Tag Archives: Gainesville

The 5 Worst Possible Shocks To The Economy; From Washington, D.C.

My Comments: Fixing what ails us ain’t going to be easy. Especially when the two political parties are more intent on having the other fail than doing what we hired them to do in the first place.

My future is limited while that of my children and grandchildren has decades to run. Economics, despite it being hard for most of us to understand, is at the heart of a credible financial future for the vast majority of us. What follows are five things that must not happen.

Stan Collender, Forbes Contributor / Mar 5, 2017

What had been widely expected to be sure bets and slam dunk policy changes has quickly turned into multiple missteps and infighting as the White House and congressional GOP find it difficult to shift from opposing and resisting to legislating and governing.

Yes…as it planned…Congress did adopt a fiscal 2017 budget resolution in January. But that first (and by far easiest) step in the Trump/GOP economic strategy is the only one it has completed. The January 27 deadline Congress set for itself on the Affordable Care Act has long since been passed with no action by either the House or Senate and none expected anytime soon.

Meanwhile, the ACA repeal and replace saga is about to run smack into a series of economic events and requirements that will force the White House and Congress to devote their time, energy and political capital to other issues. This includes the soon-to-expire suspension of the national debt ceiling, the Trump fiscal 2018 budget that presumably will be released the middle of March (we’ll see), a continuing resolution that if not dealt with by April 29 will cause a government shutdown and a 2018 congressional budget resolution fight that could greatly complicate both repeal and replace/repair/rename and tax reform.

In a bout of irrationally optimistic expectations, investors and their advisors still seem to be assuming (or is it wishing and praying?) that it somehow will all come together. And the Trump/GOP economic policies may indeed all still happen even if they don’t occur as originally planned.

But in light of the unexpected that’s already happened, several new possibilities need to to be added to Wall Street’s calculus.

There are 5 economic policy-related events that aren’t currently being priced in by investors that will send severe shockwaves through the markets if they occur. Instead of a wrench, any of these 5 will throw a nuclear bomb into the GOP’s economic policymaking efforts.

1. No Tax Reform
As I’ve posted before, the corporate tax reform that seemed to be such a sure thing right after the election is now in trouble substantively, conceptually, procedurally and politically. It’s already hard to see it being enacted and going into effect in 2017, and it may still may not be in place in 2018. If the GOP loses House seats in the 2018 election, tax reform may have to wait until after 2020.

2. OMB Director Mick Mulvaney Resigns Or Is Fired
Trump’s budget plans are at odds with the preferences of the House Freedom Caucus, the group of 30-50 ultra fiscally conservative House Republicans who have the power to stop the president’s economic plans dead in their tracks. Before becoming Trump’s OMB director, Mick Mulvaney was a HFC leader and his at least tacit approval of the spending, tax and deficit changes the president wants will be one of the biggest reasons they’re enacted.

But as a member of Congress, Mulvaney specifically rejected much of what Trump is going to propose. If those plans or the compromises needed to get them adopted become more than he can stomach, it’s not hard to imagine Mulvaney leaving the cabinet. That would give the House Freedom Caucus license to oppose the president’s economic agenda.

3. Congress Refuses To Raise The Debt Ceiling
As noted above, the current suspension of the national debt ceiling expires shortly…on March 15. The Bipartisan Policy Center said last week that the Treasury will be able to manipulate the federal government’s cash balances until sometime this fall. What happens then, however, is anyone’s guess.

The common assumption is that congressional Republicans, who routinely opposed debt ceiling increases during the Obama administration, will hold their noses and vote to increase it this time when it’s needed. But that’s anything but certain, especially if the House Freedom Caucus feels that it has given up enough on everything from repeal and replace to tax cuts and military increases that aren’t offset with spending reductions elsewhere.

And just to complicate the situation further, OMB Director Mulvaney (see #1) steadfastly opposed raising the debt ceiling when he was a member of Congress.

