Welcome back to Portfolio Rest, where we take your questions and answer them, provide some context, a little analysis. Remember, our email is askthecompoundshow@gmail.com. Today's sponsor is Craneshares. Craneshares is an investment company that allows you to invest in China, but they also have funds focused on the transition to renewable energies.

Duncan, you can get behind this one. We actually had Luke Oliver from Craneshares on Animal Spirits I think just about a year ago, talking about investing in carbon allowances. Luke actually has a new piece up outlining how they work, how they tie into climate change, along with the investing implications.

Worth a read. If you want to read this piece and learn more, go to craneshares.com. Duncan, we emptied our inbox for the last show of the year. I have a few questions on the stock market that we brought in Bill to answer all of your year-end tax questions. I just want to let you know, my Christmas present to you is that I let go of the idea of doing a 12 days of finance.

I thought about it. I had it in a hopper. Some good musical opportunities. As long as you would have been able to sing them, that would have been good. I would have had to. My gift to you is not embarrassing myself by going through with it. So Merry Christmas.

Thank you. All right. Let's talk about the live show at the end. Let's get into the first question. Wathen: OK. Up first, we have a question from Brian, who writes, "Big fan of the show and all the compound content. I know no one can predict the future, yada yada yada, but just between us, what's going to happen with the stock market next year?

I'm not sure I can handle another year like 2022." Same, honestly. It's pretty rough. Lewis: The good news is, big, huge, back-to-back losses are pretty rare. Life would be a lot easier if I could just give you the answer to the question. I guess the good news is, there's not much connective tissue from one year to the next in terms of gains and losses.

John, do a chart on here. I did a simple analysis of the average annual stock market returns following an up year or a down year, going back to 1928. The average return following an up year is 9.8%. The average return following a down year in the prior year is 9.2%.

Really doesn't tell you much, so not much help here. But I know what you're thinking. A lot of people would come back and say, "Well, Ben, how many times has the stock market been up following a year where the Fed is in a tightening cycle, or when inflation remains above average, or when there's such a high probability of a recession, or when interest rates have risen so precipitously, or when there's going to be another fast and furious installment released in the following year?" Can you believe they're on No.

10 already? Lewis: I can't remember the last one I saw, if I'm being honest. Did they teach you about sequels in film school? Because that's obviously all you need to know to make hit movies. Lewis: That and horror films, easy money. I guess so. Here's my one big takeaway that's not really groundbreaking.

The stock market is inherently unpredictable. Sure, we all understand the current environment and what it looks like, but that doesn't help you figure out how things are going to shake out. Just think about how many people at the end of 2019, coming into the year, forecast a pandemic that would cause lockdowns, quarantines, millions of people working from home, schools being shut down, the worst quarterly GDP print in modern history, and then the biggest government spending package since World War II.

How many people had that on their bingo card? Of course, no one. Coming into this year, how many people predicted that a crazy person in Russia would invade an innocent country that would cause an upheaval in food and energy prices, and then we'd have the highest inflation in four decades, and the Federal Reserve would be actively rooting for the stock market to come down?

No one predicted that, right? No. Let's do a tweet on here. This is Bloomberg's Jonathan Farrell. He posted this weekend the year-end 2022 stock market forecast from all the big banks and Wall Street firms. This was done at the beginning of the year, of course. You can see the range is anywhere in the S&P from $4,400 to $5,400.

Right now, the S&P is trading around $3,800. Now, the point here is not to dunk on these Wall Street people who make forecasts. That's part of their job, but it's just to show how ludicrous it is to think you have the ability to predict what's going to happen over any year-long period.

Sure, someone's bound to get lucky and nail it once just because of the sheer number of people making predictions these days, but I have no idea what's going to happen. Well, you've got to shoot your shot, right? I mean, that's... Sure. It's kind of fun to put stuff out there, but you have to think more in terms of probabilities and then tail events that could upend any of those probabilities.

