Michael Gray, CPA's Blog

Tax and financial advice from the Silicon Valley expert.

Heard of the Kent State Massacre on May 4, 1970?

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  • mike   

The Kent State Massacre on May 4, 1970 is an example of how a protest can escalate with unintended results when a National Guard is deployed in response.

Students at Kent State University in Kent State, Ohio, staged a protest, along with many other U.S. universities, during May, 1970. President Nixon expanded the Vietnam war to Cambodia and announced college students would no longer qualify for draft deferment. Students could be called for military service after completing the current semester of studies at their college or university. Students felt President Nixon broke a promise made July 25, 1969 to withdraw troops from Vietnam.

The Kent State University protests started with about 500 students on May 1, 1970.

About midnight, people left a bar and began throwing beer bottles at police cars, injuring five police officers, and broke windows at business storefronts. They broke a bank window, activating the alarm.

The entire Kent police force was called to duty. Kent Mayor LeRoy Satrom declared a state of emergency and asked Ohio Governor Jim Rhodes for assistance.

On May 2, Mayor Satrom asked Governor Rhodes to deploy the National Guard to Kent. His request was granted immediately.

That night, there was a large demonstration on the Kent State University campus, and the ROTC building was burned down. Kent firemen and police officers were struck by rocks and other objects while attempting to put out the fire. The fire engine hose was slashed by protestors.

On May 3, some students came to downtown Kent to help with clean-up efforts. They weren’t all welcomed by local business people

At about 8 p.m., there was another rally held on the campus Commons. At 8:45 p.m., the National Guard used tear gas to disperse the crowd. At 11:00 p.m., the National Guard announced that a curfew had gone into effect. A few students were bayoneted by Guardsmen.

On May 4, a protest was scheduled to be held at noon. University officials tried to ban the gathering, and about 2,000 people gathered on the university’s Commons. The National Guard attempted to disperse the students. They used a bullhorn to ask the students to disperse, and were ignored. The crowd threw some rocks at the Guardsmen. Tear gas grenades were fired by the Guardsmen, which fell short of the crowd.

Students retreated over Blanket Hill and cleared the Commons area. The protesters threw rocks and other objects at the Guardsmen. More tear gas was fired.

After reaching the crest of Blanket Hill, the Guardsmen fired at the protesters. They gave no verbal warning.

At 12:24 p.m., Sergeant Myron Pryor turned and began firing at the crowd of students with his .45 pistol. Several other Guardsmen also turned and fired their rifles at the students. At least 29 of the 77 Guardsmen fired their weapons, using about 67 rounds of ammunition.

The protesters were shocked because they didn’t believe the Guardsmen would fire live ammunition at them. The students were unarmed, except for the rocks they threw.

Some of the students were shot while running away from the Guardsmen. Of those shot, none was closer than 71 feet from the Guardsmen. Of those killed, the nearest was 265 feet away. The furthest victim was 750 feet away.

Although the Guardsmen claimed they thought a sniper was shooting at them, it appears they were triggered by their own people shooting.

If you’ve ever played laser tag or a paintball battle, you know a “battle” can induce panic and friendly fire injuries.

Only one Guardsman was injured enough to require medical attention, 10 to 15 minutes before the shootings.

Four protesters were killed and nine were injured, all students in good standing at the university.

A subsequent investigation of the shootings by the President’s Commission on Campus Unrest found the Ohio National Guard shootings on May 4, 1970 were unjustified. There were no criminal convictions relating to the incident.

As a result, some new crowd control measures, such a rubber bullets, have since been adopted.

A photo of a 14-year old runaway, Mary Ann Vecchio, screaming over the dead body of Jeffrey Miller, who was shot in the mouth, won a Pulitzer Prize and became one of the enduring images of the ant-Vietnam War Movement.

The shootings lead to protests on college campuses throughout the United States and a student strike, causing more than 450 campuses across the country to close with both violent and nonviolent demonstrations. Over 4 million students protested.

Five days after the shootings, 100,000 people demonstrated against the war and the killing of unarmed student protestors in Washington, D.C.

In 1973, U.S. government and the North Vietnamese signed a peace treaty ending the Vietnam War.