4. An Annual $ Trillion Deficit
It’s both conceivable and likely that, in spite of the guarantees given during the campaign, the Trump economic and budget policies coupled with the now seemingly inevitable tightening of monetary policy by the Federal Reserve will lead to an annual budget deficit of $1 trillion or more as early as fiscal 2019. The total increase in the national debt during the first 4 years of the Trump administration could range between $4 trillion and $5 trillion.

5. A Downgrade Of U.S. Debt By The Rating Agencies
The last time the federal government’s credit rating was downgraded was in August 2011 when Standard & Poor’s said it was taking the action because the U.S. needed to raise the debt ceiling and have a “credible” plan to deal with long-term debt. S&P also said the government had become less effective or predictable.

Since then the U.S. debt held by the public has increased by about $4 trillion. And all of the same factors that convinced S&P to downgrade in 2011 will be present again in 2017.

Trump’s Thin Skin Shows CEOs Are Not Made For Politics

Pieter-Bruegel-The-Younger-Flemish-ProverbsMy thoughts on this: We can argue ‘till the cows come home whether Donald or Hillary is more reprehensible. And we can wonder if the other two national candidates will meaningfully affect the outcome next November.

Donald may indeed be a nice guy, but I’m not ready to cede him the prize as CEO of these United States of America. Because the skill sets necessary to be CEO of the USA are very different from the skill sets necessary for someone to be the CEO of a player in corporate America.

Frankly, I don’t think he has the necessary talent. To borrow a sports metaphor, someone may be a talented and very successful athlete, then become a fantastic position coach in football. But time and again, we see people promoted beyond their ability to be successful. In Gainesville, think Will Muschamp to name just one. I’m casting my vote for the person most likely to be a functioning CEO of these United States for the next four years. There is no do-over once the die is cast; it better be right.

Michael Skapinker, August 10, 2016, in the Financial Times

We need political leaders with real world experience. Too many of those who govern us have never worked outside politics. It is a frequent cry. But if we think business leaders are the answer, Donald Trump, the Republican presidential candidate, is providing a near-daily display of how hard it is to leap from running a business to winning elections.

There are two reasons. First, business leaders such as Meg Whitman and Carly Fiorina, who have both lost elections, did not seem to grasp that holders of political office have less control over events than does a chief executive. While a business boss can hire, fire, acquire and sell, even the US president is hemmed in by the constitution and can be stymied by Congress, as the political economist Francis Fukuyama has noted.

British prime ministers have more executive and legislative power but still have to accommodate rivals who might challenge for their job. The aggravation Tony Blair tolerated from his chancellor Gordon Brown? No chief executive would put up with it for a week, let alone 10 years.

The second and more important reason business leaders struggle in the political fray is that they are unprepared for the criticism, invective and ridicule they will have to endure.

The press does sometimes attack chief executives. Politicians occasionally attack them too. Hauled before legislative committees, they react badly to the kind of questioning a political office-holder expects as a matter of course.

Some respond truculently, as did British retailer Sir Philip Green when asked by a House of Commons committee in June to explain the shortfall in the pension fund of BHS, the chain he ran that has since gone bust. Or they blink into the bright lights of a televised hearing and stumble through their answers — which were the reactions of Starbucks, Amazon and Google executives when questioned about tax arrangements by a UK parliamentary committee in 2012, and US car industry chiefs when congressional inquisitors demanded to know why they had flown to Washington in their private jets in 2008.

Few business bosses know what it feels like to face the vituperation endured by politicians or to be caricatured relentlessly. Steve Bell, the Guardian cartoonist, decided that David Cameron’s shiny pink complexion made it look as if he had a condom over his head — and he drew the former prime minister that way for years. Zapiro, the South African cartoonist, always draws President Jacob Zuma with a shower growing out of his head — never allowing him to forget that while on trial in 2006 for allegedly raping a woman who was HIV-positive (he was acquitted), he said he had avoided infection by taking a shower.