So, I have no idea what's going to happen in 2023, neither does anyone else. And I guess this is the reason you have a plan in the first place. If you knew it was going to happen, there would be no need for an investment plan. That's the whole point of a plan is because you have to kind of think in terms of probabilities and ranges of outcomes, and that's where I stand.

So, not much help. I don't know if stocks will be up or down next year. All that being said, what is your S&P target for 2023? Well, what did you say yesterday? If stocks go up, you have a target, and if stocks go down, you have a target? That's not a bad way to put it.

Yeah, I said, if stocks go up $45, $50, and if they go down $3,600. Okay. That's not a bad way to look at it. Because it gives you a range of returns, right? Yeah. I don't know. All right, let's do another one. Okay. Question two today is from Swayze.

Cool name. "Higher inflation should be good for stocks. Not bad, right? If prices are rising in the U.S. economy, it means some group -- corporations, the government, or individual taxpayers -- is generating more income. If rent is up, my landlord is making more money. If gas is up, energy companies are making more money.

If wages are up, individuals are making more money. The data shows that wage increases haven't kept up with inflation and taxes haven't gone up, which means that corporations, not individuals or the government, have to be the ones benefiting, right? So, corporate earnings in aggregate are only getting better in this inflationary environment.

Is the stock market getting this wrong?" Obviously the stock market is right. I'll say that. This does make sense in theory, especially since you look at corporations. They have pricing power. They can raise their prices and pass along to consumers, which is kind of what a lot of them have done.

Obviously, corporations have higher costs, too, so you have to think about commodity inputs and that sort of thing. But considering margins remain near or at all-time highs, this is kind of what's happened. But even if that's the case, high inflation is generally bad for the stock market. Why? Warren Buffett wrote a piece in 1977 for Fortune magazine called "How Inflation Swindles the Equity Investor." Inflation was scalding hot at the time.

It had been running hot for a very long time, almost a decade. His main takeaway was that stocks are more similar to bonds than most people think, especially when it comes to a highly inflationary environment. For bonds, it's not necessarily the rates rising that hurts as much as the inflation.

It's the real returns over the long term that can eat into bonds. So, he talked about how it might not seem to make sense since bonds have a fixed yield and stocks kind of have this return on equity, or earnings, which can vary. But his point was that, if you look back at history, the ROE, the return on equity for U.S.

corporations, is relatively sticky and stable over the decades. He said it's like 12%. I think it's actually maybe gone up a little bit since then. The problem is, obviously, the price people are willing to pay for that ROE can vary, but here's a quote from Buffett. "Your future results will be governed by three variables.

The relationship between book value and market value, the tax rate and the inflation rate." So, there we are. 12%, which is the ROE, before taxes and inflation, 7% after taxes and before inflation, and maybe 0% after taxes and inflation. It hardly sounds like a formula that will keep all those cattle stampeding on TV.

As a common stockholder, you will have more dollars, but you may not have as much purchasing power. So the whole thing is, is that inflation is going to eat into your ROE, regardless of what happens to your earnings. Because if you look at it, the 1970s had really strong profit growth, right?

It was up like 9.9% per year. If you look back at the last nine decades of earnings growth, the 1970s was the second largest earnings growth we've seen, on a nominal basis. Duncan, do you know what the first one was? Care to make a guess? No. The 2010s has the largest profit growth of any decade, going back to the 1930s.

Mainly because banks got decimated in 2008, but still. So, the '70s was the second. That's great. It looks good on a nominal basis, but on a real basis, it really doesn't matter. Unfortunately, what this means is that high inflation tends to be bad for both stocks and bonds. Thanks a lot, Ben.

You could have brought that to our attention. What's that M Sandler one? Yesterday? Things that could have been brought to my attention yesterday? P.S., if you're following along on my blog, I wrote about this exact relationship in February, why the stock market doesn't like high inflation. I wish I would have taken my own advice back then.

At the time, I think the S&P was only down 3%. I guess I didn't think inflation was going to get as bad as it was. This is not a true not to brag, though, because I certainly underestimated how much damage high inflation could cause in rising interest rates. But that's a thing.

