, so state taxes aren't a concern.

Given such a large federal lifetime exemption, only the very wealthy — and extremely generous — gain a tax benefit by keeping their gifts within the annual exclusion. Using this strategy, they can reduce the size of their estate, limiting the amount of it that is subject to tax and preserving the full lifetime exemption amount. Any gifts that exceed the annual exclusion count against the lifetime exemption.

But even if you're not among the ultra-wealthy and want to give away more than the annual exclusion, you'll still have to file a gift tax return on Form 709 unless you meet certain exceptions, which we'll discuss below. For 2026, the gift tax exclusion is $19,000 per person, or $38,000 for married couples.

Financial planners say De-Smidt's situation isn't unusual. Many of their clients want to help their children and grandchildren while they're still alive, instead of making their heirs wait 30 or 40 years to inherit family wealth. “We don't want to see our kids struggle when we can help them,” says Rose Price, a certified financial planner in Vienna, Va. In many cases, particularly when it comes to buying a house, they'd like to give away more than the annual exclusion.

Filing the gift tax form

If you're convinced that your estate will never be worth $15 million (or $30 million if you're married), you may be tempted to skip the hassle of filing Form 709 for gifts that exceed the annual exclusion. Financial planners say that's a bad idea. There's no guarantee that lawmakers won't lower the federal estate and gift tax exemption in the future, exposing more families to estate taxes of up to 40%.

In addition, several states have much lower exemptions. Oregon, for example, has an estate tax exemption of $1 million, making planned gifting even more critical. Annual gifts within the federal exclusion are tax-free under Oregon law, and those gifts will reduce the size of your taxable estate while preserving your $1 million exemption.

Filing a gift tax return can also protect you from future audits, says Lawrence Pon, a CFP and certified public accountant in Redwood City, Calif. Once you file a gift tax return, the IRS has three years to audit it; if you don't file, there is no statute of limitations on audits, he says. In addition, if you help a family member make a down payment on a home, the lender may request a gift tax return to confirm that money was a gift instead of a loan, Pon says.

Finally, by filing gift tax returns, you can track your lifetime giving, says Easton Price, a CFP in Irvine, Calif. That's a useful estate-planning tool, particularly if you want to equalize the amount you give to children or beneficiaries, he says.

Bypassing the annual exclusion

If you'd like to avoid filing a gift tax return — or you're worried about possible future changes to the lifetime estate and gift tax exemption — there are strategies you can employ to avoid the annual exclusion:

Make educational gifts. You can contribute an unlimited amount to a child, grandchild or other beneficiary's tuition as long as the funds go directly to the educational institution.

Contribute to a 529 plan. Contributions to a 529 college-savings plan are considered gifts for federal tax purposes, which means they're subject to gift tax requirements. However, you can front-load up to five years' worth of annual contributions. For example, in 2026 you can contribute up to $95,000 to a child or grandchild's 529 plan ($190,000 if you're married and file jointly).

If you take advantage of this strategy, you can't make additional contributions for the next five years without filing a gift tax return. In the meantime, however, you're giving the money invested in the plan more time to grow and compound, while reducing the size of your estate — a smart strategy if you live in a state with an estate tax.

Offer medical assistance. Want to help a family member with catastrophic medical bills? Payments made directly to the medical provider or insurer are exempt from gift taxes.

You could even give the recipient a debit card that's designated to be used for medical expenses, says Jon Robertson, a CFP in Columbia, S.C. The expenses must qualify as deductible expenses under IRS rules, which include hospital bills, dental procedures and long-term care. As is the case with tuition payments, the money must go directly to the medical provider or insurer, not the family member.

Stagger your gifts. The gift tax exclusion restarts every year. With that in mind, you and your spouse could give an adult child $38,000 in December and the maximum for 2027 (which has not been announced) in January without triggering the requirement to file a gift tax return, says Catherine Valega, a CFP in Burlington, Mass.

Double up. Under federal rules, you can give up to the annual exclusion to as many people as you want without filing a gift tax return. So if you'd like to help an adult child make a down payment on a house, you and your spouse could give $38,000 to your child and another $38,000 to your child's spouse this year, for a total of $76,000. That may not cover the entire down payment, especially in parts of the country with a high cost of living, but it's a good start.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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Spending the summer months in Arizona might sound intense — and it often is.