Politicians may loathe these depictions but they have to put up with them. Mr Bell says Mr Cameron once said to him “you can only push a condom so far” — which he wrote on the back of the moving truck in the cartoon he drew last month of the Camerons leaving 10 Downing Street.

Chief executives, by contrast, are surrounded by managers and staff eager to win favour. Talking back to the boss does not get people far. Business leaders become used to the admiration but this can make them thin-skinned when outsiders criticise them. A retired business leader once called to yell at me for writing that he couldn’t take criticism.

Politicians’ press officers try to bully critics too but those who successfully run for public office know they often have to let the brickbats sail by.

Any political leader could have told Mr Trump not to attack Megyn Kelly, a Fox News female television presenter, by saying she had “blood coming out of her eyes, blood coming out of her wherever”. A sensible politician would have responded to criticism from the parents of a dead US Muslim soldier by saying how much he respected their sacrifice, rather than suggesting, as Mr Trump did, that the soldier’s mother had been prevented from speaking at the Democratic convention.

Few chief executives are as abusive towards their detractors as Mr Trump. Even fewer speak as recklessly or pick as many fights. Many will, rightly, object to being likened to him. But he is just an extreme example of the narcissistic boss who, once in the public arena, is incredulous that people dare to criticise him.

7 Things That Will Soon Disappear Forever

My Comments: I try hard to worry only about the present and the future. Here are seven things I took for granted today that will soon be gone. Trying to bring these back, even if they hold good memories for us, will not be possible. I tell myself to get used to it, but it’s not always easy.

By David Muhlbaum, Ed Maixner and John Miley – April 19, 2016

Ten years ago, thousands of Blockbuster Video stores occupied buildings like the one above all over the country, renting DVDs and selling popcorn. Today, they’re virtually all gone. The company’s shares once traded for nearly $30. Now Blockbuster is a penny stock.

Obsolescence isn’t always so quick or so complete, but emerging technologies and changing practices are sounding the death knell for other familiar items. Check out these seven that we’ll be saying goodbye to soon.

Few things are as symbolic of farming as the moldboard plow, but the truth is, the practice of “turning the soil” is dying off.

Modern farmers have little use for it. It provides a deep tillage that turns up too much soil, encouraging erosion because the plow leaves no plant material on the surface to stop wind and rain water from carrying the soil away. It also requires a huge amount of diesel fuel to plow, compared with other tillage methods, cutting into farmers’ profits. The final straw: It releases more carbon dioxide into the air than other tillage methods.

The plow is winding down its days on small, poor farms that can’t afford new machinery. Most U.S. cropland is now managed as “no-till” or minimum-till, relying on herbicides and implements such as seed drills that work the ground with very little disturbance, among other practices.

By the end of this decade, digital formats for tablets and e-readers will displace physical books for assigned reading on college campuses, The Kiplinger Letter is forecasting. K–12 schools won’t be far behind, though they’ll mostly stick with larger computers as their platform of choice.

Digital texts figure to yield more bang for the buck than today’s textbooks. Interactive software will test younger pupils’ mastery of basic skills such as arithmetic and create customized lesson plans based on their responses. Older students will be able to take digital notes and even simulate chemistry experiments when bricks-and-mortar labs aren’t handy.

This is a mixed bag for publishers. They’ll sell more digital licenses of semester- or yearlong usage of electronic textbooks as their customers can’t turn to the used-book marketplace anymore. On the other hand, schools will seek free online, open-source databases of information and collaborate with other institutions and districts to develop their own content on digital models, cutting out traditional educational publishers.

Every year it seems that an additional car model loses the manual transmission option. Even the Ford F-150 pickup truck can’t be purchased with a stick anymore.

The decline of the manual transmission (in the U.S.) has been decades in the making, but two factors are, ahem, accelerating its demise:

Number one: Automatics are getting more efficient, with up to nine gear ratios, allowing engines to run at the lowest, most economical speeds. Many Mazdas and some BMWs, among others, now score better fuel mileage with an automatic than with a stick.

