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Year End Tax Moves

Investing Retirement Funding Insights

The silver lining to this down market is that you can make use of it to save some money on tax. There are some other tax saving techniques you can use every year. We outline some of the top ideas in this episode. Whatever opportunities you might be able to take advantage of, you just need to act before the end of December.

Specific client examples may not be representative of any other person's experience and is no guarantee of future performance or success.

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Speaker 1 (00:02):

You don't just want financial advice, you want to build skills, discover tips, hacks, and strategies to help master your finances and easy bite-size pieces. This is 30 Minute Money.

Speaker 2 (00:15):

Welcome back to 30 Minute Money. The podcast delivers action-oriented, smart, my ideas and little bite size pieces. Joining me in our beautiful rock Fox Studios in Rochester, New York, Certified financial planner. And, uh, I'm gonna say it again, Snappy dresser and heck of the nice guy Steve Waring from Focused Wealth Advisors, joining me to,

Speaker 3 (00:36):

Uh, you just lost everybody who knows me. So . Thank you. Liar. Exactly.

Speaker 2 (00:41):

So we're obviously getting close to the end of the year and that's the time where you wanna do all those important things that you have to do at the end of the year

Speaker 3 (00:50):

Exactly. For taxes. So, yeah. So, you know, we're all about a tax efficient retirement, and so we wanna ma part of the active ma active tax management strategy. Mm-hmm.  is to take every advantage that you can. And what that means is in any particular year, you wanna make sure that you make the most of whatever low tax bracket that you're in. And so there are a number of things that you can do now that you only have until December 31st to do if the new year goes by and you haven't done some of these, there's no going back. Too late. Too late.

Speaker 2 (01:18):

Yeah. So how this works is Steve sends me his list of things that he wants to go over in the podcast and then I look at him and say, Did, was this in English? But, um, so har tax loss or gain harvesting, and you've used this term before, which I find very interesting, but the idea of harvesting your

Speaker 3 (01:37):

Taxes. Exactly. It's, it's kind of like going out in the, uh, in the field and scooping up with the pumpkins, you know, all those tax losses that we can find. Right,

Speaker 2 (01:45):

Right. But it's a great

Speaker 3 (01:46):

Word. Yeah, exactly. Make the most of it. So it's, it's a little like organ harvesting, you know, So , I mean the musical instrument, of course, . Um, so yeah, so one of the things that you can do is, you know, we're in 2022, um, the stock market has not been kind to many people. And so a lot of people have, um, positions in their portfolios that are down from where they bought them. And the question is, do you wanna hold onto it? Or maybe this didn't work out, maybe we should get rid of it. If you wanna do something like that, you should do it before the end of the year because then you get to use it to offset any other gains that you made in your portfolio. Or some of it can be used actually to offset a little bit of salary. So if you have things that are down in the portfolio and, and you don't feel strongly that you wanna hold onto 'em, just make sure you sell 'em before the end of the year because then you get to utilize that loss.

Speaker 2 (02:43):

I, I have, it's interesting because I do have some things I, I've, I've never really, I only just started dabbling in the stock market and I, I mean, dabble , but uh, so, so if those and those things are, they're all down and they have been down. Yeah. So it should be best to get, I mean, at one point, does it have to be a considerable amount of stock to, to sell before it's actually good for you to sell?

Speaker 3 (03:09):

No. If, if you're, if you're thinking that, you know, maybe this is not something you're gonna hold onto for the long time. Yeah. Just get rid of it. Get rid of it before the end of the year. Now we've talked about a couple other clever ways that you can do that. So for example, if you're using mutual funds or exchange traded funds or those kinds of things, you can actually take something that's down and it and, and, and sell it and then buy in its place. Something that is similar. So I think we've used the example of Lowe's and Home Depot. Let's say you have, I'm, I'm, we don't recommend individual stocks for people. Sure. But this is just a real easy example cuz it's easy to understand. So let's say that you've got some stock in Home Depot and you still believe in that sector of the economy, but Home Depot is down like everything else.