Japan: Beauty, Safety, Productivity at a Price

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  • mike   

Imagine a country where the streets are so clean, you won’t even find a gum wrapper or cigarette butt on them; where gun violence is unheard of; where the people are friendly and obsessed with quality work; where there are no homeless encampments; with an extremely low crime rate; and with some of the most exquisite gardens in the world.

No, I’m not talking about Walt Disney World or the Emerald City. That country is Japan.

My wife, Janet, and I enjoyed a Road Scholar tour, “The Cultural Highlights of Japan”, from May 19 to June 3, 2025. (Highly recommended.)

Here are some of my, admittedly superficial, observations.

Japan has quite a different culture from the United States. It’s a relatively small island country , with a population of 126.5 million, and has the fifth largest economy in the world. 14.6 million of those people live in Tokyo, the world’s largest city. 70% of the country is undeveloped forest and mountains.

In some ways, Japan surpasses the United States.

Japan started building its bullet train transportation system in 1972. There are no bullet trains in the United States. California has tried to build one without much progress.

The restrooms in Japan are plentiful, free (no tip required), and fastidiously clean. You might have to take off your shoes and wear provided slippers when you enter. Most of the toilets feature a bidet to (optionally) wash and dry your bottom when you’re finished. Most of the restrooms provide toilet paper and don’t provide paper towels. Many do have air dryers for your hands.

Japanese products enjoy a reputation for unmatched quality. Japanese cars dominate the lists of the best-selling and longest-lasting cars in the U.S., while American cars are virtually unseen in Japan. This quality is an expression of the Japanese obsession with attention to detail, which you can also see in their exquisite gardens and artistic expressions. This obsession might relate to the Zen tradition of meditation, mindfulness and focus, tempered by yin-yang “perfection with imperfection”, so everything created must have a minor flaw.

Most children wear uniforms to public schools in Japan. They take off their shoes when they arrive at school. Children are taught their role is to contribute to society, or collectivism. “There is one heart that won’t beat properly if one part of the heart doesn’t participate.” (Compare to the U.S. “rugged individualist” culture.) The children take turns serving lunch to their classmates. There are no custodians for Japanese schools. The children clean the classrooms at the end of the day. Conformity is the order of the day. A student who “sticks out” looks like a “nail to be hammered down”. The schools have a problem with bullying of students who don’t “fit in.”

The Japanese are immensely proud of their history and preserve the castles and estates of the Shogun, daimyo (feudal lords), and samurai, who were local administrators in addition to being warriors.

The government of Japan is a constitutional monarchy, with a figurehead Emperor.

The businesses we visited were family businesses that were proud of their tradition of quality and had been passed down from father to son for generations.

The actors in the Kabouki theater were only men portraying both men and women, and sons succeeded their fathers as actors.

Japan practices rigid gun control. Applying for a license for a gun for target practice or hunting is a rigorous process, with annual follow-up inspections. Hence, no gun violence. (In the U.S. the NRA and other gun enthusiasts adamantly resist gun control as a violation of their Second Amendment rights, leading to high rates of gun violence in the U.S.)

Being homeless is considered to be extremely embarrassing and dishonorable. Japan has built sufficient housing for its population. One way Japan has kept poor people off the street is providing inexpensive places to sleep overnight in internet cafes. Public parks are locked at night and sleeping on street benches isn’t permitted. Japan has mental institutions to care for the insane. (Most government-subsidized mental institutions have been closed in the U.S.)

A dark spot for Japan is its high suicide rate — three times higher than in the U.S. There are about 30,000 suicides annually. Suicide is not considered sinful or shameful, like in the U.S. Christianity is a minority religion. (A blend of the native Shinto (nature) religion and Buddhism is practiced by most Japanese.) Japan has a long tradition of ritual suicide, called seppuku or harakiri. Bullying at school and on social media have contributed to suicides. Instead of being a burden on society, an honorable escape from poverty is suicide. A member of our tour group experienced a delay when a commuter train hit a person on the railroad track. Evidently, that is common. The Japanese government has done little to provide suicide prevention counseling.

Public protests against government policies are considered to be extremely rude and are not accepted in Japan. (In contrast, the American Revolution started with public protests. They are a proud American tradition.)