Number two: Among high-performance cars, such as Porsches, “automated” manual shifts are taking hold. They do away with the clutch pedal and use electronics to control shifting instead. The result: Shifting is faster than even for the most talented clutch-and-stick jockey. Plus, the costs on these are coming down, and they can be found in less-expensive sporty cars, such as the Golf GTI.

Even the biggest of highway trucks are abandoning the clutch and stick for automatics, for fuel-efficiency gains and to attract more drivers who won’t need to learn how to grind the gears.

A small segment of enthusiast cars, such as the Ford Mustang, as well as a few price-leader economy models, such as the Nissan Versa and Ford Fiesta, will continue to offer the traditional three-pedal arrangement for some years to come. “It will be reserved for the ‘driver’s vehicle,’” says Ivan Drury, an analyst for Edmunds.com. But dealers will stock only a handful of the cars, and some will need to be special-ordered.

First-class mail volume is plummeting, down 55% from 2004 to 2013. So, around the country, the U.S. Postal Service has been cutting back on those iconic blue collection boxes. The number has fallen by more than half since the mid 1980s. Since it costs time and fuel for mail carriers to stop by each one, the USPS monitors usage and pulls out boxes that don’t see enough traffic.

Some boxes will find new homes in places with greater foot traffic, such as shopping centers, public transit stops and grocery stores. But on a quiet corner at the end of your street? Say goodbye.

No, government energy cops are not going to come yank the lightbulbs out of your fixtures, as some firebrand politicians foment. But the traditional incandescent lightbulb that traces its roots back to Thomas Edison is definitely on its way out. As of January 1, 2014, the manufacture and importation of 40- to 100-watt incandescent bulbs became illegal in the U.S., part of a much broader effort to get Americans to use less electricity.

Stores can still sell whatever inventory they have left, but once the hoarders have had their run, that’s it. And with incandescent bulbs burning for only about 1,000 hours each, eventually they’ll flicker out.

The lighting industry has moved forward with compact fluorescents, LEDs, halogen bulbs and other technologies.

Soon, the only places you’ll still see the telltale glow of a tungsten filament in a glass vacuum will be in three-way bulbs (such as the 50/100/150 watt), heavy-duty and appliance bulbs, and some decorative bulbs.

If you are online, you better assume that you already have no privacy and act accordingly. Every mouse click and keystroke is tracked, logged and potentially analyzed and eventually used by Web site product managers, marketers, hackers and others. To use most services, users have to opt-in to lengthy terms and conditions that allow their data to be crunched by all sorts of actors.

The list of tracking devices is set to boom, as sensors are added to appliances, lights, locks, HVAC systems and even trash cans. Other innovations: Using Wi-Fi signals, for instance, to track movements, from where you’re driving or walking down to your heartbeat. Retailers will use the technology to track in minute detail how folks walk around a store and reach for products. Also, facial-recognition software that can change display advertising to personalize it to you (time for a mask?). Transcription software will be so good that many businesses will soon collect mountains of phone-conversation data to mine and analyze.

And think of this: Most of us already carry around an always-on tracking device for which we usually pay good money—a smart phone. Your phone is loaded up with sensors and GPS data, and will soon collect lots of health data, too.

One reason not to fret: Encryption methods are getting better at walling off at least some aspects of our digital lives. But living the reclusive life of J.D. Salinger might soon become real fiction.

If you want to hear the once-familiar beeps and whirs of a computer going online through a modem, you will soon need to do that either in a museum or in some very, very remote location.

According to a study from the Pew Foundation, only 3% of U.S. households went online via a dial-up connection in 2013. Thirteen years before that, only 3% had broadband (Today, 70% have home broadband). Massive federal spending on broadband initiatives, passed during the last recession to encourage economic recovery, has helped considerably.

Some providers will continue to offer dial-up as an afterthought for those who can’t or don’t want to connect via cable or another broadband means. But a number of the bigger internet service providers, such as Verizon Online, have quit signing up new dial-up subscribers altogether.

