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Top 10 Tax Tips

The end of the year’s just around a corner. Here are a few last minute ideas for saving money on taxes.

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Full Transcript below:

Welcome back to 30 Minute Money. It's a podcast and we try to give you smart money ideas and little tiny bite-sized pieces so you can digest them and not get bloated. Steve Wershing from Focus Wealth Advisors

Speaker 2 (00:19):

And Advisor, wait, this is a podcast you never told

Speaker 1 (00:22):

Me here with me at Roc Vox recording and production just outside of Rochester, New York, and yes, so unfortunately or fortunately, depending on, Hey, look at it. It's that time of year again where it's like the end of the year it is. And wearable time. Go get off my lawn. I'm getting old, but so now you're going to do what Letterman used to do with his famous top 10 tips. So top 10.

Speaker 2 (00:46):

Well, and even more than that, it was really important to me to do this episode because there are a few things I like more than alliteration. So top 10 tax tips was high up there. So yes, so yes, it's coming up on the end of the year, and so I wanted to give you a bullet pointed list, a Letterman style top 10 list of things that you can do at the end of the year to save money on taxes this year.

Speaker 1 (01:12):

Do you have 'em on cards? But when you throw the card, I'll make the little

Speaker 2 (01:15):

Glass shatter. Oh, I should have done that. I forgot. We have cameras in here. I should have just done that. And you could dub in. I'll throw the eight by eight and a half by 11 pieces of paper and they can shatter the glass. So let's talk about a few different ways that you can save money at the end of the year. One of the first ones is if you have any things that you can deduct, if you can take deductions, if you itemize or if you run a business, accelerate those deductions. So that might be paying a few bills that you're going to get or regular monthly bills. You might pay January's bills in December so that you can take 'em this year if you don't itemize, but you're hoping to pay a little bit more mortgage interest this year versus next year, for example.


Then you can make January's mortgage payment in December. But all those little things, if you have a, well, we'll talk about tuition in a little bit, but any of those bills that you can prepay, you can accelerate those deductions and bring them into the current year. So that's one way of saving tax before the end of the year. One thing, it's not technically a tax tip, but I wanted to make sure we mentioned it in here because it's important. If you have a flexible spending account at work an FSA, then you want to make sure that in December you spend it down to zero because whatever you don't spend from an FSA, you lose at the end of the year. So if you've been doing payroll deduction into a flexible spending account, you want to make sure that's spent all the way down. Now that's different than a health savings account. Health savings accounts, you can accumulate over the course of time. That was my

Speaker 1 (02:44):

Question. Well, they're sorry to steal that from that. What is that used for? Is that like when it's

Speaker 2 (02:49):

For the same kinds of things? It's prepaying medical expenses, but these were before they only invented the HSA when Obamacare came out, and the flexible spending account was a way putting away money to pay your medical bills before Obamacare. So Oh, I see. Lots of companies still have 'em, but the big difference is you got to spend the FSA before the end of the year or it's gone. So check out that balance and make sure that you've spent it down. And if you don't have doctor bills or if you don't have those kinds of things, you can use it for other things. You can use it for really anything medical if you need a medical device, if you want to prepay your chiropractor for the next three months if you want to. I used my FSA one time to buy an office chair because I had back pain.

Speaker 1 (03:33):


Speaker 2 (03:34):

So my doc said, well, if you get a better chair because you're sitting in it for 10 hours a day, then that might help. And I got the doctor to write me a note that said, you need a better chair. And so I bought a chair and I turned it in and I got reimbursed for it from my FSA and got to spend it before the year was out.

Speaker 1 (03:51):

Where my mind's going now? No, I get to get my doctor to write me a note that I need to go down to Aruba. For some reason.

Speaker 2 (03:58):

I think that's an

Speaker 1 (03:58):

Excellent idea, right? Because the warm sea water will help my feet or

Speaker 2 (04:02):

Something. Salt water therapy, of course. Yeah,

Speaker 1 (04:04):

Exactly. That's what I got to do.

Speaker 2 (04:06):

And on all the anesthetic you can buy at the bar. So I think that's a tremendous idea. I love it. Another thing that you can do at the end of the year to save money is you can prepaid tuition. So if you are paying for undergraduate education, you can take the American opportunity tax credit, and if you do that before 1231, so if your child's spring semester is coming up and you want to pay that before the end of December, then you can claim that for this year. So if you're paying those, you can do that. You may even be able to do that if you're taking a course yourself. So if you're taking continuing education or otherwise advancing your career with education, you may be able to take that deduction as well. And if you pay for it this year, then you can write it off on this year's taxes. And

Speaker 1 (04:56):

I apologize in advance if this is a stupid question, but we're talking about prepaying tuition. That means you get the tax credit if you actually physically write a check for money that you pay that tuition, not if you put it on a card or anything like that, right?

Speaker 2 (05:11):

No, as long as the money goes out. So

Speaker 1 (05:15):

If you put tuition next month's tuition on the credit card, on the credit card, you can still get that Deion. Sure. Okay.

Speaker 2 (05:21):


Speaker 1 (05:22):

All right. Good to know.

Speaker 2 (05:23):

If you pay something, it doesn't matter how you pay it, you can pay it with cash, you can pay it with a credit card. You can, as long as the place that you're paying that would qualify as a deduction gets the money, then you get to claim it as an expense. All

Speaker 1 (05:37):

Right, good to know.

Speaker 2 (05:38):

Very good. Yeah, so it's a good question. Speaking of education, if your kids are not yet in college, but your funding college, you can make a contribution to a 5 29 plan. Now, as long as it's an in-state plan. So of course we're in New York and New York has a state income tax and 5 29 plans that are established in New York are state tax deductible. You can get the deduction. And I should point out there is no federal deduction for a 5 29 contribution. There is a state contribution as long as the 5 29 plan is organized in your state. This is something you have to be careful of. Sometimes there are good reasons to go out of state for a plan. You might like the investment company you might like. There might be some other good reason to buy an outstate plan. There was a time when there was a special deal on, this is years ago, but a special deal on 5 29 plans that were organized by Alaska.


I want to say that there was a special deal with a credit card or something. You could actually get a whole lot more credit. There was a special reward program or something and it was available to people who contributed to that plan, which is great. It was a great plan. But if you're in New York and you contribute to the Alaska plan, then you can't take the deduction. You have to do it. So in New York, there's a consumer driven 509 plan and there is an advisor guided 5 29 plan that is offered by JP Morgan. So just be careful if you're contributing to a 5 29, make sure that it's a New York plan. It's not necessarily obvious when you take it out. You might think you're doing it with a mutual fund company or something like that. You really have to look and make sure you understand what state it's organized in.


And again, it won't get to a federal deduction, but it will get to a state deduction up to a certain amount. So you can contribute to that in December and take the state tax deduction for it. So let's shift from education funding to charity. Now you can make charitable contributions and you can write them off your taxes as long as you itemize your deductions. So not everybody does, especially since they raised the standard deduction a few years ago for a married couple filing jointly, the standard deduction now is $27,700. So you have to be able to accumulate all the things that would otherwise be deductible and make sure that they go over that 27 7 before that makes sense. And a lot of people might be giving a little bit to the Humane Society. They may be giving a little bit to Habitat for Humanity. They may be giving some to their church every week unless that along with your other deductible expenses goes above that standard deduction, then you don't really get a tax benefit from it.


But there is a strategy that you can use to make the most of that. And the way you do it is by doing what we call bunching. So you contribute a fair amount of your income to charity but not enough to itemize. What you can do is you can take two or three years worth of contributions, put 'em all together and give it this year and then not give for the next couple years. So you're going to give the same amount as you would on an annual basis. You're just not going to do it annually. Now, I will also suggest to you having been on a couple of nonprofit boards, if you do something like that, warn them first because otherwise they will get very excited that all of a sudden you're three times the giver you used to be. I would suggest call up the advancement people there and say, listen, here's what I'm going to do.


Don't get too excited by it. I'll support you as best I can, but you're not going to see this from me every year. And if you don't see this again from me next year, don't be disappointed. This is my strategy. So just in deference to them, you may want to give 'em a heads up on it, but if you bunch those deductions, you can potentially push your deductible expenses over that magic standard deduction amount and be able to take it. So what you would do is you'd bunch 'em all up and itemize this year, and then next year you would not make the contribution and you would take the standard deduction. So you're really maximizing the tax benefit across those different years. Now, if you don't give a certain amount to a specific charity enough, that would make sense. You can still do, there are still strategies you can use.


And so you might determine that you're going to give a certain amount every year to charity, but you're not sure who you're going to give it to from year to year. What you can do is you can establish or contribute to a donor-advised fund. And a donor-advised fund is essentially a little foundation that you establish. It's an existing charitable foundation that you would contribute to, and then you get to choose where that money goes. You just don't have to do it this year. You could put the money in this year and then give it out over the course of the next few years. And you can get, I work with most of where the trust company that holds my client's assets. They have a donor-advised fund that we can use. If you're in the Rochester area, you can go to the Rochester Area Community Foundation. They have donor-advised trusts that you can use. But that's a really great way if you know you want to give a certain amount, but you're not sure to who, or if you're not sure you want to commit to a specific charity, you can put it in a donor-advised fund and you can take the tax deduction this year, even though the organization is actually getting the money a little bit every year over the course of the next few years. So that's another way that you can do that.

Speaker 1 (11:18):

Harvest losses.

Speaker 2 (11:20):

Yes. So

Speaker 1 (11:22):

Are you talking about farming when you

Speaker 2 (11:25):

Could be, but no, that's not what I'm talking here. When I say, sorry,

Speaker 1 (11:29):

I just haven't spoken in a while, so

Speaker 2 (11:31):


Speaker 1 (11:31):

Figured I something

Speaker 2 (11:32):

Stupid let you limber up a little

Speaker 1 (11:34):


Speaker 2 (11:36):

So one thing that you'll hear from a lot of accountants is something that happens in your portfolio, and that is harvesting tax losses. So if you have things in your portfolio, it's not been as crazy a year this year as it were here at the end of 2023. In 2022, this was a lot more pronounced because it was a bad year in stocks and bonds and it went up and down a whole lot during the year. But if you've got things in your portfolio that are at a net loss, you can sell that now, if you sell it before December 31st, then you can use that loss to offset any capital gains that you have and offset as much as $3,000 of ordinary income. So look through your portfolio and see if you have things that are down since when you bought them. And you can even do this if you want to keep something like that in your portfolio so you can't sell it and then immediately buy it back, then the IRS will disallow that. But if you have a stock mutual fund, for example, and it's down, well, you can sell that mutual fund and buy another fund that's similar, as long as it's not the same thing. You can grab the loss but still be invested. You can still be invested the same way, but you can harvest the loss in the meantime

Speaker 1 (12:48):


Speaker 2 (12:48):

Use that to offset some other stuff that may be going on this year.

Speaker 1 (12:51):

I like that idea. And I am not a stock guy. I have a couple of different things that I invested in, and actually now I don't even know how to get to 'em. It started out with Scott Trade and then it went to TD Ameritrade, and now it's like Schwab and I keep getting these emails that say, sign into your new account, and I haven't done it, so I have no idea. But that's interesting because there was a couple of things that I invested in and they totally went down and they've never gone up.

Speaker 2 (13:24):

Exactly. And

Speaker 1 (13:25):

So I could sell that one and then buy something that's the same and take the benefit for the tax.

Speaker 2 (13:31):

Or maybe you invested in something, maybe it was a new venture and it just didn't work out very well and you've kind of forgot about it. A small position, well sell it, take the loss. At least it can give you a little bit of a gift. It may not have turned out the way you wanted, but you can still get a little benefit from it.

Speaker 1 (13:46):

I think I missed out on something some years ago where we had someone said, Hey, invest in this thing, it's going to go big, my buddy's in it or whatever. So we put in 500 bucks and then they went belly up. It was like a penny stock or something.

Speaker 2 (14:00):

Exactly. Well, and if it haven't claimed it, yeah, I mean, even if it's not trading anymore, if you haven't claimed it, if you haven't said to the IRS, I'm considering this thing gone,

Speaker 1 (14:08):

You could still claim it. You can still claim

Speaker 2 (14:11):

That's another episode,

Speaker 1 (14:12):


Speaker 2 (14:13):

There's a process. But yeah, if you invested in a company and it went bust and you've never claimed the loss, go ahead and claim it. There's paperwork. You can do stuff so that you can get rid of, even if it's not worth anything anymore. You just have to get rid of the ownership and then you can claim the loss.

Speaker 1 (14:34):

All right, cool.

Speaker 2 (14:34):


Speaker 1 (14:35):

I'm learning all kinds of stuff today

Speaker 2 (14:36):

About that. Now all the accountants talk about harvesting losses. I'm one of the few people I know who talks about harvesting gains. If you are, and when I say harvesting gains, here's what I mean. There are seven income tax levels, seven income tax brackets, but you pay tax on capital gains and qualified dividends in a different set of brackets. And there are three of them. There's zero, 15, and 20. If you can get your taxable income low enough, then you can be in the 0% capital gains bracket. So what that means is if you are a married couple filing jointly, for example, and you've arranged things so that your taxable income is fairly low, maybe you get social security and it's not taxed all that high, and maybe you've figured out tax-free sources for income, and if you as a couple can keep your income below 83, 5 50, then you are in the 0% capital gains bracket.


And what that means is that you can take something that you've invested in that's showing a profit, and you can sell some of it and not have to pay tax. And so if we do that same thing we were talking about with losses, you're in a mutual fund, it's gone up a whole lot over the course of time that you've owned it, but you are in the 0% capital gains bracket. Well, you can figure out how much of that fund you can sell off to realize just the right amount of capital gains to stay in the 0% bracket, sell it, move it into a different fund, and you've taken that profit, you've taken that gain, not had to pay any tax on it and raised your cost basis to that new amount. So if you do that systematically over time, you can systematically get a bunch of profits that you never have to pay tax on. So if you can manage your taxes so that you are in a low enough bracket to be in the 0% capital gains bracket, then we can harvest some of those gains and systematically take those profits without being taxed.

Speaker 1 (16:39):

There's a certain level of artwork that these strategies that you're speaking of, it's kind of like there's a finesse to it.

Speaker 2 (16:49):


Speaker 1 (16:49):

Like, oh, if you just take this little thing, and it's quite impressive, actually.

Speaker 2 (16:54):

It's the feng shui of

Speaker 1 (16:55):


Speaker 2 (16:56):

Planning. Put a little of this here, move this thing over there, and yes, this will all work. This, you'll achieve calmness

Speaker 1 (17:06):

And joy

Speaker 2 (17:07):

And joy,

Speaker 1 (17:08):

Happiness. Exactly. But I think it's so important that there's so many people that just have no, me being one of them, have no idea that these principles with these ideas even exist,

Speaker 2 (17:20):


Speaker 1 (17:21):


Speaker 2 (17:22):

And the way I describe it to clients is there's a lot of moving parts in this machine. There's a whole lot of different things that you can do, and that's one of the reasons why I really think it's important that you work with an advisor who is really doing serious advice. There are a lot of financial advisors out there, and really all they talk about is the portfolio and they can add some value, but really it's all this other stuff that contributes way more value, especially in the tax area. If somebody can manage a portfolio and make an extra one or 2%, well, good on you, but if I do the right tax work, I can save you five, 10%. I can save you way more than improving the return on your portfolio a little bit. So yeah, there's just a lot of stuff going on in here, and that's why I'm excited to talk about it is there's a lot of value that a lot of people aren't getting.

Speaker 1 (18:08):

And plus, I mean, any chance, anytime that you can stick it to the government and not give them more money, I'm all about it.

Speaker 2 (18:15):

Well, that's sort of like the philosophical reason why I get so excited about this because I'm a diehard libertarian.


I starve the beast, deny the money, and they create the rules where you can do that. So let's leverage that. Yeah. Another thing that you may want to think about as a year-end tax tip. Now, this is not a tip necessarily for saving tax money today, but if you want to think, want to think down the road, one tax tip that you can do is think about whether you should do a Roth conversion this year. If you are in a relatively low tax bracket, we want to maximize the use of that bracket. And one way that you can do it is to convert some of your IRA into a Roth. That is taxable income. It's taxable just like salary is. But if you, for example, are in the 12% bracket and you've got 10, 20, $30,000 between where you are in the top of that bracket, use it because once 1231 goes by, that's that part of that bracket, you will never get back.


So consider putting, doing a Roth conversion, you will pay a little bit more tax this year, but by doing that, we may be able to significantly lower how much tax you're going to have to pay through the rest of your life. And in retirement taxes is going to be your biggest bill. So whatever we can do now, so I think of it as a year-end tax tip, take a look project where you are, and if you're in a relatively low bracket, consider using that space between where you are on the top of that bracket to do a Roth conversion. Put some money from the tax deferred bucket over into the tax-free bucket.


Now we talk about decreasing your tax deferred bucket and increasing your tax free bucket, but if you have the opportunity to put more in your deferred bucket, that may also be something that you can do. So if you are not maximizing your contributions to your company retirement plan, you might want to think about doing that at the end of the year. I mean, if you take your last 2, 3, 4 paychecks before the end of the year and you have the room for it, then you might consider significantly increasing your salary reductions and putting more in the retirement plan for this year so you can get it in before the year's over. If you can get a tax deferred that's not as good as tax-free, but it's sometimes better than taking it as taxable income. So that's another thing you may want to think about at the end of the year.


And then the final one, the big one, we've talked about this on episodes before, is if you are over the age where you have to take a minimum distribution, make sure you're taking your whole required minimum distribution because the penalty for not doing that is very steep. And so just check. Chances are if you work with an advisor, if you have your money at an institution, they've told you about this, but take a look and make sure that you've taken your full required minimum distribution before year end. So there it is, your top 10 text tips for 23. Go

Speaker 1 (21:16):

Ahead, throw it, throw it.

Speaker 2 (21:19):

Throw the page. Yeah. Oh, sorry. Okay. Yeah, there we go. I'm going to try that again. There we go, because the window's back there. Okay, so we'll have two crash sounds in there.

Speaker 3 (21:33):

Your retirement is at risk, not from the stock market, not from inflation. Taxes are putting your retirement at risk. I'm certified financial planner, Steve Waring and I specialize in helping people create low tax retirements. Unmanaged taxes can take 30, 40, even 50% of your retirement income. Learn how to defend yourself against excess taxation. Our complimentary webinar will cover all the principles you need to know to protect your money for you and your family, and keep it away from the government. This free webinar will cover how taxes are different in retirement, the taxes you pay in retirement that you don't have to pay during your working life, how to move savings into a tax-free environment, the Widows Tax, the Secure Act, the Secure Act 2.0 and what they mean to you. The webinar is free, but you have to register to save your spot. So go to focused wealth advisors.com/webinars and find out more and sign up right there. Even if you're not planning to retire for the next five or 10 years, this information will be critical for you. The longer you have to put the strategies into effect, the more you can accomplish. That's focused wealth advisors.com/webinars to find out more and to sign up today.

Speaker 2 (22:59):

Okay, so

Speaker 1 (23:00):

Do you have a 30 minute action item with this guy?

Speaker 2 (23:02):

I do. Take a look at this list and make sure you've maximized all of your deductions for this year.

Speaker 1 (23:06):

Hopefully you enjoyed the sound effect

Speaker 2 (23:08):

That I'm putting

Speaker 1 (23:08):

In post I heard it. It's 30 minute money, three zero minute dot money for all your financial questions answered by Steve Wershing of Focused Wealth Advisors. I'm Scott Fitzgerald at Roc Vox Recording and production in Rochester, New York. We'll catch you next time. 30 minute money.