Japan has been suffering from a declining population. Young people aren’t getting married and having children. A reason might be Japan’s patriarchal culture. Wives are supposed to be subservient to their husbands and take care of the home and children. Many women work and earn enough that they don’t need to be dependent on a husband. The traditional role isn’t acceptable for modern women, and women are struggling to penetrate the “glass ceiling.” Men mostly socialize with other men, and don’t appear to know how to or want to have an equal relationship with women. In the past, marriages were arranged. It appears that practice has been abandoned.

In the past, the Japanese didn’t welcome immigrants. With the declining population, the government is encouraging more immigration to Japan and the people seem to becoming more accepting of them.

Japan has an excellent and affordable health care system.

We found most of the people didn’t speak very good English (like we don’t speak the languages well that we studied in school.) Some restaurants provided menus with pictures and descriptions in English that you can point to for ordering.

When we were confused navigating the subway system, people helped us buy our tickets and get on the right train. Stops were announced in Japanese and English.

Some Americans have emigrated to Japan and found the cost of living affordable, including great health care and finding housing and employment, and they enjoy the security of a safe, clean environment. They can send their children to school knowing their children are safe from gun violence.

The trade-off is adopting a conformist, collectivist lifestyle. Japan doesn’t seem to be the place for those with non-conformist, individualistic, creative, entrepreneurial personalities.

We had a wonderful experience and invite your to visit Japan to see it for yourself.

“Big, Beautiful Bill” isn’t a slam-dunk

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  • mike   

The House Ways and Means Committee has released “The One Big Beautiful Bill” that includes a “wish list” of President Trump’s tax legislation proposals. On Friday, May 16, conservative Republicans joined Democrats on the House Budget Committee to block the legislation, 16 voting in favor and 21 against, from reaching the House floor for a general vote.

The bill would extend most the tax cuts enacted in the Tax Cuts and Jobs Act of 2017 that would otherwise expire after 2025. In addition, the bill includes tax breaks for some tips, overtime and Social Security for four years. The Social Security break would be a $4,000 tax deduction for seniors making less than $75,000 per year.

The bill would also restore 100% bonus depreciation and the expense election for research and experimentation expenses.

In order to partially compensate for the tax cuts, the bill includes about $715 billion in cuts to Medicaid and the Affordable Care Act. States would implement work requirements in 2029 for childless adults on Medicaid who don’t have a disability, requiring them to work for 80 hours per month. Beneficiaries who earn above the federal poverty limit would make co-payments of up to $35 for doctor visits.

The Congressional Budget Office estimates about 8.6 million people could lose their insurance coverage.

Other compensating items include repealing Biden’s student loan forgiveness plans, so more student loan borrowers would be required to repay their loans, and repealing energy incentives (including the $7,500 credit for certain new electric vehicles), enacted under the Biden Administration.

Ironically, conservative Republicans on the House Budget Committee voted against the proposal because they wanted bigger cuts for Medicaid, joining Democrats, who oppose the Medicaid cuts.

Representatives from states that impose income taxes and those from states that don’t impose income taxes are also arguing about how much the ceiling for the itemized deduction for state taxes should be. The limit would be increased from $10,000 to $30,000 under the Ways and Means Committee proposal.

Remember tax legislation is a negotiation with some constraints. House representatives will continue to negotiate the details of the “One Big Beautiful Bill”. None of the Republicans want the 2017 tax cuts to expire, so it’s likely tax legislation will be enacted this year.

Write your representatives in Congress to let them know your concerns for the tax and budget process. https://www.congress.gov/members/find-your-member

Greatest scientist of her time slain by a “Christian” mob

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  • mike   

The city of Alexandria in Egypt was one of greatest centers of learning in the ancient western world.

The city was founded by Alexander the Great, and the family of his named successor, Ptolemy, became the rulers of Egypt until the death of Cleopatra VII, so the culture of the city was a mixture of Greek, Egyptian and Roman.

The Library of Alexandria contained all of the known “books” of that time. Scholars came from all over the world to study there. The Library was accidentally burned by Julius Caesar during his conquest of Egypt and most of the books were moved to the Seraphium. The Alexandran Museum, a type of university, was housed in the Library and, later, the Seraphium.