Andre The Giant

My Thoughts: Happened across an article about Andre the Giant yesterday. I remembered an event from  about 25 years ago while in the Atlanta airport. It was in a departure area with lots of people milling about, all of waiting to board. I glimpsed, perhaps 50 feet away, a face I thought I recognized from TV. Initially, I thought it was Andre the Giant, but this person wasn’t tall enough so I thought I was mistaken.

Several minutes later the crowd had thinned and I looked again. Same person, again no taller than I as he talked with other people. But I then realized he was sitting down on one of those departure area benches. It was definitely Andre the Giant and sitting down, his eyes were level with mine as I stood and stared, carefully.

David Goldenberg / 21 Dec 2015

There are 42 half- or full-page ads in the December 21, 1981 issue of Sports Illustrated, and 29 of them are for alcohol or cigarettes. But that two page photo spread featuring what appears to be a new miniature version of the Molson beer can? It’s not an ad at all. It’s the opening image to an amazing story about one of the largest characters the world has ever known: André Roussimoff, aka André the Giant.

You can find the whole article HERE.

The Fed: Mission Accomplished?

My Comments: I think the Fed’s raising interest rates the other day is more symbolic than meaningful. The follow on events were/are inevitable.

As usual, life does not move in a straight line. And like death and taxes, interest rates had to eventually move off Zero where they’ve been for many, many months. So moving the goal posts slightly toward an “up” number had to happen. The outcome is uncertain.

The challenge is not to simply second guess what the Fed did, but to try and understand the implications and attempt to manage the follow on. This article might help.

Dec. 20, 2015 by Peter Schiff

Summary:

  1. The Fed has finally raised rates.
  2. But this time they are in a more precarious position.
  3. It won’t go well this time around.

On May 1, 2003 on the flight deck of the USS Abraham Lincoln then President George W. Bush, after becoming the first U.S. president to land on an aircraft carrier in a fixed wing aircraft (in a dashing olive drab flight suit), declared underneath an enormous “Mission Accomplished” banner that “major combat operations” in Iraq had been concluded, that regime change had been effected, and that America had prevailed in its mission to transform the Middle East. 13 years later, after years of additional combat operations in Iraq, and a Middle East that is spiraling out of control and increasingly disdainful of America’s influence, we look back at the “Mission Accomplished” event as the epitome of false confidence and premature celebration.

The image of W on the flight deck comes to mind in much of the reaction to this week’s decision by the Federal Reserve to raise interest rates for the first time in nearly a decade. While many in the media and on Wall Street talked of a “concluded experiment” and the “dawning of a new era,” few realize that we are just as firmly caught in the thickets of failed policy as were Bush, Cheney, and Rumsfeld in the misunderstood quagmire of 2003 Iraq.
In its initial story of the day’s events, The Washington Post (12/16/15) declared that by raising the Fed Funds rate to one quarter of a percent The Fed is “ending an era of easy money that helped save the nation from another Great Depression.” Putting aside the fact that 25 basis points is still 175 points below the near 2.0% rate of core inflation that the government has reported over the past 12 months (and should therefore be considered undeniably easy), the more important question to ask is into what environment the Fed is apparently turning this page.

Historically, the Fed has begun its tightening cycles during the early stages of expansions, when the economy had enough forward momentum to absorb the headwinds of rate increases. But that is not at all the case this time around.

Prior to the recent Great Recession, there had been six recessions since 1969, and over those episodes, on average 13.3 months passed from the time the recession ended to when the Fed felt confident enough in the recovery to raise rates. (The lag time was just 3.5 months in the four recessions between 1971 and 1991). (The National Bureau of Economic Research, US Business Cycle Expansions and Contractions, 4/23/12)

But after the recession of 2008 – 2009, the Fed waited a staggering 78 months to tighten the monetary levers. Those prior tightening cycles also occurred at times when GDP was much higher than it is today. Over the prior six occasions GDP, in the quarter when the Fed moved, averaged a robust 5.3%. While the current quarterly GDP is still unknown, the data suggests that we will get a figure between 1% and 2% annualized. (Bureau of Economic Analysis)

