Tax Loss Harvesting Explained: How Wealthy Investors Cut Tax Bills (And How You Can Too)

This is Invest Talk. From KPP Financial, helping investors make sense of the markets one day at a time. Here's your host, Luke Guerrero. Good afternoon fellow investors and welcome to the Tuesday October 20th, 2026 edition of Invest Talk. I'm your host, Luke Guerrero, and I'm excited to answer your finance and investment questions today. But before we get to that, I want to give you a quick reminder because the date is, well, it's approaching. We have our first Invest Talk retirement summit coming up October 24th next weekend, or sorry, this Saturday actually. You are invited to join the KPP team as well as guest experts. We're going to have lively presentations and Q&As and discussions on a bunch of topics. We're going to talk about tax strategy, estate planning, real estate investment strategy, and financial planning as well. Now this event is free of charge because our mission is always to educate you all. But if you are interested in going to the first Invest Talk retirement summit, you got to go over to investtalk.com and register because spaces are limited and I think we only have a few left. For those of you who are going to be joining us, can't wait to see you all on Saturday. All right, before we talk about today's market performance and run down our show topics, let's tackle this caller question now. Hi, this is Dennis. I'd like to know what you folks think of Prologist. ELB is about a 120 billion dollar company and I sure would be interested in your opinion. Thank you. Well, Dennis Prologist is a 120 billion dollar market cap company roughly. They are one of the world's largest industrial retail companies so they invest in warehouses and logistics centers, not just in the US but in Europe and Asia as well. And a lot of their strategic capital allocation recently has been towards the data centers. And that's really been a good point to their earnings. I mean, revenue was at 2.39 billion in the most recent quarter. earnings per share was at 86 cents versus 82 cents which was the estimate core funds from operation of 7% year over year to 1.6 dollars per share. Dollar 60 cents versus 149 was the expectation. And their pipeline of data center growth has been pretty stellar. Now within this, there was a bit of a cut here in guidance on lower expected gains from net earning for the full year, but arrays on same store growth after their most recent earnings. Stocks slipped about 1%. It's now sitting roughly 20% below. It's 52 week high. But a lot of that is from structural secular headwinds, right? We've seen yields march higher over the past couple weeks, so the past couple months. And as yields move higher, investments that tend to be income focused well, they tend to perform worse. Why? Because if you can get over 5% on a treasury bill, which is about as risk-free as it gets, obviously there are risks. But it's about as risk-free as it gets. People are less willing to take on the market risk, the equity risk of holding investments that otherwise get income. So your utilities, a lot of your consumer nondiscretionary names, and your REITs as well. But this is kind of provided an opportunity. This is a very well-run REIT. They only go at about $35 billion in debt. Their valuation has now moved down to below their average price to funds from operation. And it's a name we like. They have a lot of good things going on. Their occupancy is steady. Their same store net operating income is growing at about 6%. And the fact that this thing is now near its 52-week low gives you a pretty solid opportunity. I mean, it's pretty flat over the past 52 weeks down 13.57% over the past three months. Given where rates have moved, we tend to be a bit more cautious about the real estate exposure we have. But Prologius is one that we like. It is one that we hold for clients that is PLD. Thanks for the call Dennis. We're going to a great show for you yesterday. We dove into SpaceX's wireless network ambitions. And what that means for the telecom industry and telecom investors. We also answered a question on Curtis Wright Corporation ticker CW. So if you want to hear more about SpaceX's ambitions or dive into that question and many more, I encourage you to check out yesterday's episode of Invest Talk. And remember the best way to never miss an episode is to hit subscribe wherever you get your podcasts. Now onto today where we have another good show planned for you in the next 45 minutes. We have a lot to cover, including my main focus point about tax loss harvesting a bit of an explainer and a window into how wealthy investors cut their tax bills and how you can too. Also a couple more interesting topics we brought to the table today, including a bit of an explainer on the fine the Treasury Department hit Bank of America with the other day about 1.2 billion straight by the IRS and some fees you should be concerned about. And lastly, if we have time at the end of the show, we'll touch a bit on the ticket market, concert tickets, entertainment tickets, what's been going on there. We also have some voice bank calls ready to play, including one on short interest and another on centrist energy