The Seraphium was destroyed in 391 AD by Theophilus, the archbishop of Alexandria, under orders from the Roman emperor to destroy all pagan temples. (The Emperor Constantine adopted Christianity as the religion of the Roman Empire.) The Seraphium was destroyed because it included a temple of Serapis. Theophilus later built a church on the site.

Hypatia was the daughter of Theon of Alexandria, an eminent mathematician and astronomer, and author of a student edition of Euclid’s Elements. Theon was the last known member of the Alexandran Museum. Hypatia succeeded her father as the leading teacher of science, mathematics and philosophy of her time, and one of the first women to teach those subjects. Her lessons included how to design an astolabe, a portable astronomical calculator, that would be used until the 19th century.

Hypatia was a philosopher in the Neoplatonic school, a belief system in which everything emanates from the One.

Her lectures became immensely popular, including attracting Christian students. Some of those students became leaders in the early Christian church and incorporated her ideas into their Christian faith. Her student, Synesius, became a bishop in the Christian church and incorporated Neoplatonic principles into the doctrine of the Trinity.

Hypatia became very influential in Alexandria’s politics, and was often consulted by the city’s leaders. She was a close friend of Orestes, the governor of Alexandria. Although Orestes was a Christian, he didn’t want to cede power to the church.

Theopolis was succeeded as archbishop in 412 AD by his nephew, Cyril. Cyril continued his uncle’s attacks on other faiths. Cyril competed with Orestes for control of Alexandria. The struggle for power came to a peak following a massacre of Christians by Jewish extremists. Cyril led a crowd that expelled all Jews from Alexandria and looted their homes and temples.

Orestes refused Cyril’s attempts at reconciliation and Cyril’s monks were unsuccessful in an attempt to assassinate Orestes.

Hypatia was an easier target. She didn’t have guards protecting her. She was a pagan who publicly spoke about a non-Christian philosophy. A rumor spread that she was preventing Orestes and Cyril from settling their differences.

In March, 415 AD, Peter the Lecter and his mob captured Hypatia, dragged her into a church, stripped her naked, and hacked her to pieces. To avoid having her venerated as a martyr, they cremated her remains.

Despite those efforts, Hypatia was remembered and revered as a martyr by the Christians of Byzantium, and today she is a symbol of Enlightenment values.

The story of Hypatia is still important today. Some fundamentalist Christians and other groups reject science. The Trump administration is withdrawing funding from scientific research at the National Science Foundation and the National Institutes of Health, and attacking academic freedom. We are also seeing a resurgence in censorship and book banning.

The abandonment of freedom of thought and expression could lead to a new dark age for the United States.

No taxation without representation!

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  • mike   

On December 16, 1773, in Boston, Massachusetts, American colonists dumped 342 crates of tea in Boston Harbor to protest a tax on tea and the monopoly of the British East India Company on the tea trade.

The Boston Tea Party is an example of the tradition of resisting tyranny and defending human rights in America.

The English Parliament believed it had the authority to impose a tax on the residents of its American colonies. It relented and eliminated taxes previously imposed under the Stamp Act and the Townshend Acts. The Tea Act was passed on May 10, 1773, principally to bail out the British East India Tea Company, which was on the edge of bankruptcy after experiencing financial setbacks in India.

Parliament didn’t expect any resistance, because the tax was only three pennies per pound of tea (remember a penny was worth something back then), because the tea would be much cheaper than any alternative, including the tax.

American colonists resented the tax, because they had no representation in Parliament. They declared, “No taxation without representation!”

On November 29, 1773, Samuel Adams invited “every friend to his country, himself, and posterity” to attend a meeting at Boston’s Faneuil Hall to discuss how to best face this threat to American liberty. 5,000 out of a total population of 16,000 attended the meeting.

When Governor Hutchinson refused an appeal by the owner of the ship, Dartmouth, to return to England, members of a crowd proceeded to the ships to dump the tea.

The Boston Tea Party was one of a series of events that led to the American Revolution and, eventually, the United States Constitution.

Today, many Americans, including (Republican) Senator Paul Ryan, are expressing outrage that President Trump is imposing worldwide tariffs by Executive Order, without enabling legislation being enacted in Congress. (Remember tariffs aren’t paid by foreign exporters, but by United States importers, and are likely to be passed through to consumers.)