Another key difference is the level of unemployment at the time the hikes occurred. As they started tightening much earlier in the expansion cycles, unemployment at the times of those prior recoveries tended to be high but falling. The average unemployment rate at the time the six prior tightenings occurred was 7.5%. But that average rate had fallen to 5.1% (a level that most economists consider to be “full employment”) an average of 42 months after the initial Fed tightening. In other words, those expansions were young enough and strong enough to absorb the rate hikes while still bringing down unemployment. (Bureau of Labor Statistics; Federal Reserve Bank of NY)

Our current unemployment rate has already fallen to 5.0% (mostly because workers have dropped out of the labor force). Few economists allow for the possibility that it could fall much lower. This is particularly true when you acknowledge the rapidly deteriorating economic conditions that we are seeing today.

As I stated in my most recent commentary, there is a growing troth of data that shows that the U.S. economy is rapidly losing momentum. Some data points, such as the inventory to sales ratio and the ISM manufacturing data suggest that a bona fide recession may be right around the corner (among them, this week’s truly terrible manufacturing PMI and industrial production numbers, a very weak Philly Fed Outlook, the weakest service sector PMI of the year, a big drop in the Kansas City Fed Manufacturing Index, and the announcement that the Third Quarter current account deficit had “unexpectedly” increased 11.7% to post the widest gap since the fourth quarter of 2008, are just the latest such indicators).

Given that the U.S. economy has, on average, experienced a recession every six years, the 6.5-year longevity of the current “expansion” should be raising eyebrows, even if the data wasn’t falling faster than a bowling ball with wings.

So what happens when the Fed postpones its first rate hike until the death throes of a tepid recovery rather than doing so at the beginning of a strong one? If unemployment starts ticking up during an election cycle, can anyone really expect the Fed to follow through with its projected additional rate hikes and allow a full-blown recession to take hold prior to voters casting their ballots? All of this strongly suggests that this week’s rate hike was a “one-and-done” scenario that does nothing to extricate the Fed from the monetary trap it has created for itself.

Another big question is why the Fed decided to move in December, after doing nothing for so long. Clearly the markets were surprised and confused by the Fed’s failure to pull the trigger in September, when the economy appeared, at least to those who chose to ignore the bad data, to be on relatively solid footing. At that time, the Fed suggested that it needed to see more improvement before green lighting a liftoff. And while I tend not to place much stock in the pronouncements of most economists, one would be hard-pressed to find anyone who would claim that the data in December looks better than it did in September.

A much more likely explanation is that through its rhetoric the Fed had inadvertently backed itself into a corner. Even though the Fed would have preferred to leave rates at zero, the fear was that failure to raise them would damage its credibility. After having indicated for much of the past year that they had believed that the economy had improved enough to merit a rate increase later in 2015, to continue do to nothing would suggest that the Fed did not actually believe what it was saying. This was an outcome that they could not abide. If we could doubt them about their economic pronouncements, perhaps they have been equally disingenuous with their professed ability to shrink their balance sheet over the next few years, contain inflation if it ever reared its ugly head, or to prevent financial contagion from spreading during a new recession.

In truth there should be very little confidence that a new era has begun. A symbolic 25 basis point credibility-saving gesture, coming just two weeks before year-end, is really a non-event. It’s the equivalent of a credibility Hail Mary, with the Fed desperately trying to infuse confidence into a “recovery” that for all practical purposes has already ended.

The question will be whether such a small move will be enough to push an already slowing economy into recession that much sooner. Over the past seven years the U.S. economy has become dependent on zero percent interest rates. But as with the famous Warren Buffet bathing suit maxim, these dependencies won’t be fully revealed until the tide rolls out and those zero percent rates are taken away. The bigger question is how quickly the Fed will reverse course. Will it move once it becomes painfully obvious to everyone that we are headed into another recession, or will it wait until we are officially knee deep in a contraction that is even bigger than the last one?
The new rounds of rate cutting and Quantitative Easing that the Fed will have to unleash will echo the military “surge” in Iraq in 2007. Those fresh troops were needed to roll back the chaos that the Administration had ignored for so long. But just as that surge only bought us a few years of relative calm, look for the gains brought about by our next monetary surge to be even more transitory. That is a development for which virtually no one on Wall Street is preparing.