I think that inflation just eats into your returns as an investor, whether you know it or not. Right. And you couldn't predict what your pals at the Fed were going to do. Yeah, those jerks. See, this is the problem. People were excortiating the Fed for years, saying all they do is care about the stock market.

The Fed never once said, "We want the stock market to go up." This year, they said, "We want it to go down." Right? I just have to point out that you were giving Mike a hard time about granular, and you just said "excortiating" on a podcast. Pull that straight out of my rear end.

Come on. One follow-up I do have about that question, though, is, like a wise man wrote in a book that I've been reading, "Saving for Retirement" -- Took you long enough. Geez. But in there, it's the best thing you can do, right? The stock market is basically the best thing you can do for inflation.

Over the short term, the stock market is going to be impacted by inflation. But over the long term, the stock market remains your best hedge against inflation. That's the problem. So, yeah, the takeaway is not, "So, that's why you shouldn't invest in the stock market." Yeah. It's just, over the short term, you're going to see some compression in valuations, and it's not very good over the short run for stocks.

Over the long run, the stock market remains, because dividends grow above the inflation rate, earnings grow above the inflation rate, and that's why stocks do better than inflation over the long term. Yes, it still remains your best bet. That's an important lesson to make sure our younger and new investors are taking away from this.

Great point. Yes. All right. Let's do another one. Okay. Question three. This one's from Nate. "Earlier this year, I sold some Palladium bars I originally purchased in 2005. From my internet research, precious metals are categorized as collectibles and are taxed at a maximum rate of 28%. Can I tax-loss harvest stocks to offset the capital gains from my Palladium sale?

Are there restrictions on what can be offset by tax-loss harvesting, other than the $3,000 of income per year?" All right. Let's bring in the taxman himself, Bill Sweet, to answer this one. Bill, I'm not going to lie. I have no idea what Palladium is. I would have thought that was something that Bond villain tries to steal.

Yeah. It sounds like it belongs in a nuclear reactor. Yeah. I did not know you could buy it and borrow from it. I guess it's some sort of precious metal. It is something people can... Duncan told us you can invest in it in ETF form, I guess. Yeah. Can you tell us a little bit about how the collectible stuff works?

Because I have heard this before that commodities have a similar tax treatment to collectibles, how that works and how that interacts with your stock losses, potentially. Yeah. I'm fresh off my kid's Christmas concert, and we were not discussing Shea Stadium, Palladium, or EMC Squared, any of that. But yeah, this is a collectible.

Ben, I know you're a big collectibles guy. Some of our sponsors, for example, do great work there. Anything that's an art, or let's say rug, I know Duncan's a big rug guy, antiques, metals, including ETFs backed by metals, gems, stamps, comic books, coins, alcoholic beverages that you don't consume, guys, that's the key, musical instruments, and historical objects, such as the copy of the Constitution I keep in my basement.

Those are all subject to a maximum, maximum tax rate of 28%. So if your ordinary income rate is, let's say, 12%, 22%, or 24%, which is where it is up to about $195,000 if you're filing single, that would be actually just the lower ordinary income rate. So really, the 28% thing really only applies for people making, let's say, $200,000 a year or more.

But that said, not sure how many Palladium bars we were talking about for our guy here. Ultimately, that can add up. Ben, the key question here is that can I net this out against my other capital assets? And the answer, fortunately, is yes, is that like other gains from property or losses, and boy, have there been a lot of losses this year, you can net out your capital gains from your Palladium bars.

It all goes into the same bucket, right? All the losses and gains, net them out. Yeah. The technical answer is there's actually three buckets, right? So there's short-term, long-term, and then short-term, long-term from a partnership. But yes, the concept is the short losses net out the short gains. The long losses net out the long losses.

And it all goes into one big blender. And at the end of that, whatever's left, depending on the nature of it, that can be taxed at a maximum of 28%. For most people this year, it's going to have to be long-term capital gains because there's not many short-term capital gains.

Not a whole lot. No baking around. I mean, it is possible, right, if you got really lucky in the end of September. But ultimately, that's the case. So yeah, I think you've still got time. You have about, what, six trading days left, maybe four or five trading days left in the year to go ahead and realize some losses, right?

Cryptocurrency generally is down 80%, 90% this year. So realize those losses, bake it off against your gains, and hopefully that'll make a dent in that tax that you're due in April. This might be a stupid question. First of all, I can't even imagine how you go about selling physical bars of a metal.

Like, I guess it's a pawn shop. Pawn shop. Yeah, you don't have an exchange. You just put it in a mailbox with a sticker and somebody comes and takes it. But so how is the price set? So I can't just go somewhere and sell it for 50 bucks a bar and take a huge loss, right?

Well, have you ever seen those stores that say, like, we buy gold here? It's got to be something like that. Yeah. They're everywhere in New Jersey. Yeah. Yeah. So I mean, you can walk in there with some metal and see what they'll do for you. Market price minus a broker fee.

It seems like someone could intentionally take a big tax loss that way, right? I've personally never sold a palladium bar before, so I don't know. I feel like you'd need a nuclear reactor. It sounds like something like that to me. Do you have to smelt it? As opposed to the metal.

Is there smelting involved? Yeah, I'm not sure either. But no, but congratulations. I mean, ultimately, if you've held that long, I mean, just about anything, you hold it for 20 years, generally you get some price appreciation, even good beer. Except for my old Beanie Babies and Pogs. Yeah, but at the high there in $1.99.

Okay. Question four is from John. I'm about to rebalance my retirement accounts in January. I'm thinking of switching all of my index holdings from mutual funds to ETFs. Do you see any reason not to do this? All right. Here's the ETF pros. Lower cost, typically in a mutual fund.

More tax efficient. Same exact strategy. The only thing I can think of that's easier with a mutual fund that you can automate purchases and sales easier in rebalancing, right? A little easier. You can do that with a lot of some places with ETFs now. What do you think? Is there any reason not to do this?

Yeah. No, I can't think of anything significant. Probably the only advantage that you would have from a five ticker mutual fund, Ben, is exactly what you just discussed. That ultimately the systematic purchases tend to be a little bit easier because you're just doing that through the fund, right? You don't have to go through an exchange.

Most exchanges will offer you commissionless trades, but not all, right? So ultimately you might pay some ticker charges. The other factor, Ben, I might just throw out, it's technical, but there's a bit of spread, right? With an ETF that you don't have to mess around with if a five ticker mutual fund.

Every night those things rebalance at net asset value. And basically you're buying it net of any commission costs you might pay at net asset value versus an ETF where there might be a bit of a bid-ask spread or premium or discount on the trade. So that's really the only factor.

But I think this is a great year to make this switch. It's been a very difficult year for just about everybody in just about every asset class. And so if your capital gains have been cut by 20%, let's say, on where you were this year, taxes are the primary reason why most of our investors, Ben, end up holding onto these legacy five ticker mutual funds.

And the key difference though, you get this, the big benefit I would focus on is right now, like this week, probably right now, you're getting capital gains distributions from your mutual funds. So let's say a hypothetical, a US mutual fund, a five ticker mutual fund, they need to distribute by year end 90% of what they realize in capital gains throughout the year.

A year like this, it's not just that prices are down, but typically there's more redemptions, right? Investors tend to get spooked when their investments decline. And so even if you hold onto those shares for a five ticker mutual fund, what tends to happen at the end of the year is you get whacked with a capital gains distribution.

It just gets reinvested in the fund, but you have to pay tax basically on the actions of other investors. And as people make this shift, it's going to keep happening. I think so. I think so. So I think there's a long tail, right? Probably 20, 30, 40 years. But yeah, ultimately if you get ahead of it and some really awesome funds, some of the Vanguard mutual funds, some of the iShares, some of the other funds that are out there have had like 10%, 15% net asset value capital gains this year.

So ultimately it's this process of do you bite the bullet? Do you rip the Band-Aid off and just realize the gains and move on into the ETF and then not have to worry about this again? Because the neat thing about an ETF is it can trade those low basis securities, those stocks with the market.

And so ETFs throughout the year, if you have a good fund manager, they're stepping up their basis probably every day of the market, whereas a five ticker mutual fund cannot. That's the key difference. It almost doesn't feel fair to mutual funds. Yeah, no, it doesn't. But like dinosaurs, they might be getting obsolete, right?

So they still have a place I think in investing. But I think the ETF in the late '90s, that was a strategically forward, sort of like the money market mutual fund was in the 1970s, 1980s. It just opened up the door to a new wave of investing and probably the thing that's going to replace ETFs, which we have been doing for our clients for almost three years now, the direct indexing approach, right?

So the market's constantly evolving, in my opinion, constantly getting better ETF over mutual fund, I think now's the time. But they'll always have that extra character in the ticker. Yep. Yep. It's very cool. Yeah, no, but yeah, I think that's it. And now's the time, generally. Next question. Do it.

Okay, this question's from John spelled with an H. The previous one was like Jonathan John. On episode 51, you addressed changing asset allocation as net worth increases. I have a follow up question. Looking forward to 2026, when the federal federal estate tax exclusion reverts to 2017 levels, maybe between six and seven million.

Does it make sense to reduce risk as your net worth approaches this level? It seems like you have a partner on the upside 40% estate tax, while the downside risk is all yours. Am I thinking about this correctly? This is a subtle not to brag here. I have no idea.

Yeah, these portfolio rescue questions constantly impress me, the listeners with their $7 million portfolios. Phil, I have no idea how estate taxes work. Explain it to me and what this change is potentially coming down the line. Yeah, so- Should this person die before 2026 to save on taxes? No, I would not recommend dying in order to save on taxes.

That generally- Just checking. Yeah, we'd be putting literally the tax- Over all our bases here. Yeah, or whatever we want to say. But no, but it's an interesting question. So what the listener's getting at is, unfortunately, father time is undefeated, Ben. I hate to break this to you, the both of you, but there will come a time when we have to settle our affairs or for our spouses or loved ones.

And yeah, if you happen to pass away and your net worth is above whatever the estate tax exemption today, it's 12.9, so effectively $13 million per person. If you're above that limit, there is a phase in the estate tax that applies. It starts at 12% and rolls all the way up to 40% of assets.

And so what the listener is getting at here is that, ultimately, like you said, there's a partner, potentially, to realize some of the gains upon his passing or her passing. So ultimately, again, I wouldn't wish death on anybody, but thinking about how to plan for this, I think the solution is very easy.

You just do your best to stay below the limit. What the listener is getting at to explain it, so right now, today, this very- or excuse me, next year, the estate tax limit is close to $13 million. However, the Tax Cuts and Jobs Act, the Trump-era tax code change of 2017, that is set to expire.

It is set to sunset in Congress beginning in tax year 2026. And so at that time, we do expect the limit to revert. However, it depends on what Congress does between now and then. And as we're seeing this week, they're rushing through. I'm not sure if this is made news, but like a $1.2, $1.3 trillion spending bill.

And so Congress tends to do things at the last minute. And I think my advice would be for somebody that's in between that range, let's say $7 and $13 million of assets, first of all, you won the game. So reducing your risk, I think, would be a great thing to play.

But isn't this kind of like your thing? You always say, like, why would you not make more money just because you're paying taxes on that money? Is that not the same thing here? Yeah. Yeah. And then my point is that there's time. So if this tax law is going to change potentially in January 2026, and we know what the limit is now, you can start gifting out assets to your heirs in between now and then.

Many states do not have a gift tax, New York among them. Many states do not have an estate tax at all. So you do have to pay attention to the-- So this could be the kind of thing where you could do charitable contributions too, right? Front load those, potentially?

That's where I'm going. Yeah. You don't just have to gift assets to charity, although that's a great thing to do, right? And leave a bequest at your passing to get below that estate limit. Sit down with an estate planner and attorney, write your will a little bit differently to take advantage of this.

Or more so, make that choice. Do I want my money to go to the federal government or do I want it to go to my library down the street? Can you give your favorite charity bars of palladium? That is definitely something you could do and is subject to the property rules and would be a great way to avoid the 28% tax.

The point here is, like, talk to an estate planner about this. This is very complex, but you have time to do it. I think generally, if your net worth is this high, absolutely. I think it's a great concept to think about lowering your risk if that's applicable. Sit down with a financial planner or CFP and think about it.

But I also would sit down and talk to an estate planner. What do you actually want your money to do? If you don't care where it goes and you want to help finance the federal government, leave it alone. Let it compound. So here's someone who 2022 was a good year for.

It had to decrease their net worth. If they're still looking at it, yeah. It's helping out with estate taxes. I think so. But the last thing, Ben, you know what the back tattoo is. I don't want to take my jacket off right now, but it reads Roth IRA conversion.

And so if the government is going to get 40% of your assets, a great way to lower your estate tax is to voluntarily pay some income tax. And then that's less because, again, whether it's a traditional IRA or a Roth IRA, the 40% tax applies. So why not just fork that money over earlier?

And then your heirs will get a Roth IRA and just distribute that over 10 years, completely income tax-free. Nice. Okay. All right. Speaking of Roth, we had a Roth question. We couldn't leave without asking one more of those. Oh, I'm in the right place. Yeah. Merry Christmas to me.

Derek coming in with the Roth question. Let's do it. With time, the percentage of our portfolio that is Roth is less than 10% and getting smaller every year. At what dollar amount saved would it be beneficial for us to diversify and contribute retirement money into Roth or after-tax contributions?

Should I shift and make after-tax retirement contributions now, despite being in a high tax bracket, which will largely eliminate the largest tax deduction I take every year? We don't itemize deductions. All right. He wants more Roth dollars working for him, which I'm sure you can get behind, Mr. Roth.

What does he need to do to make this happen? So answer one is, this is a complex question and we cannot give people direct advice here on this show. Shout out to our Chief Compliance Officer, Patricia Hetzfeld. But in general, what I would advise somebody to think about is, what is my current tax rate?

And they indicate high versus what is my future tax rate going to be? And that, to me, drives the traditional versus Roth conversation. Let me give you the Michael Kitsis answer, which I think in this scenario would be the right one, in that when you're contributing, I think it does make sense, especially if you're in a high tax bracket, which I would define as 32%, 35%, 37%.

So we're talking people making $300,000 a year or more. Ultimately, I think it would make sense in that tax bracket to do the traditional first, right? Because ultimately, you can make a decision towards the end of the year, depending on your capital gains, depending on how many bars of Palladium you put in the mailbox and stuck a sticker on.

Depending on your big picture scenario, you can make a choice to do a Roth area conversion late in the year. But ultimately, you cannot go back, right? So it's a one-way street. Once you make that Roth conversion, thou shalt not undo it anymore. So I think it would make sense in this scenario, generally, to do a traditional contribution throughout the year and then make a decision on whether Roth convert when you have a low tax year, when you have a tax break, when there's something else.

So you're saying for most people making that Roth decision, you can wait till December and see how your year looks and kind of get a good idea and then decide whether you want to do it or not? Yeah, I think so. For somebody that's in a high tax bracket, Ben, that's exactly it.

Because if you're paying 32, if you're paying 37%, you probably don't want to add to that. And the listener's question framework was, this is probably my largest tax deduction, my traditional 401(k). I'm putting $20,000 a year away and I'm able to deduct that. Do I want to flip the switch?

And I would say, again, no, you probably don't. But you can make that decision on a year-to-year basis and do it via Roth conversion. But I probably in this scenario would contribute to the 401(k) on a traditional basis. We want to mention, we talked about this yesterday, 401(k) limit is going from $20,500 to $22,500 next year.

Yeah. Thanks, President Biden, right? Inflation cuts both ways. And yeah, for savers, that's a really, really good thing, right? So obviously, if we could choose, we would say no inflation. But the good news is anything that's inflation adjusted, including your tax brackets, including your standard deduction, that's going up along with inflation too, to the tune of 7, 8, 9%.

So yes, that's a good thing for savers. Awesome. All right. The only other thing this person needs to do is ask their employer to start having a Roth 401(k), right? Yeah. And it's interesting too, the omnibus bill, it looks like there might be a provision that might come out starting early next year for the employer match to be happening in Roth contributions.

So that's interesting because right now- Hand up, hand up. Omnibus. Yeah. No idea. I got nothing. Latin. I took Latin. Yeah, it's 6,000 pages of potential tax law. And it's not even real tax law yet, right? Because it hasn't been passed. So if you really want some bedtime reading, I think that's it for Christmas Eve.

Speaking of reading, in this book again, another plug. Duncan, a company man. I learned how recent 401(k)s became a thing. I didn't know, like in the late '70s, right? I just, in my head, thought that they'd been around since at least like the '50s or something. That's why a lot of people need to give themselves a little bit of slack if you're not very well prepared for retirement.

It's a concept that hasn't been around very long. It really hasn't. Yeah, most of the time you worked and then you died. That's my plan today, hopefully in my '90s. But no, the Roth hasn't been around since I think '95 it was signed into law. I don't think that you could do a Roth area until 1997.

So yeah, we're only looking at 25 years. And that's not enough compounding for me, guys. I need some more. All right, we got one more. I'll always take more. Give it all to your kids, Bill. Always more compounding, right? More compound? Yeah, compound gains. Okay, so last but not least, when looking for a CPA or tax preparer, what are the smart questions to ask?

How do I know if the fee is fair? Is there any correlation between net worth and the complexity of a tax return? Is there an advantage to seeking a CPA whose practice is within one's own state? So that's kind of a cheat because that's multiple questions in one, but they're good.

This is a good, I'm actually surprised a lot of tax questions we get that we haven't gotten this one sooner. I mean, obviously, I think maybe everyone just assumed Bill would do pro bono tax work for everyone emailing into the show. I did have somebody send me a Chipotle gift card, which was very kind.

Thank you, Bill. So beyond asking friends and family, where do you even begin trying to find some answers to these questions? Yeah, so like any other professional, ultimately, this is more art than science, right? So you can read reviews, you can do X, Y, Z. But the question was, what smart questions can I ask?

So this would be my take on it. I think the big software providers, the turbo taxes of the world, the Intuits, the tax slayers, I think they do a very, very good job for the purpose of commoditized tax returns. So I would separate in my mind the work that is actually a tax filing, which in my opinion can be done mostly by software.

Who knows, ChatGPT might come out with a tax filing service. We'll do it all through AI next year. And I think the cost for that is somewhere around $50 or $100, and maybe more if you're filing multiple states. But that to me is table stakes. So what questions should you ask a tax professional that you might want to be working with?

My opinion, the cardinal sin, in my opinion, of most of the tax professional community is they are driving while looking at the rearview mirror. They do not care about what happens this year. They don't care what happens next year. They care about what happened last year, because ultimately, that's the business model.

Can I crank out a tax return and charge $300, $400, $500, $1,000? We should also, full disclosure here, you used to run a CPA tax practice, right? I did. I did. Now you run a tax practice for us, but it was an actual tax preparation, tax filing, all that stuff.

We have tried through our two years, and Bill Archeroni, big shout outs, because he's done amazing work here in the space and is taking a well-deserved week off. So I hope he's not watching today. But ultimately, he's spending time with his child. But ultimately, we have tried to solve for this.

And the way we've tried to solve for this is by setting up a series of meetings throughout the year that's in concert with our work as advisors and start to look ahead. We build a tax return during the year, and then we sort of lay it all up with this fourth quarter meeting.

So I think that back to the question, I would engage with the CPA and find out how much forward tax planning can I expect to receive from this relationship? Are we going to be able to meet in October, November, December? Are you going to be on vacation? Or is this something we can do?

Because on 12/31, in about a week, Ben, it's too late. It's too late to make a charitable contribution. To make a charitable contribution on January 2nd, that counts in 2023. And so I would be looking, if you're going to work with somebody and work with a human being, I would be trying to engage their skills and get some forward tax advice.

What can I be doing during tax season? So talking to someone in January or February might help out, because you're getting ahead of things a little bit. I think so. But ultimately, that's tax season, right? So I would probably just go with whatever you're doing this year and be looking for the next tax preparer, maybe in July, June/July.

After they've been able to take a vacation, they're coming back, they're sort of thinking about, OK, how many people do I have in extension? That, in my opinion, is a time to engage. Last point I want to make, there are certain states that are very complex-- California, New York, Oregon among them, for example-- or states can be very simple.

So there's no blanket answer here. Texas, Tennessee, Washington, they don't have a state tax, right? So you don't have to worry about it at all. Pennsylvania has a flat tax, not very complicated. So I think it really all depends on your specific situation, unfortunately, which is a terrible answer for an interview show.

If you have a lot of palladium bars, probably something you want to talk about in advance. But I think the general gist is, how much forward tax planning am I going to get? Because that, I think, is the big advantage you get working with a professional versus software. My biggest thing, talk to more than one person, or more than one firm.

You can compare and contrast a little bit, just to know what they're going to give you, what you can expect, what the fees are, all that stuff. Talk to more than one person. It looks like you've got a pretty nice TAM here, Bill. I'm seeing in the poll in the chat right now, 65% of people do not use a CPA right now.

So there's pretty good-- Yeah, the software is very good, Duncan. It's great. It's great. But like anything else, are you getting what you're paying for, right? I started out with TurboTax, and it worked until things got complex for me. Then I had to move on to Bill Suite. I used to do my own, and I would always upgrade for the audit protection, because I was like, of course, I have no idea what I just did.

Right. Well, I'm sure it's worked out. I mean, the audit rate is hysterically low. That sounds like the warranty at Best Buy. That can't be worth it, right? There's no way TurboTax is going to bat for me if the US government comes after me, right? Yeah, I don't think so.

I'm not going to render an opinion, but yeah, I can't imagine this working. SPF, FTX, they were using TurboTax, right? Isn't it like-- For real? No, I'm not. That's not a joke. They were using QuickBooks, which I'm very familiar with. But yes, I find it great for a small business.

But yeah, we weren't running anything near that line. Okay, I got you. But no, but isn't it like the insurance policies you get for if you go buy a toaster or microwave? That's all pure profit for the company, right? Because they very, very rarely end up replacing that. So yeah, I would agree.

But I think it's like anything else. Are you getting what you pay for, and are you valuing the relationship? That, to me, is it. And some people do a great job, but most people don't. All right, we are off until the new year. Everyone's taking a break. Duncan, you met a bunch of our viewers at the live show last week, right?

Yeah, no, it was great. At NASDAQ, and then at Perfect Pine afterwards. Met Dave from Michigan. He was awesome. Met George, a chef in Colorado Springs. He was very nice. Talked with a PhD academic researcher from California. We had all kinds of really cool people there. It was very intelligent amount of viewers here, don't we?

The vibes are good. Definitely. Yeah, definitely. All right, thanks always for the people who show up live in the chat. Thanks, everyone, for listening and watching on YouTube. We appreciate all your feedback. Merry Christmas. Happy Holidays. Remember, if you have a question for us, askthecompoundshow@gmail.com. We will be back in the new year with plenty of new questions for you.

See you then. Happy birthday, Sean. Big Sean. Yeah. That's right. Happy birthday. Thanks. That's tough. Happy birthday, Sean. you