that's ticker LEI, LEU, apologies. As well as some questions that came in from the comment section of the Invest Talk YouTube channel and more, hopefully some live calls throughout the show. We are headed into a break. It is a short one. Please remember you can call anytime to the Invest Talk voice bank. But if you're listening for our live stream, we're on AM 1220 in the Bay area. I encourage you to call now at 888-99 chart. We come back, we'll take a look at the market today. The all new in-person Invest Talk retirement summit is just days away. It's happening this Saturday, October 24th in Irvine, California. The title is 5 key decisions for your financial future. It's free, but you've got a pre-register online at investtalk.com/retirement-submit. The market was higher today overall. The S&P up 28 down up 1.02%. Nasdaq nearly flat down two basis points, Russell 2000 of 165. But a lot of what we saw was a bit of the difference between what we saw yesterday. We had breadth positive today. We had some of the names that didn't do well. Do pretty well today. Defensive names, select cyclicals did particularly well. The Russell 2000 small caps vastly outperforming the S&P 500 by almost 1.4%. Sector wise banks, private equity insurers did pretty well. Some of the worst performers on the day, energy and off price retail. Bond's pretty mixed to looking at the curve. It looks like it flattened a little bit. Heels were down about five to six basis points at the long end. Same time, the dollar was down 30 bips, gold finished down 40 bips and silver was up 1.3%. Kuro actually finished down nearly 2%. So near its worst levels on the day, amidst what has been some hope and some diplomatic chatter with regards to the US and Iran. Probably the most interesting news story of the day was around the Anthropic S1, which is a filing they had to do out of their IPO, recorded $80 billion in net losses in the first half of the year. That is a lot of money down the drain. Other than that, not really much going on driving the markets. From a data perspective, ADP weekly private payrolls cooled to a four week average of 18.5,000. Last week, that number was 24.75,000. September housing starts missed and actually showed the second slowest pace since 2020. September pending home sales notched a record low as well, slipping 7.3% month over month against a consensus that had it up 10 basis points month over month. As I mentioned yesterday, nothing on the calendar for Wednesday. Initial claims will be the highlight for Thursday, and then Friday will bring us the October Flash PMIs as well as the final university you're going to consumer sentiment and inflation expectations for October. All right looks like we got plenty of time so why don't we slip in a listener question now. Hey guys Chuck some Clayton thanks for the show short interest. Here you guys talk about it on almost every stock that you guys be brief on. It'll research myself and not finding a real what number is bad. What number do we want to stay away from somewhere? Does it depend on the type of stock we'll get? What do you guys take on short interest? Thank you guys. Sure there's a bit of a complex one. You know short interest is measured in two different ways and I think they're both important. You can measure short interest as a percentage of float. That's really the most common way people do it. Another way is the days to cover. So what is your short interest ratio? Now when you're looking at short interest as a percentage of float anything under 5% is is pretty healthy, right? There are bears that exist out there. Nothing really unusual going on. 5 to 10. You're getting a bit elevated. You got people who are notably skeptical. I wouldn't be alarmed at that levels. 10 to 15. I mean that's that's pretty high. I would be asking myself what what are these shorts? No or think that I don't. 15 to 20. That's a lot, right? If bears are correct at those levels it's going to be a real problem for the stock. Conversely these are the areas where if we have high levels of short interest if they're wrong you have those potential short squeezes. I mean game stop had 140% and that led to that volatility and that danger. So with these extreme levels it's not so much a don't buy it. It's understand the inherent volatility that you have. You know I think when you're looking at these levels as well you want to see how things are changing. So if you have high short interest and it's increasing month over month that means people are piling in. Bears tend to not be covering their positions here because at a certain point right there's risk to the upside if you're if you're short of stock. Your risk is essentially infinite because the price can go to infinity at a certain level what causes these squeezes is these people who are short started to cover. If you're not seeing that that can be a bit of a signal there. I think as with anything short interest is just just one piece of the puzzle. But depending on the levels depending on the movements depending on what's happening it can certainly be very informative before you enter or before you exit a position it's important to note historically high short interest actually predicts under performance more often than it predicts squeezes. Great question. I think a little bit different from what we normally get. Thanks for the call. Why not mention it at the top of the show but I do want to mention it one more time because you know what it's a new thing that we're trying to do again these in-person events and looking at our registration we have but a few spots left. I know you and you guys hear from me and Justin all the time so we thought we'd change it up and do something a little bit different and bring in some guest experts we brought in a CPA we brought in a housing market expert a trust attorney and we are excited to bring you the Invest Talk retirement summit in Irvine California it's exciting it's different it's going to give you some great information I'll be giving a presentation on investments about the life cycle of retirement investments and how to do it in an inflationary environment I know Justin's going to be talking about financial planning and we're really excited to see all of you there. Reminders spots are limited there are just a few left so head over to investtalk.com to secure yours today before the summit this Saturday. Moving into break I encourage you to call now to get your question in life at 8 8 99 chart. If Invest Talk has helped you become a more informed investor but now you realize you'd be better off if you had someone help manage the entire hired picture KPP financial is ready to put their focused efficiency to work for you so learn more request a conversation or get a free portfolio review you can start now at investtalk.com About a week ago there was a story that lasted for one day but I think it's important to dive in here because the number that I'm about to mention it's pretty big. The Treasury Department hit Bank of America with a 1.2 billion dollar with a B penalty. The third largest enforcement action they've ever done find only what they saddled Binance and TD bank with and the bank will fully admitted that it violated the Bank Secrecy Act. Every bank in the US has a legal obligation to know who its customers are to monitor what they are doing and to file an SAR a suspicious activity report when something looks wrong that is the Bank Secrecy Act. It's the reason your account paperwork keeps getting longer. It's why the bank asks where you got that $15,000 wire from. It is a federal mandate and the system relies on it working because SARs are the primary way for law enforcement to track the ad stuff, terrorist financing, sanctions, vision, money laundering and Vincent found that Bank of America failed to maintain an anti-money laundering program meaning they did not meet the minimum requirements of the regulation. They failed to conduct the due diligence on accounts for foreign financial institutions. They failed to file the SARs. Specifically, they said that their systems allowed Chinese monitoring networks as well as illicit finance along the Southwest border. Within this, there were kind of three different figures. Vincent assessed a 1.2 billion dollar civil penalty. The OCC assessed a $750 million civil penalty which Vincent released says was assessed concurrently. I know FAC assessed a $11.6 million settlement for apparently violating across multiple sanctions programs. So Iran, Russia, narcotics, global terrorism. I think the reason this is we're talking about is because it underlies some of the tension still under the entire banking system. A bank that under-polices its transactions gets a billion dollar fine. Bank of America just learned that lesson but a bank that over-polices cuts off its customers. It doesn't understand a practice called the risky, debanking immigrant community money-servicing businesses, non-profits, operating in high-risk countries. They lose access to the banking system entirely because the banks decide the company's compliance risk isn't worth the revenue. Both failures happen and right now banks are being pushed hard in both directions in the same cycle. For us as investors, why is this matter? Well a penalty of this size, it's a known thing that happens, right? It's one time it's a disclosed cost. It's certainly not going to dissolve Bank of America. But the durable issue is as you add layers of regulation, as you add layers of complexity and compliance costs run high. Every major bank has been building out its compliance infrastructure for decades, hiring thousands of employees, deploying transaction monitoring software, building these know-your-client KYC systems. That's a permanent margin-drag. And so when the largest bank in the country gets a record fine, every other bank's compliance budget goes up. I would expect moving forward to see a little bit of a margin pressure to make sure that these banks, any other bank, doesn't get hit with the same penalty. All right, let's see if we can answer a quick question now. Hi, I wanted to have a question today about TIGER DXPE. Wondering if you think this company is worth buying right now, if you think it's overvalued, or if you can find me a good entry point, see if the stock is worth it. Oh, thank you very much. Have a good day. All right, let's take a look at TIGER DXPE. That would be DXPE Enterprises. It is a waiting for this to load. Not really complying here with me. 2.77 billion dollar market cap company. What they do is they distribute and provide for industrial maintenance and repair products. They have been doing pretty well this year. 55.34% year to date up 48.77% over the past 52 weeks. After their most recent print, which had a beat and a raise on both revenue and earnings, stock jumped 11.5%. We've seen analyst raise price targets. And so now it's trading at a pretty expensive level. It's trading about 24 times priced for looking at earnings that is well above its average of 16 near its high of 29. But I mean what you're seeing. Seeing is margin expansion. What you're seeing is net income growth. What you're seeing is earnings growth, revenue growth, organic growth at about 11% on top of solid acquisitions that they've recently done. It is inherently volatile, right? It is a small cap name. It's currently sitting near. It's consensus targets down 4.72% today. That's certainly something that is of note. I think one thing that concerns me is they've loaded some debt on here. They're nearly a billion dollars in debt. But are these levels with this run-up, especially coming off of solid earnings, I would certainly still keep it on my watch list for now. It looks a bit expensive heading into their next earnings on November 11th. I'm Luke Guerrero and you're listening to another episode of Invest Talk where we bring you the stories that matter and answer your finance and investment questions. So if you're listening to our livestream or on aim 1220 in the Bay Area, pick up that phone now in dial 888-99 chart. (upbeat music) - At KPP Financial, accountability means more than advice. It means we invest alongside you through our parallel investing approach. When we recommend an investment for clients, one or more KPP principles invest their own capital at the same time. Same day, same price, same percentage. If your portfolio moves, ours does too. That is alignment, that is transparency. That is the KPP difference. Visit investtalk.com to get your free portfolio review. (upbeat music) - In the early days, Invest Talk was Jerry Klein and Steve Peasley. Now the torch has been passed and a new generation of hosts is on the job, Justin Klein and Luke Guerrero. So when you've got finance and investment questions, don't forget to call Invest Talk, 888-99 chart. - Well, tomorrow, we're gonna be talking about the AI trade, and more specifically, we're gonna answer the question, is the AI trade reversal just beginning? Because we've had a bit of a sell-off. We're gonna look at what the picks and shovels sell-off really means. After years of outperformance, AI infrastructure stocks, the so-called picks and shovel plays, we're gonna be pretty hard as the trade reverses in markets from Asia to the US. We're gonna dig into whether this is a healthy correction or the start of a broader reckoning for AI linked investments. That is tomorrow, but right now, we're gonna dive into tax loss harvesting. There's a strategy on Wall Street right now that has gone from a bit of a niche wealth management tool to trillion dollar industry. And it's happened pretty quickly in just really just about three years. And I think it's important for everyone to understand because the basic version of it is something that any investor with a taxable brokerage account can use in the aggressive version of it, just got the IRS's attention. The simple idea is I think where we need to start. I'm sure a lot of you are familiar, if not all of you, are familiar with the idea of tax loss harvesting. It's exactly what it sounds like. You sell an investment that has lost value, you book that loss under your tax return, and you use it to offset gains you've made elsewhere. If you sold a stock for $10,000 profit this year, and you also have another position sitting at a $10,000 loss, if you decide to sell the loser, you match it against the winner, and you owe zero taxes on the game. If your losses exceed your gains, you can deduct up to $3,000 a year against ordinary income. But the rest is what's called a capital loss carry forward. You can carry it forward indefinitely. Meaning, if you have more gains next year, well, those losses can offset them. So that's the basic mechanic, and it's been in the tax code for a long time for decades. The key thing here, though, is the wash sale rule. We've talked about this before. You cannot sell a security to loss, and then buy back a substantially, I'm air quoting, substantially identical security within 30 days before after the sale. If you do, the loss is disallowed. So you can't just sell your S&P index fund on December 30th, book the loss, and then buy back a January second. You have to wait 30 days or buy something similar, but not identical, like swapping one total market ETF for another, the track's a different index. That's the game. The 30-day window creates this constraint, and the strategy is working within it. So for most of the history of tax loss harvesting, this was a manual year-end exercise. Your advisor would look at your portfolio on November. Find the losers, sell them by replacements, send you a small tax bill. It was useful, but pretty limited, because you can only