The Fed’s Rate Hike – What it Means

My Comments: In the past months and years I’ve featured the comments of Scott Minerd, the Chairman of Investment and CIO of Guggenheim Partners. This organization is not big, relatively speaking, as they ONLY have about $250 billion under management. (I could live very well on a tiny fraction of what that amount earns every year.)

Scott-Minerd

He appeared on CNBC the other day. In my opinion, he has a terrific grasp of how money works and articulates it very well. If you are interested, click on the image above where you can see and hear what he said. It lasts about 7 minutes.

TAX ESSENTIALS

My Comments: I think I found this article published in Medical Economics some months ago. I apologize for my inability to provide accurate sourcing. That aside, all of us have a ZERO obligation to pay more in taxes than absolutely necessary.

Just remember, the IRS has a responsibility to collect taxes. It’s up to us to figure out legitimate ways to NOT pay taxes. That puts the burden of compliance on us as taxpayers, so don’t expect the IRS to wave flags here and there that say “no taxes are necessary if you do this”. It’s not going to happen. Here’s the text I found:

Since 2001, the tax code has undergone 4,680 changes—an average of more than one change per day. Even worse, physicians are paying more in taxes. Because of these trends, intelligent tax preparation has become essential, not optional.

To help, some changes in U.S. tax laws are highlighted in this article. This is by no means a complete list, but identifying strategies for dealing with these areas represents a big step to creating to a solid tax strategy.

On New Year’s Day 2013, the Bush-era tax cuts expired. Now the rich pay more (or are supposed to.) The top tax rate for individuals earning $400,000 or more, and married couples filing jointly earning $450,000 and up, is 39.6%. This is the highest rate in nearly 15 years.

Capital gains rates also increased under the same “fiscal cliff” deal. The wages of individuals earning more than $200,000 ($250,000 for married couples), now are subject to Medicare surtax. This will be tacked on to wages, compensation, or self-employment income over that amount. The surcharge is .9%.

There is not much to be done about these increases, which were a long time coming and received bipartisan support. While taxes can’t be eliminated altogether, they can be significantly reduced with proper preparation. Such preparation may include structured trusts, limited partnerships and other legal entities.

Another tax is the net investment income tax, under which individuals earning $200,000 ($250,000 for couples) may now owe more. Taxpayers with net investment income and modified adjusted gross income (AGI) will likely pay more. Net investment income encompasses: income from a business, dividends, capital gains, rental and royalty income, and/or interest.

Depending on any business or investment activities outside your practice, there may be circumstances where you owe more. Be sure to check with a professional to assure all income outside of your medical practice is accounted for appropriately. Please note that wages, unemployment compensation, operating income from a non-passive business, Social Security, alimony, tax-exempt interest, self-employment income, and distributions from certain Qualified Plans are excluded—for now.

In addition, personal exemptions (PEPs) for high earners may be eliminated. The phase-out of the personal exemption affects individuals with adjusted gross incomes of more than $254,200 and $305,050 for married taxpayers. They end completely for individuals who earn $376,700 or more and $427,550 for married taxpayers. While PEPs are generally a drop in the bucket for high earners—it was only $3,950 in 2014—it’s a lost deduction that can add up over several years.

Interestingly, while the definition of marriage is decided by individual states, the Internal Revenue Service recognizes a legally married same-sex couple in all 50 states, no matter what their legal status is in their home state. This can affect tax, estate, legal, and charitable planning.

Savvy estate planning for all married couples and individuals may involve various types of trusts, such as a charitable-lead trust. When created and structured properly, the charitable-lead trust earns an immediate tax deduction, avoids taxes on appreciated assets, and may provide an inheritance for heirs later.