Between a stretch of 100-degree days, spiking utility bills, and the sudden storms of monsoon season, the desert climate can certainly feel daunting. But these few months only tell part of the story.

From fall through spring, Arizona shifts into a sun-soaked haven. During this period, the Grand Canyon State boasts the mild weather of coastal California at a comparatively lower cost.

That affordability extends to state income and property taxes. Residents enjoy a low flat income tax of just 2.5%, and property tax rates typically fall below the national average. There is no state inheritance tax to worry about, and Arizona waives its state sales tax on groceries.

Interested in finding your piece of the desert? Buckle up for a road trip. Here are the ten cheapest places to live in Arizona.

Cheapest places to live in Arizona

After Kiplinger ranked property tax bills from highest to lowest per county in Arizona, one trend jumped out: Rural areas are the cheapest. You’ll typically find a more affordable lifestyle in the country than in metropolitan areas like Phoenix.

But if you’re ready to see vast desert landscapes and quaint small towns and are willing to travel to a city for other amusements, look into these places in Arizona.

Note: Kiplinger used 2026 data presented by the Tax Foundation (sourced from the U.S. Census Bureau) to find the cheapest counties in Arizona to live.

Santa Cruz County

Median property tax bill: $1,415

Median home price: $233,000

At a median of $1,415, Santa Cruz County features the highest property tax bill on our list. Yet, home prices are relatively modest, at roughly $233,000, according to the Tax Foundation.

Located along the sunny Mexican border, Santa Cruz is Arizona's smallest county by land area, but don't let that fool you — there's plenty to do. Whether you're looking for a deeply cultural journey, historic exploration, or a scenic outdoor escape, Santa Cruz offers a distinct, authentic vibe in every region.

Nature lovers can experience world-class birding in the Patagonia Mountains and Patagonia Lake State Park, explore the scenic Arizona Trail, or hike through the lush Sonoita Creek State Natural Area. Just up the road, you can taste award-winning local varietals in the high-desert wineries of Sonoita and Elgin.

For history and art enthusiasts, the area boasts the historic 18th-century Spanish mission at Tumacácori National Historical Park and the oldest Spanish military presidio in Arizona at Tubac, which has evolved into a thriving, world-renowned artist colony.

In the heart of the county sits Nogales, the vibrant county seat and one of the nation's most crucial international ports, anchoring a rich Mexican-American border culture and a bustling produce economy.

So come to Santa Cruz for whatever your vibe is, but stay for the relatively affordable property tax bill.

Gila County

Median property tax bill: $1,386

Median home price: $269,400

Gila has the second-highest median home price on our list, at $269,400, though its median property tax bill is just under $1,400, per the latest U.S. Census Bureau Data. This anomaly exists because while property tax rates are low, highly desirable mountain communities like Payson and Pine drive up home values.

Outdoor enthusiasts might absolutely love Gila County for its local topography. The landscape shifts from the blooming cactus of the Sonoran Desert to the towering ponderosa pines of the Mogollon Rim, meaning a scenic hike is never far away, no matter where you roam.

Residents also enjoy easy access to Tonto Natural Bridge State Park, which contains the world's largest natural travertine bridge. Meanwhile, water lovers can explore Roosevelt Lake — the largest lake entirely in central Arizona — via boating, fishing, and camping along the shoreline.

Families might also love exploring the ancient, restored Salado pueblo ruins at Besh-Ba-Gowah Archaeological Park, or visiting the Tonto Fish Hatchery to learn all about the trout life cycle.

If you have an active, outdoorsy household, Gila County, Arizona, might make for an incredible next stop, and your wallet could thank you.

Yuma County

Median property tax bill: $1,333

Median home price: $217,800

With a median property tax bill hovering around $1,333, Yuma County stands out as a highly affordable corner of the Grand Canyon State. Home prices can also be lower, with a median home price just under $218,000, per the Tax Foundation's data.

Known as the "Winter Lettuce Capital of the World," the region famously produces roughly 90% of all the leafy greens consumed across North America during the winter months. Beyond its agricultural importance, Yuma is also recognized as the "Sunniest Place on Earth," holding a Guinness World Record for enjoying sunshine about 91% of the year — so be sure to pack your parasol!

Residents take advantage of this endless sunshine by kayaking, canoeing, and tubing along the Colorado River, exploring the scenic walking trails and butterfly gardens at West Wetlands Park, or conquering the rolling hills of the Imperial Sand Dunes.

But if outdoor adrenaline isn't your thing, no biggie; historical sites like the Yuma Art Center & Historic Theatre and a vibrant downtown shopping scene mean you can easily trade the desert heat for central AC without missing out on the local vibe.

Whether you're looking for booming seasonal energy or desert relaxation, Yuma County awaits, complete with a relatively low property tax bill.

Cochise County

Median property tax bill: $1,310

Median home price: $218,300

Homes in Cochise are priced slightly higher than in Yuma County, with a median price of around $218,300. However, the median property tax bill is comparatively lower, at just $1,310, according to the U.S. Census Bureau.

Keen on a unique, bohemian atmosphere? Cochise has you covered. Nestled in the region is Bisbee, an artsy mountain enclave beautifully carved into the steep hillsides of Mule Mountain Canyon. The town is filled to the brim with historic brick buildings, local boutique shops, and distinct craft breweries. And when you want to switch gears, you can easily head into other parts of the county for a totally different lifestyle.

The region is famous for the iconic Old West town of Tombstone, home to a community proudly preserving its rugged cowboy heritage through authentic stagecoach rides and daily reenactments of the historic gunfight at the O.K. Corral.

For the outdoorsman, the area surrounding the city of Sierra Vista provides exploration of underground rock formations at Kartchner Caverns State Park, hikes through the scenic San Pedro River Valley, and rock climbing at the Cochise Stronghold.

Offering a vibrant mix of exciting, unconventional, and rich all-American culture, Cochise County delivers a perhaps unforgettable southwestern lifestyle — with surprisingly low property taxes.

Mohave County

Median property tax bill: $1,238

Median home price: $281,000

Located a little over two hours from Las Vegas, Mohave County has a relatively low median property tax bill of just under $1,240.

However, the median home price is the highest on our list at $281,000, according to the latest Tax Foundation data. This is largely due to a localized housing shortage coupled with out-of-state migration from higher-cost states, like California. But don't let Mohave's slightly higher prices drive you away from this piece of American history.

The area has the longest remaining drivable stretch of the historic Route 66, giving residents access to vast, open desert landscapes. You can also take a walk into the Grand Canyon West, where stepping out onto the Skywalk — a famous horseshoe-shaped glass bridge suspended 4,000 feet above the canyon floor — isn't just a daring fantasy, but a reality.

The county's unique geography also features the iconic London Bridge, which was meticulously relocated from England to Lake Havasu City in the 1900s. Alongside local lakes and the Colorado River, the region offers plenty of water recreation paired with a deeply rooted historic mining culture.

Looking for a slice of wide-open outdoor living mixed with a lack of restrictive HOAs and plenty of lifestyle freedom? Mohave County, Arizona, might just be your next move.

Navajo County

Median property tax bill: $1,195

Median home price: $201,500

Navajo County home prices are relatively low compared with other places on our list, at just around $201,500. Median property tax bills are also considered cheap at under $1,200 per year, according to the Tax Foundation.

The area is known for the dramatic contrast of red sandstone buttes in the north and cool pine forests, alpine streams, and deep lakes in the south. Named after the Navajo Nation, which spans across its northern territory, the county is also home to the Hopi and White Mountain Apache tribes, creating a rich cultural tapestry.

Up north, residents can explore the iconic monoliths of Monument Valley alongside local Navajo guides, or visit Petrified Forest National Park to hike past ancient fossilized logs and vibrant strata in the Painted Desert.

Down south, the vibe transforms into a mountain resort centered on active communities like Show Low and Pinetop-Lakeside. Here, locals enjoy endless summer fishing, boating, and hiking at the Fool Hollow Recreation Area, as well as skiing and snowboarding at Sunrise Park Resort during the winter.

Navajo County might just be the ultimate all-season escape from the desert heat and winter snow, delivering a diverse mountain lifestyle paired with a surprisingly affordable property tax bill.

Graham County

Median property tax bill: $1,013

Median home price: $212,000

The median property tax bill in Graham is cheap, at slightly more than $1,000 per year. Home prices can also be relatively inexpensive compared to the rest of the state, with a median of about $212,000 according to the U.S. Census Bureau.

Those who want a classic, laid-back small-town American vibe might stop their travels right here. The county is named for the lofty Mount Graham, which serves as a picturesque backdrop for the entire county. Locals can hike or off-road up the mountain, or soak in nearby mineral hot springs.

Graham also has a tight-knit, small-town atmosphere, where local traditions, such as high school football games, holiday light parades, and seasonal harvest events, are center stage. The region even draws travelers from all over for its annual Salsa Fest.

Yet, despite the hometown charm, Graham is quite the scientific hub. Residents can book guided astronomy tours to see the enormous telescopes at the Mount Graham International Observatory, delve into the Space Shuttle simulators at Eastern Arizona College's Discovery Park, or head outdoors to learn about desert conservation at the striking Gila Box Riparian National Conservation Area.

Come to a place steeped in tradition, research, and strong community, and stay because those property taxes are just so cheap.

La Paz County

Median property tax bill: $873

Median home price: $135,800

A little over two hours from Phoenix is La Paz County, with a median property tax bill of just $873, which is lower than that of all neighboring counties. According to Tax Foundation data, the median home price is also relatively cheap, at $135,800.

La Paz is a snowbird's paradise. Winter residents and visitors flock to the region to enjoy sunny boating on the Colorado River, relaxed camping at Buckskin Mountain State Park, and the sprawling gem and mineral shows in Quartzsite.

For adrenaline seekers, the county delivers in spades, whether you're jet-skiing on the Parker Strip or tearing through the open desert along the rugged Arizona Peace Trail.

Conversely, when summer hits its stride, a beautiful hush falls over the region. Much like the rest of rural Arizona, the crowds thin out, treating residents to private solitude, wide-open roads, and peaceful river access all to themselves.

So if you want exceptionally low property taxes, you could reside in La Paz County for its vibrant winter fun and unmatched seasonal relaxation.

Apache County

Median property tax bill: $572

Median home price: $63,700

Apache County, Arizona, has the lowest median home price on the list, sitting under $64,000 according to U.S. Census Bureau data. Median property tax bills are also exceptionally cheap, hovering just below $575.

Because Apache County is a remote region where the Navajo Nation holds a significant portion of the territory, private acreage is limited, leading to more off-grid living and cheaper home prices. So if homesteading is your goal, the county has your back.

In particular, the sprawling high-desert flatlands near towns like Concho and St. Johns are famous for having highly affordable land, paired with a quietly independent attitude. You must be prepared to haul your own resources, though, which may include drilling a well or setting up solar power — traditional municipal utilities are scarce, which can rack up costs.

Yet when you want to transition from homesteading to recreation, the county offers unforgettable southwestern experiences. Residents can take incredible guided tours through the sheer cliffs of Canyon de Chelly National Monument, hike the brilliant badlands of the Painted Desert, or step back in time by exploring the Hubbell Trading Post National Historic Site.

For the modern frontiersman in all of us, Apache County's unbeatable wide-open freedom could be your calling.

Greenlee County

Median property tax bill: $518

Median home price: $158,600

Greenlee County is the cheapest place to live in Arizona. The median property tax bill is only $518, and home prices are around $158,600, per the most recent Tax Foundation data.

As Arizona's least populous county, Greenlee is peaceful, off the beaten path, and defined by mining, ranching, and warm small-town hospitality. In fact, it hosts the Morenci Mine, the largest open-pit copper mine in North America.

Running right through the county is the historic Coronado Trail (U.S. 191), featuring more than 400 twists and turns that provide prime motorcycling, cycling, and sightseeing opportunities.

Following this winding route upward leads to a dramatic change in scenery at Hannagan Meadow. In stark contrast to the desert canyons below, the meadow sits at over 9,000 feet, offering a mountainous setting for horseback riding, hiking, and both summer and winter eco-tours.

Rockhounds can also strike out into the desert to search for brilliant agate, blood-red jasper, and rare fire agate at public sites like the Round Mountain Rockhound Area and Limestone Gulch. Meanwhile, outdoor sportsmen may fish for native Arizona trout in the mountain streams or spend a quiet afternoon casting along the scenic banks of the Gila River.

So if you want to bypass bustling urbanization in favor of quiet, simple living, making the most affordable county in Arizona your next destination might just be the perfect choice.

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