harvest losses on positions that are actually down. Which engine everything is direct indexing, and this is something we do for our clients. Instead of owning the S&P 500, for example, through an ETF, you own all 500 or some of the 500 stocks that give you similar return profiles. And when you want the individual stocks, we know this, not every stock in the S&P is up every year. And so the index might be up 25%, but within it maybe 100, 200 names are down on the year. Direct indexing this lets you sell those losers one by one. You harvest the losses, you replace each stock with a close substitute, you're still tracking the index. But you're generating this steady stream of tax losses along the way. And the research on how much this adds, it's pretty consistent. It's why we started offering it for our clients. Vanguard, parametric welfare, they've all published studies showing direct indexing adds roughly 1% to 2% per year. And after tax returns to the early years, with a realistic long run average closer to 80 bits to 1.2% annually. And that doesn't sound like much. But on a million dollar portfolio, that's eight to 12,000 dollars a year. And tax savings over a decade with compounding, that becomes a lot. And the industry's exploded around this. We're not the only ones doing it. I think we do it pretty well. But direct indexing assets closed 2024 near $900 billion, $900 billion. It's projected to pass, it would pass one trillion by the end of 2025, growing it 12 to 15% annually, faster than ETFs. And the minimums have come way down. I mean, you can do it with $100,000 in a portfolio. But the IRS is starting to look at this and stepping a little bit. A firm called AEQR Capital founded by Cliff Asnuss took the direct indexing concept and added a long and short positions with leverage. Instead, there's offering harvesting losses on stocks that happen to be down. What they do is they generate losses on purpose through the short side, even in a rising market. And these strategies run on borrowed money. That's the borrowing binge part. Schwab's margin balance is alone at $188 billion in Q3, nearly double what it was year over year. About 61 billion tied directly to tax-aware long short accounts. Total US margin debt reached $1.45 trillion in August. And the strategy itself, the strategy built to save taxes is now one of the biggest drivers of leverage in the market. It grew from three to 70 billion in three years. Because AEQR is not alone in this, this tax-aware long short category. And that got the Treasury's attention. In September of this year, the IRS issued a notice to 202662 calling certain tax-aware strategies potentially abusive. They were trying to understandably target transactions that exploit differences in tax character between offsetting positions. They're creating ordinary losses while preserving capital gains. And it applies retroactively. In the same month, Schwab raised minimums on its long short accounts from one to 10 million stopped in rolling new portfolio margin clients in these strategies. Fidelity's already paused these things. And so it's important to think about, if you have a taxable account of $200,000 or more, and you're in the 32% bracket or higher, direct indexing is worth looking at. That's why we started doing it. There is a lot of demand out there. And we are always looking for ways to benefit our clients from a tax perspective. Bottom line here is tax loss harvesting is a real tool. It produces real after-tax savings. And for a lot of investors who aren't in the million to $10 billion range, you can do it without the complexity of these long short portfolios and without the IRS. I want to keep things moving and drop in a fresh listener question now. - Hi there, Justin and Luke. A long, long time listener to the show here from the Midwest. I have a quick question for you gentlemen. Hopefully you can answer for me easily. Looking at a energy stock here to get into. And I've been doing some research and basically I just found some ETFs that might be best for me. Kind of encompasses everything here. I'm trying to decide between XLE and VDE. They look pretty identical in comparison, but I know there's some differences and I was wondering if you guys like one of them better than the other. Please tell me if there's any difference. noticeable differences or not. And which one would you guys give a thumbs up to? Thank you for your answers. Look forward to hearing them on the show. Have a good day. Sure. So a lot of notable differences here. Both of these are widely used funds. XLE is the energy selector spider ETF of VDE is the Vanguard Energy ETF. They both are relatively cheap. XLE is about eight basis points. VDE is nine. There's a bit of difference in holdings because XLE only holds S&P 500 energy stocks. So roughly 20 names, your household name, your exons, your chevrons, your conico Phillips. That's nearly 50% of the fund. It is extremely concentrated. So it's basically a bet on a handful of stocks plus a supporting cast here. Large cap only, whereas VDE has 110 holdings. They are holding the entire US energy sector across all market caps. They have the same top three, but roughly 10% less. So it's a little bit less top heavy. You're getting mid cap exposure. You're getting a small cap exposure as well. And I think that really benefits in ripping oil markets. Because when the oil market is doing really well and oil names are doing really well, the outsized returns come from small cap names, mid cap names. They outperform the majors. Conversely though, when the oil market's not doing too hot, volatility works both ways. You're going to see higher downward moves in these small admit caps. I think there's reasons why you'd want to hold either. If you're looking for maximum liquidity tight spreads, that means you're operating at large sizes. XLE is a winner there. I don't think for most retail investors that's the case. If you only want large cap exposure less volatility, XLE certainly would be the way to go. But if you're looking for broader diversification, if you want mid and small cap energy exposure, if you are not worrying about insane liquidity, because you're not trading in the tens hundreds of millions in energy names, certainly VDE is a good way to go. Great funds both of them, certainly different uses. Fix the call. Let's make it two in a row at $88.99. Hey, Luke and Justin. Bill and Phil, don't you hear? Calm about ticker symbol, L-E-U, such as energy. I've had my eye on this for some time, and it's been in the downtrend, and I'm thinking of picking up some shares. But it's about at one point right now. I'm thinking of selling cash secured cuts at the strike price of around $90.95. What do they get your thoughts? A good strategy of strike price level, and what you think about the stock, would be nice to collect some premium on the way down, while waiting for it to get to my beloved one that I like. Love what you guys do. Looking forward to hearing you on the show. Thank you. Sure, well, you cut out a little bit, but I heard most of the question. And it's on centrist energy corp ticker, L-E-U, that is a nuclear fuel company, and the only publicly traded US-based uranium in richer. Over the past couple of years, they've done really well as the demand for energy has increased, and nuclear being a big part of the future of energy loads, did really well, especially from the beginning of 2024 into 2026. And a lot of these names started to trade really high valuations. And even with this name being down 72% in the past 52 weeks, still trading at 40 times price to forward looking earnings. And it's really volatile. I'm not seeing anything that shows a little bit of capitulation. Yet it's still down 30% over the past three months. The trend doesn't look great from a momentum perspective. It looks pretty poor. Commercial production for them is still three years away. They have insane capital needs. They just raised a bunch of equity, and their quarterly results have been pretty lumpy. I think as a long-term, long-dated bet on US enrichment capacity, with the amount of contracting backlog they have, it could be a good investment in the long-term. But what you're looking at here is really not buying this name as long right now. You're looking at selling a cash-secured put. And so for all those who don't know, a cash-secured put is essentially you sell a put option at strike price. You'd be happy to buy the stock at. You set aside enough cash to buy the hundred shares if you get assigned, and then you collect the premium. You get the premium, you keep it no matter what. And the idea here is to make some money on the way down here. You're essentially paid to wait for a stock you want at a lower price. Now you can still lose a significant amount of money. The stock crashes well below your strike. But for this, I think it's a smart strategy for entering a position. You get paid while you're moving down here. If you are thrilled at owning the stock at 90, I think that's fine. I mean, that's $20 below where it is today. That moves you closer to the five you're moving average here. I just, I don't think that, you know, we haven't seen anything that's going to be a catalyst for a big reversal in Uranium. And Uranium, and certainly Uranium and Richard, but Uranium focus names. So I'm kind of hesitant to enter a long position here. But certainly a cash secured put could be a way to go, as this thing might continue to move downward. Certainly the momentum suggests it might. Thanks for the call. All right. Let's take a look at a question from our YouTube channel. Take our IDR. It's one of your thoughts on IDR. I've owned it for a couple of years. And I'm used to the volatility. But the recent drop has taken me by surprise. I'm now down 27%. I have a five to 10 year expected holding period. Idaho strategic resources is ticker IDR. It's down 46% over the past 10 months or so year to date. Down 46% over the past 52 weeks. It's a very small name, $333 million microcap company. They, what they essentially are is it's a minor. So it's cash engine is the golden chest gold mine in New Jersey. They have a mill and Idaho and they fund exploration of rare earth elements. It's down. I don't know roughly 20 25% in the past month or so. You know coverage is very thin here. Liquidity is very thin here. As you're seeing metal move precious metals move downward. I mean, it makes sense that this has been doing it. I think generally mining names are a leverage bet on the underlying commodity themselves. Microcaps even more leveraged. I would tend to tilt towards the larger miners. That's where we're invested. We think we're very bullish on gold. But certainly with these tinier names that have less more regional concentration, higher risk of the bottom falling out. Thanks for the call. This is Invest Talk. I'm Lou Greer. We have one goal to help you achieve your financial freedom. Are we continues after our final break? So get your questions in now at 888-99 chart. Here's a quick heads up for our Southern California listeners. KPP Financial will be hosting an Invest Talk Retirement Summit. It's happening on Saturday, October 24th in Irvine, California. We'll be joined by guest experts in tax and estate planning, financial planning, and real estate. They will appear in person alongside the KPP team. It'll be a focused discussion of five key areas that can shape your financial future. Seeding is limited, attendance is complimentary, and guests are welcome. So don't delay, reserve your seat now by visiting Invest Talk.com. There's a little bit of a rule that I think helps to explain how government services get priced. Last Friday, the Treasury published final regulations, Treasury Decision 10060, that clear the way for the IRS to accept credit and debit card payments directly. Instead of routing you through a third-party process, or the rule was published in the Federal Register on Monday, meaning it's an effect. Up until now, if you wanted to pay your taxes by credit card, you had to go through one of three private processors, ACI payments, pay 1040, or pay USA tax. And, as you'd expect, they charge a convenience fee, almost 2% for credit cards, or a flat fee for debit. The IRS wasn't allowed to pay card processing fees itself, so it outsourced the whole thing. This new rule, implementing changes from the tax payer first Act under Internal Revenue Code Section 6311, remove this prohibition on the IRS paying fees under card acceptance contract. So the IRS can now contract for processing itself. Sounds like progress, right? Cut out the middleman and lower the costs for everybody. But there's always a catch. The rule requires the IRS to fully recover those processing costs from the taxpayer who use the method. The fees collected at the time of payment. It is neither refundable nor creditable. So the middleman changes. But the fee doesn't go away. Cutting out the middleman and getting rid of the fee are not the same thing. Congress told the IRS it could run this itself and required it to charge users of the full cost. So the convenience might improve, but it doesn't change the price for you. And I think this is a pretty clean illustration of something that applies across government services. When an agency provides a service that has real cost processing of payment, speeding up your passport delivery, running a background check, someone has to pay it. Either taxpayers generally pay it through appropriations, or the user specifically pays it through the fees. The trend in the last two decades has been overwhelmingly towards user fees, which means government services increasingly have a price tag that scales with use rather than being absorbed into the general budget. Now, I think the practical question that you probably ask every year is, when does paying taxes by credit card ever make sense? And the honor of this answer is pretty narrow. I mean, it makes sense if and only if the rewards or promotional rate genuinely exceed the fee. So if you have a card offering 2% cash back and your processing fee is $185, well, you're ahead by 15 bips. On a $10,000 tax payment, that's a whopping sum of $15. I mean, it's real money. It's not an exciting amount of money. It's, I don't even know what could you get with $15. So you probably can't even get a big Mac meal these days with $15. But, you know, if you have a sign-up bonus to hit or the tax payment gets you there and the math works in your favor, why not? But never use a credit card to finance a tax bill. I credit card rates. If you owe $10,000 and you can't pay it, the IRS has its own installment agreement. Charges of federal short-term rate plus 3%, currently well below what any credit card charges. The IRS is always going to be a cheaper lender than Visa. That is just generally going to be true. I think one more detail we're noting the IRS received eight public comments on these post-regulations. Public hearing was canceled because nobody cared to talk about it. Interesting just to note, not really important, but you know, something that affects everybody, only eight people decided they wanted to comment. Either way, this is something to know about. It is not going to affect your day-to-day, but just a little lens into how generally these agencies tend to operate. Well, that does it for another episode of Invest Talk. I'm Luke Guerrero, and I want to thank you for listening and encourage you to tell your friends and family members about our free podcast downloads at iTunes and Spotify. And while you're over there, we'd really appreciate it if you left us a rate and review. 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