A charitable-remainder trust potentially avoids capital gains taxes on appreciated assets, allows you to receive income for life, and provides a tax deduction now for your future (posthumous) charitable contribution. For large, significant charitable gifts, donating appreciated stocks or mutual fund shares (provided you’ve owned them for over 366 days) is a way to boost your largesse.

Under IRS rules, the charitable contribution deduction is the fair market value of the securities on the date of the gift—not the amount you paid for the asset. And there is no tax on the profit. This only works for assets that have appreciated in value, not for those on which you have a loss.

Now for the good news: You may be able to benefit from Tax-Free Education Reimbursements for continuing medical education (CME) via a Section 127 educational assistance plan, depending on the way your practice (or your employer’s practice) is structured.

If you are an employee and your employer does not pay for the CME, it is considered a miscellaneous itemized deduction subject to the 2% AGI limitation. Under this scenario it is better to negotiate to have your employer pick up the costs. Then it is a deduction for the employer and nontaxable to the employee.

If your practice is a sole proprietorship or a single-member LLC, than the cost should be deducted on your Schedule C, and is a deduction from AGI (and self-employment tax). If the practice is a multi-member LLC, partnership, or S corporation, it is best for the entity to pay the expense. Doing so reduces the flow through income from the entity and effectively reduces AGI.

Under the partnership scenario (or an LLC taxed as a partnership), if the operating agreement states that the expense must be paid by the partner/member and that the entity will not reimburse the costs, then the expense can be deducted on Schedule E of your tax return (thus reducing your AGI). This treatment is not available to an S corporation.

The conversion privilege for Roth individual retirement accounts (IRAs) continues. Converting a traditional IRA into a Roth account is treated as a taxable distribution from the traditional account with the money going into the new Roth account. The result of this conversion is a larger federal income tax hit (a larger state tax hit is also likely).

But the benefits may outweigh the extra money owed. At age 59½, all income and gains accrued in the Roth account can be withdrawn free from federal income taxes, provided at least one Roth IRA has been open for more than five years.

In the event that future federal income tax rates rise, the Roth IRA’s balance isn’t affected. Provided the account is over five years old, if you die, your heirs can use the money in your Roth account without owing any federal income tax. And unlike traditional IRAs, Roth IRAs are exempt from required minimum distribution (RMD) rules applied to other retirement accounts, including traditional IRAs.

Under the RMD rules, you must start taking annual withdrawals after age 70½ and pay the resulting taxes. But you can leave Roth IRA balances untouched for as long as you wish and continue earning federal-income-tax-free income and capital gains. And there is no income restriction on Roth conversions: Everyone, no matter their income, can do them.

Selling a home may be excluded from tax. How? Suppose an individual sells a primary residence. She or he may exclude up to $250,000 of gain. A married couple may exclude up to $500,000.

There are a few caveats, however. Principal ownership of the property, for at least two years during the five-year period ending at the sale date, is required. Also, the property must have been a primary residence for two years or more during the same five years. The maximum $500,000 joint-filer exclusion requires at least one spouse to pass the ownership test; both need to pass the use test.

Regarding previous sales, if gains from an earlier principal residence sale were excluded, there is typically a wait of at least two years before taking advantage of the gain exclusion provision again. Married joint filers may only take advantage of the larger $500,000 exclusion if neither spouse claimed the exclusion privilege on an earlier sale within two years of the ¬latter.

There is also positive news regarding the dependent care credit. If you employ child care for one or more children under the age of 13 so that you can work (or, if you’re married, you and your spouse can work), you may be eligible for this credit. Affluent families receive a credit equaling 20% of qualifying expenses of up to $3,000 for one child, or, up to $6,000 of expenses for two or more. The maximum credit for one child is $600; for two or more it’s $1,200.

The credit is also available to those who incur expenses taking care of a person of any age who is physically or mentally unable to care for themselves (i.e., a disabled spouse, parent, or child over the age of 13).