Under the United States Constitution, the “power of the purse”, including enacting tax legislation, is supposed to reside in Congress. Tax legislation is initiated in the House of Representatives to assure representatives close to their constituents will debate tax proposals. Although U.S. Presidents have imposed tariffs in the past, they have been targeted to certain imports, not broad based tariffs on virtually every country in the world.

President Trump has “paused” most of his proposed tariffs for 90 days, except a 10% tariff on all imports and a 145% tariff on imports from China. China has imposed a retaliatory tariff of 125% on imports from the United States.

Trade between the United States and China has virtually stopped.

President Trump claims to have the authority to impose broad-based tariffs because he has declared a national emergency under the International Emergency Act. (The power to impose tariffs isn’t specifically stated in the International Emergency Act.)

Also, the current situation it doesn’t seem to be a sudden, unforeseen crisis that Congress cannot act quickly or flexibly enough to address that is a true emergency. Although Congress has been debating whether to adopt a resolution declaring there is no emergency, it seems the Republican majority will support President Trump and won’t adopt the resolution.

A dozen states, including Oregon, Arizona, Colorado, Connecticut, Delaware, Illinois, Maine, Minnesota, Nevada, New Mexico, New York and Vermont, have filed a joint lawsuit in the U.S. Court of International Trade in New York to stop President Trump’s tariff policy, saying it is unlawful and has brought chaos to the American economy. We’ll eventually find out what the courts say and, if they rule against President Trump, whether he follows their ruling.

We are already seeing large protests across the United States. If President Trump’s tariff policies continue, existing inventories of imported goods will be exhausted and American consumers will find they can’t find the clothing, toys, sports equipment, furniture and other imported products they are accustomed to buying on the shelves, which could lead to bigger crowds at protests and Town Hall meetings.

More unhappy voters seem to increase the possibility of “flipping” seats in Congress in the 2026 mid-term election and the Republicans losing their control of the House of Representatives.

Will Christmas be cancelled this year?

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  • mike   

(What about back-to-school shopping?)

Maybe you should take care of back-to-school and holiday shopping now, while retailers have merchandise to sell.

Toymakers, children’s shops and specialty retailers have paused orders for the winter holidays in response to President Trump’s 145% tariff on imports from China.

Almost 80% of all toys and 90% of Christmas decorations sold in the United States are made in China.  97% of clothing sold in the United States is imported, with about 27% imported from China.

Shipments from China have virtually stopped.

Retailers need to place their orders several months in advance in order for merchandise to arrive in time for the holiday season.

Unless President Trump relents on his tariff proposals, there might be very few items on the shelves of retailers for back-to-school and holiday shopping.

Since most retailers earn their profits during the holiday season, the retail outlook for 2025 seems bleak.  Some retailers are consulting bankruptcy attorneys.

The United States Senate voted down a Democratic resolution to block the tariffs, 49 – 49, on April 30, 2025, so the decision is now solely President Trump’s.

(San Jose Mercury News, May 1, 2025, Section A, p. 3, “Senate votes down resolution to block Trump’s global tariffs”, Section C, P. 9, “Retailers fear tariffs will affect Christmas toy sales.”)

“Have you no decency, sir?”

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  • mike   

During the late 1940s and early 1950s, the United States was consumed with the fear called the “Red Scare”. The byline was “A communist under every couch.”

J. Edgar Hoover, the director of the FBI, kept extensive dossiers on prominent celebrities and politicians, who he suspected had communist connections.

The House UnAmerican Activities Committee conducted hearings, including Hollywood celebrities. Many were terrified of being subpoenaed to testify. Celebrities who were suspected or accused of having Communist connections were blacklisted and were unable to find work, including prominent names like Orson Welles and Charlie Chaplin.

Senator Joseph McCarthy conducted hearings in the Senate’s Subcommittee on Investigations. His influence and aggressiveness in conducting the hearings was so great that they are still remembered as McCarthyism.