Well, if you sold Home Depot and you bought Lowe's, and I'm not suggesting you do either one, but if you did that, you could capture the loss that you realized on the Home Depot but not meaningfully change the character of your portfolio. You still have that much money invested in home improvement centers, but you get to take a loss so that you can use that to protect against other things that might have had a gain this year. All right. Now I also talk a little bit, you know, everybody talks about everybody, you know, all the CPAs and CFPs talk about tax loss harvesting. I like to talk also about tax gain harvesting and we talk about that because capital gains are taxed at a lower rate than your income. And so, um, many people are in the 15% capital gains tax bracket, even the 0% capital gains tax bracket.


And if you're in the 0% capital gains tax bracket, you can sell things at a profit. You can make money on it and not have to pay tax on it, but it only goes up to a certain limit. Once you, once you cross over that threshold into the next bracket, then you're gonna have to start paying capital gains. So if you have some gains this year and you're in that 0% capital gains bracket, you might want to consider selling it even though it's up. You might want to consider selling some of that so that you get to use that 0% capital gains bracket. And if you've got losses to offset that, you can do that even more. Um, you know, otherwise it would compound and compound and compound and if you sold it all at once later you might actually push yourself way up into a much higher bracket by selling it all there. Better to do it in little bite size pieces so that you can do it with little or no taxes. Yeah.

Speaker 2 (05:36):

So, uh, what about, is this a good time to, to convert, do the Roth conversions that you've been talking about?

Speaker 3 (05:43):

Yep. That's another thing that, and that has to be done, excuse me. That has to be an also by the end of the year. So if you are in a tax bracket where it makes sense, if you need to move some money from the tax deferred bucket to the tax free bucket and you're in a relatively low tax bracket so you can do it inexpensively, that's a good thing to do and it has to be done before 1231. So that would be a good thing. And I will say right up front, I might even say it again, when we talk about year end tax moves, some of these things, it's best to do them with as much time in advance as you can because all of the financial institutions get bombed at the end of the year. Everybody wakes up on December 28th and says, Oh my gosh, I wanna convert my Roth ira and they get flooded with you.

Speaker 2 (06:28):

Oh, that's interesting cuz it's not something that you can just click and say, convert you. Actually, there's a process and you

Speaker 3 (06:33):

Have, sometimes, sometimes people have, it kind of depends on your institution. Some places you can click and do it other places you have to call in a customer service rep has to help you. Yeah. So it's just best to do it far enough in advance that you don't have to worry about that kind of thing. Sure. So, you know, if, if it's a good idea to do that, you know, if, if you, if it's something that might make sense for you, take a look at it sooner rather than later so that you don't get up against the deadline and potentially go into the new year without it being done. But yes, Roth conversions is another one. A big one of those things. Um, also something that you should definitely take a look at. If you are over 72 or if you were over 70 and a half before they pass the secure act, then you need to take required minimum distributions from your retirement plans.


And if it's not set up to be automatic, many places, you know, you set it up, you program it and it just runs. And that's the better way to do it because that way you can be sure you never miss it. But if, um, if you're not sure if it's set up or if you're not set up on an, on an automatic system, take a look at that and make sure that you pull out whatever amount is required to meet that minimum distribution requirement. Because ready for this, the penalty for not doing it is 50%. Wow. So if your required minimum distribution was a thousand dollars and you went into the next year and forgot to take it, they're gonna charge you 500 bucks for that . It's incredible. The, the, the penalty is incredibly high. It's a cash grab. It's, well, the whole IRS is a cash grab , you can feed the beast, you know, so yeah.


So if you're, if you are, uh, if you are taking required minimums because you're over 72 or because you were over 70 and a half before they passed the secure act, or because you've got, for example, a beneficiary IRA that you inherited from somebody, make sure that if there's a required minimum you have to take look at that comfortably before the end of the year. That's another one. You don't want to go to December 29th and say, Oh, I forgot to take my required minimum. That's not the right time to be thinking it. December 1st is the time to be thinking about mm-hmm. . And so, so you want to take a look at, uh, any of those RMDs. Another thing that you can really lose a lot of money on is if you have a flexible spending account at work. