Bruce Norris is joined this week by Susie Leivas. Susie is the CEO of Leivas Tax Wealth Management. She began at age 13 and has nearly four decades of experience. Susie started in the tax business assisting her father Richard Leivas. After completing her education, she and her father became business partners, eventually forming Leivas Tax Wealth Management. Today, she serves as the leader of the team as an enrolled agent, a tax preparer, and a financial advisor with HD Vest Investment Services. She can assist clients with a wide array of services, and she has had Bruce as a client for many years.
Episode Highlights
- What made Susie decide to work with taxes at a young age?
- Were there any tax law changes in 2015, and should we see some in the coming year?
- What has the group mood been in 2016 compared to prior years?
- What is the attitude of baby boomers and millennials when it comes to saving and spending money?
- How well are people prepared today financially for surprises?
- How much of her clientelle nearing retirement are choosing to stay in California?
Episode Notes
Not too many 13-year olds say, “I want to do taxes like my dad.” Bruce asked her why she was interested. She said when she was young her dad was going to the houses and doing houses, and this was back in the day when you received forms from the IRS and the franchise tax board. They used carbon paper, and her job was to schedule him, get directions, and organize him. He bought her first typewriter and calculator when she was 13, and it was like a game to her. When they kept going and she was a junior in high school, she took HR Block’s basic course and helped him do taxes.
The business has become easier with access to computers and being able to correct mistakes. Back then a mistake was a problem. Susie said there was a lot of math involved, and back then there was something called income averaging. You would take four prior-year tax returns, and it was just a whole lot of math. When you would finish the return, the client would walk in sometimes and say they forgot something. You would then have to start all over again. This was when her dad decided to hand it off to somebody, and it was Susie. When Susie started, the math was all manual and you had to know numbers. Today you walk in, and if the computer is down you have a team who gives you change for a 5.
Bruce next went on to talk about tax law changes. Bruce asked if there were any major things that got changed in 2015 or are coming. Susie said there is always something changing. Something will be passed, and often it starts kicking in later. In California, they raised the tax on income that was accelerating past a certain amount. It is unfortunate when something gets changed as the end of the year since you cannot do much tax preparing. Susie said on the payroll side, there were so many people who were on unemployment, and the California amount they were contributing to unemployment was not enough. What they paid as employers was also to the Federal unemployment. California had to get money from the Feds for unemployment, so at the end of the year the employers in California had to pony up more unemployment tax which they were not expecting.
Bruce said when you do taxes, there is a group mood that you feel. Bruce said in 2005 and 2006 things were positive, but in 2009 it was a little different. Susie goes through months of long days talking in front of people who are very sad about where they are. This is a tough deal. Bruce asked what the mood has been in 2016. Susie said she is now getting the call that prices are up, and people are wanting to shift where their assets are. Fortunately, her clients have been with her a long time and they have tried to instill them to give her a call to ask for help with decisions. She does not want them to come in after everything is already finished. Fortunately, this is happening.
She will receive the call, and the client will say they are thinking of selling the rental property. Susie will tell them to let her know what they think they will list it for, and she will do the math and calculate it before they decide to sell it. Most times it is making the client rethink the sale. Once they know the tax cost, it is pretty devastating. Susie has had clients who went through their entire cycle, and Bruce wondered what they are doing to get yield. She said there are a lot of folks who are so used to being happy in a CD, and they are not. Because this is all they know, they are shrinking their life and adapting to a lower income.
In many cases, the older generation is not the type to spend money. They have wealth, and if you told them to start spending it they would not even know how. They have saved their entire life and have no debt, so the need to spend it is not big. The current generation will be a little different. Bruce asked Susie about the likelihood of them contributing to their retirement accounts, and she said it is not a big habit of theirs. Once the risks have passed and it is a defined contribution plan, such as 401K, simples, IRAs, and ROTHS, it is the taxpayer’s responsibility to save for themselves. In many cases you can do that through your employer, but when you are working for smaller employers it is often not available.
Bruce asked if we are becoming better savers, which Susie said we are not. Bruce wondered if it is because of necessity now that most of what we make needs to be spent just to make it. Susie thinks it is two-fold. Our life is bigger than our income, and the lack of education is another factor. The Stock Market has people nervous, and they do not truly understand it. They are thinking why they would want to do something they do not understand. In a way, the prospects are feeling uneasy because what they are used to is not paying and shifting to something completely different is scary. Because of this, they learn to live with less. The scariest thing in the world is the unknown, but what is interesting is it might be scary and uncomfortable but many don’t like change either. Even though they don’t like it, most people don’t change.
Bruce went on to talk about sovereign debt, which is a very unusual thing right now. 40% of it pays negative, which is crazy. Bruce can’t imagine having a ten-year T-Bill, and at the end it pays less than the original principle. In Sweden, it goes all the way to a 50-year T-Bill. You can buy one and lose money the entire 5 decades.
In a way you have two types of businesses. You have an HR Block, which deals with people in the beginning of their life or not as financially involved. Bruce wondered how they view homeownership if they do not own one. He wondered if it is something they cannot wait to do or if there is another reason. Susie said when she first acquired HR Block this was the case with beginning people and it was simple returns. They have this from the day you e-file a return until about Valentine’s Day. This is when the clients are in and you see the little returns. After that, the clientele is the same as every other practice. It is interesting how many people will walk in without an appointment and not really a connection as much to the preparer and more to the brand.
The younger people are staying at home with mom and dad longer, and they have a lot more student loan debt. They have debt, but not necessarily a good job, or any job at all. The need and want to get married is delayed, so establishing a home is delayed from what Susie’s generation was used to in the past. Becoming a household of their own instead of early 20s could now not be until their early 30s. Susie thinks a lot of people have watched the crash and burn and don’t want to go through this. There is a residual effect that no chart can tell you. If you lived in a home where you saw your mom and dad go from a $500 grand house to a $250 grand house and lose that house, you may be a little more hesitant.
There was an interview with Mr. Wonderful from Shark Tank. He was being interviewed by Doug Duncan, who gave his take on the housing. He said he owned 21 companies where the predominant employees were millennials, and he noticed how they did not want to own anything. They don’t want to own anything, not even a car. They just want to be free. It’s like their life is contained like they live in Manhattan and you can live in tight areas.
Susie’s husband’s cousin lives in Manhattan, so she likes to have conversations with people from Manhattan about their life there and how their money works. She will then match it to herself and how her money works. Susie’s house is large with a big backyard and their own gardener, pool person, and tree person. Her husband’s cousin does not have any of this. His biggest bill is services. When you look at his life, you see how the expenses are taken away but you also see the time it frees up. Susie said even though she has the landscaper and pool person, she still spends several hours working on her house. It is a lifestyle they are used to and do not really want to sign up right now. In Manhattan, it is not even available and you cannot say you want a house with a yard. If you want this, you have to move to Long Island. Bruce jokingly said they have Central Park so somebody can go see a tree in New York City.
Aaron Norris had lived in New York himself, and he really got acclimated to public transportation. Owning a car in Manhattan is stupid because you wouldn’t know where to park it. This would be a major change if this is where people want to stay. If you are a developer or a builder, then you would want people to at least buy a beginner house. However, Bruce said he can just look at a chart and see that this is not happening.
Bruce asked about deductions since there is a pretty big gap between when you fill out your standard deduction and when you are married, which is $12 grand for a married couple. The interest rate is 4, so you have to owe a lot of money before getting there. There are so many people who walk through the door thinking they will get a big deduction, and it really doesn’t make that big of a deal. They would have to owe $400 grand in order to make it. It is only the difference, so they are thinking it is not as big a deal as they thought.
Bruce asked how well people are prepared for surprises financially. Susie said a good chunk of Americans are a good paycheck away from bankruptcy. There was an article in the paper recently that said when there is a snafu in someone’s life, they were asked how they would get money. People’s answers were to go to a family member, friend, or credit card. However, none of them say to go to a savings account. Bruce thinks this is habit, not just lack. Bruce was the kid who liked to save. Even if he was given a quarter, he would see if he could get change from it because he always wanted something that was not touchable.
Whenever Bruce is asked how he ends up having things, he always gives them a book that talks about how to set money aside. This is the kind of habit where if you do not develop it, then it does not seem like it ever grows very much. Financially literacy was always a problem, but now it is different. Parents were not teaching kids about money while Bruce held anything he could. Now we are not talking about it, but rather we are talking about electronics. Most people got in trouble with their finances because they just swiped their card and lost track of how much they spend. Years ago when it was actually cash, you would open your wallet and it would be gone. Now people don’t see it this way, and just keeping track of things is a challenge within itself.
Bruce asked Susie if she sees the category of health costs and health insurance becoming a bigger piece of everybody’s pie. Susie said yes and that a lot of people were surprised by that. They thought with Obamacare it would get better, but she has not seen this. Bruce asked about the choice to not have insurance in California and if there is a line item that would cost you tax-wise. Susie said it is not a California problem, but rather a Federal problem that is increasing. We are on the third year now, and the first year was 1% of your income, then 2% and it will continue to grow to the point it will be cheaper to buy insurance than to pay the penalty. This means if you grossed $100, you would pay $2 grand as a penalty not to have insurance. Bruce asked if there is a limit to it, which Susie said there is. However, every year the number keeps growing.
Back in 2005 and 2006, it was typical for somebody to pull out money constantly. In 2003-2005, you would see people reifying every 6 months and equity lines that grew. Bruce asked what the habit is now. Susie said she is starting to see it again, but she is also hearing that the loans are tougher to get now. It all goes through these cycles, and it will be interesting to see where this cycle ends. First it was so generous, then it became so stingy. Now we are floating up to not even halfway, but it will be interesting to see what will happen. Part of it will be on the performance of the borrower. If they can take risk and it is rewarded with timely payments, then they will take more risks. Depending on who is president, you could have a definite policy change.
Bruce asked what percentage of her clients own their house. Susie said prior to H & R Block it was the majority since this was the type of clientele she developed. With the H & R Block practice they doubled their practice, going from 2,500 returns to now about 5,000 returns. In the H & R Block site they now have some of the smaller returns who don’t own homes. Now they only have about 10-15% of their clients who don’t own their home.
Bruce asked about the clientele coming to retirement age and if most of them are staying in California. Susie said she had always heard that, but not as much anymore. So far it seems to be holding true. Just recently she had a couple who moved because they wanted to be closer to the family, which is normal. It was not because they said they needed to find a cheaper place to live. A lot Susie’s age group will likely not make it to retirement with enough money, so this is now a discussion point. They have to be saving more to make it to the finish line, but they do not have enough money to retire when they want.
Bruce next mentioned the $250,000 and $500,000 non-taxable on the residence and how he was shocked it ever showed up. Bruce asked if this will stick around or will go away. However, Susie does not think it will and is actually not being used well. You had to have lived in your home over the last five years, but you could pocket $250-$500,000 every two years. If you wouldn’t be so stuck in that home and were someone willing to move a little, if you could buy a fixer-upper then just think of the tax wealth you could build. Susie said in her entire years of practice, she has shared that idea but does not see anyone including herself doing it. Bruce said he does not know anyone who is working on their house to move.
Bruce said retirement money extraction is in the 401K. Bruce asked what age he has to take things like this, whether it is out of his ROTH or his IRA. Susie said you are allowed to take it at 59 ½ with no penalty, but you are required to take some at 70 ½. This is also the tip of the Social Security number. At 63, Bruce has looked at the Social Security payment chart, and he is going to wait until he is 70 because it grows at 8% a year. In today’s environment, this is amazing and it is not even taxable. The only math that would goof it up is you just can’t die. For the Federal deficit, there could be a lot of people who say they will get $4 grand a month instead of $2,200. They are looking at their math and seeing it will not work out good.
Susie said most of her clients are allowed to start at $62, and she can tell most of them are starting early. If you pass away, you get nothing; and there are others who do not want to leave anything on the table. When you have a ROTH, Bruce wondered if she ever has to take it out and if it is under the same rules. Susie said it is not, but if she does take gain out of a ROTH, even at 63, that would not be taxable. A lot of clients are not converting to ROTH because they worry that it will not hold.
Tune in next week as Bruce continues his discussion with Susie Leivas. For more information, you can call her office at 951-300-9600.
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