McCarthy conducted a series of televised hearings from March through June, 1954, called the Army-McCarthy hearings. The United States Army accused McCarthy and his chief counsel, Roy Cohn, of preferential treatment to G. David Schine, a former McCarthy aide and friend of Cohn’s. McCarthy counter-charged that this accusation was in bad faith and in retaliation for his investigations of suspected communists and security risks in the Army.

Before of the hearing on June 9, 1954, Senator McCarthy made an agreement to not raise the association of Fred Fisher, a member of the Joseph Welch’s law firm, Hale and Dorr, with the National Lawyers Guild while at Harvard Law School. The National Lawyers Guild had been called “the legal mouthpiece of the Communist party” by U.S. Attorney General Herbert Brownell, Jr. Joseph Welch was chief counsel for the U.S. Army.

Senator McCarthy raised that association during the hearing that was broadcast on national television.

Joseph Welch dismissed the association as a youthful indiscretion, and attacked McCarthy for naming the young man before a nationwide television audience without prior warning or a previous agreement to do so.

Welch responded, “Until this moment, Senator, I think I have never really gauged your cruelty or your recklessness. Fred Fisher is a young man who went to the Harvard Law School and came into my firm and is starting what looks like a brilliant career with us. … Little did I dream you could be so reckless and so cruel as to do an injury to that lad. It is true he is still with Hale and Dorr. It is true that he will continue to be with Hale and Dorr. It is, I regret to say, equally true that I fear he shall always bear a scar needlessly inflicted by you. If it were in my power to forgive you for your reckless cruelty, I would do so. I like to think I am a gentleman, but your forgiveness will have to come from someone other than me.”

When Senator McCarthy pressed the issue, Joseph Welch responded, “Have you no sense of decency, sir, at long last?”

From that point, Senator McCarthy lost the upper hand in his arguments and the public opinion of the American public turned against him.

On December 2, 1954, the Senate voted 67-22 to censure McCarthy, effectively eradicating his influence. On January 3, 1955, Senator John L. McClellan of Arkansas replaced McCarthy as chairman of the Subcommittee on Investigations.

Following the censure of Joseph McCarthy in the Senate, the prestige of the House UnAmerican Activities Committe declined in the House of Representatives. By 1959, the committee was denounced by former President Harry S. Truman as the “most un-American thing in the country today.”

Thanks to the courage of Joseph Welch facing down Senator Joseph McCarthy, the Red Scare was defused. The suspicion and fear of McCarthyism was replaced with the optimism and hope of John F. Kennedy’s presidency.

Stock Market’s Down! Convert to Roth Now?

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  • mike   

The weak stock market might be an opportunity for taxpayers who want to convert their taxable traditional retirement accounts to tax-free Roth accounts.

On Monday, April 21, 2025, the S&P 500 sank 2.4%. The index at the center of many 401(k) accounts has retreated 16% below its record set two months ago.

The other stock market indexes, bond prices (including U.S. Treasury bonds) and the dollar have also fallen.

Reasons for the market weakness might be uncertainty as a result of President Trump’s imposition of tariffs of 145% to 245% on imports from China, broad-based 10% tariffs on other imports, and more tariffs on imports from other countries after a 90-day pause, together with his threat to fire Federal Reserve Chair Jerome Powell. Firing Chairman Powell threatens the independence of the Federal Reserve, which helps stabilize world financial markets.

With securities prices down, this could be a great time to make a Roth conversion.

What if securities prices fall even more? Timing financial decisions is problematic. Securities prices could fall even more if Trump actually fires Chairman Powell and goes ahead with many of Trump’s proposed tariffs that have been “paused.” Securities prices could improve if Trump reconsiders these threats and proposals and decides to not go ahead with them. Or, something else could happen. We just don’t know what will happen in the future.

We do know prices have already fallen, creating a potential opportunity to save taxes with a Roth conversion.

Why make a Roth conversion?

  1. After a short waiting period, most earnings and appreciation inside a Roth account are tax-free. . The earnings and appreciation inside a traditional retirement account are tax-deferred until distributions are made. (There is an exception for “unrelated business taxable income” that doesn’t apply to most taxpayers.)

2. Distributions from a Roth account after age 59 1/2 are tax-free, and so are many distributions before age 59 1/2. Distributions from a traditional retirement account in excess of any non-deductible contributions are generally taxable.

3. There are no required minimum distributions for a Roth account during the lifetime of the account owner (unless the retirement plan specifies otherwise.) Required minimum distributions generally must be made from a traditional retirement account when the account owner reaches the “applicable age”, currently age 73.

4. When the account owner dies after the required beginning date (April 1 of the year after reaching the “applicable age”), required minimum distributions must be made to the beneficiaries of a traditional retirement account. Since there is no required beginning date for Roth accounts (except Designated Roth Accounts of some employer plans), required minimum distributions don’t apply for most inherited Roth accounts. (Inherited Designated Roth Accounts can be rolled over to beneficiary Roth IRA accounts to avoid having to make required minimum distributions.) (Both traditional and Roth retirement accounts are subject to the requirement to be distributed by the end of the tenth year after the death of the account owner, with some exceptions.)

5. Distributions to beneficiaries from inherited Roth accounts are generally tax-free. Distributions to beneficiaries from inherited traditional retirement accounts are generally taxable, except for the recovery of any nondeductible contributions.

Since required minimum distributions don’t qualify for Roth conversions, taxpayers who have reached their required beginning date MUST TAKE THEIR REQUIRED MINIMUM DISTRIBUTION FOR THE YEAR BEFORE MAKING A ROTH CONVERSION.

A Roth conversion is currently taxable. Planning to have the cash available to pay the income taxes relating to the conversion is critical. You might want to consult with a tax consultant or financial planner to estimate in advance what the tax will be and decide how much to convert.

There can be other “side effects” of a conversion. For example, the additional income can reduce itemized deductions for medical expenses and can result in higher Medicare premiums. Get advice to “look before you leap.”

Now that tax return filing season is over, it’s tax planning season. Whether to make a Roth conversion during 2025 should be a topic on the agenda for a tax planning meeting for everyone who has a traditional retirement account.

Will U.S. income tax laws become suggestions?

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  • mike   

There are a lot of reasons to question the viability of the federal income tax system during the Trump administration.

President Trump HATES the federal income tax system and suggested he might repeal it during his 2024 Presidential campaign. He would prefer to replace it with “simple” tariffs. But tariffs simply can’t generate as much revenue as the income tax system for funding the federal government. The federal government collects about $2.2 trillion in income taxes. Imports to the U.S. for 2023 were about $3 trillion. When tariffs are imposed, that import number will fall. There isn’t enough scope to raise the same revenue with tariffs. (And, incidentally, tariffs shift the tax burden from high income individuals, who spend less of their income, to the poor and middle class, who spend most of their income.)

Meanwhile, Trump’s speeches have confused many taxpayers about their obligations. While working at a CPA firm this year, I heard some of the clients thought the IRS was being disbanded and they no longer had to file an income tax return.

That simply isn’t true. If you study the budget proposals in Congress, income taxes are still scheduled to provide most of the revenue for federal programs, notably the Department of Defense.

The IRS is one agency that hasn’t been eliminated by the Trump’s Department of Government Efficiency (DOGE), although it has been seriously wounded.

With additional funding enacted by Congress, the IRS grew from about 79,431 employees to 102,309 during the Biden administration. With increased staffing, taxpayers who called the IRS saw a decrease from 28-minute wait times a few years ago to about 3 minutes during the 2025 tax season.

That additional $80 billion funding has since been cut to $40 billion, most of it already spent.

DOGE layoffs plus about 20,000 IRS employees who accepted the administration’s deferred resignation offer will reduce the IRS’s staffing to about 60,000 to 70,000 employees.

Three IRS Commissioners have resigned since the beginning of the year, most recently because of disagreement with the Trump administration’s plan to use IRS records to track undocumented aliens living in the United States for deportation.

When they learned that IRS records were no longer confidential, some undocumented aliens decided not to file a 2024 federal income tax return.

The leadership for modernizing the IRS has also resigned, since funding for their efforts has been eliminated.

Decreased staffing means decreased enforcement. Decreased enforcement leads to decreased compliance and decreased tax collections.

Taxpayers see less risk of not complying with the tax laws.

This year, federal income tax return filings fell by nearly 1 million (about 1.1%) and about 200,000 more taxpayers have filed extension forms, compared to last year. (Natural disasters, including the Los Angeles wildfire, also contributed to the decrease in 2024 income tax returns filed by April 15.)

Decreased staffing also leads to more frustrated taxpayers, who won’t be able to get their IRS questions answered and problems resolved.

On February 19, 2025, President Trump issued Executive Order 14219, Ensuring Lawful Governance and Implementing the President’s “Department of Government Efficiency” Deregulatory Initiative, which suspended issuing new regulations by government agencies, including the IRS.

The IRS recently issued Notice 2025-23, withdrawing final regulations issued during January, 2025, making basis-shifting via partnerships “transactions of interest” and requiring special disclosure of these transactions. These transactions are a way to shift the tax basis (cost for sold assets or tax deductions) from non-deductible items, such as corporate stock, to tax deductible items, such as equipment.

The American Institute of Certified Public Accountants complained the regulations were too complicated. Of course, these artful tax-dodging structures are also complicated, generating substantial fees for tax advisors.

Instead of cleaning up the regulations, the IRS is withdrawing them, so these transactions no longer have to be disclosed, and these abusive taxpayers can go on their merry way, avoiding paying income taxes. The Treasury estimated last year that the transactions could potentially cost taxpayers more than $50 billion over a 10-year period.

The withdrawal of these regulations is an indication of a reduced IRS commitment to enforcing our tax laws. In other words, our tax laws might become merely “suggestions”, inviting “aggressive” tax positions and “substantial compliance” for matters such as properly documenting charitable contributions and business expenses.

After all, no one is looking!

Are tariffs a form of “corporate welfare”?

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  • mike   

On Wednesday, March 2, 2025, President Trump announced a series of “reciprocal tariffs” on imports from about 90 countries, in addition to a baseline 10% tariff on imports from all countries.

(Notably, a retaliatory tariff isn’t being imposed on imports from Russia, and a 10% retaliatory tariff is being imposed on Ukraine. Trump says there are no imports from Russia to impose tariffs on because of sanctions relating to the war in Ukraine.)

The baseline tariff is scheduled to be effective at 12:01 a.m. on April 5, 2025 and the other reciprocal tariffs are scheduled to be effective at 12:01 a.m. on April 9, 2025.

The U.S. reciprocal tariffs were determined to be about half of “tariffs charged to the U.S.A., including currency manipulation and trade barriers.” This “unfair advantage” is roughly the trade deficit (imports from a country exceeding exports to the country from the United States) divided by total imports from that country. (CNBC.com, “How did the U.S. arrive at its tariff figures?”, April 3, 2025.)

For example, the U.S. trade deficit for China was about $295.4 billion and total imports from China were about $438.9 billion, resulting in an “unfair advantage” of 67%. Half of that would be a U.S. tariff for goods from China of 34%.

Many of the countries with very high “unfair advantages”, like Vietnam (90%), Cambodia (97%), and Bangladesh (74%), have poorer populations who can’t afford high-priced goods from the United States. These countries are being harshly penalized by President Trump’s tariffs, essentially because of their high poverty rates.

What is the rationale for tariffs on imports from other countries?

The purpose of tariffs is to “protect” U.S. businesses and U.S. workers from “unfair” low prices of imports, partially due to lower wages paid workers in other countries. President Trump says he is trying to encourage moving production to the United States and building factories in the United States that will hire American workers.

What seems like a “benefit” to some (U.S. companies that charge higher prices and U.S. workers paid higher wages) is a “cost” to others (American consumers who would otherwise pay lower prices.)

For example, according to the American Apparel and Footwear Association, about 97% of clothing sold in the United States is imported, mostly from China. Rebuilding the infrastructure for that industry would require a major investment by U.S. companies, and the technology to do so isn’t readily available in the United States. (NCES.com, “What percent of clothes are made in other countries?” June 20, 2024.)

The tariff tax is not paid by foreign producers, it’s paid by American importers, who will probably mostly pass the cost on to consumers. The penalty for foreign producers is reduced sales because of higher prices in the United States marketplace.

So, one way of looking at tariffs is as a subsidy or “corporate welfare” favoring U.S. businesses and workers paid by American consumers.

Michael Gray, CPA's Blog

Tax and financial advice from the Silicon Valley expert.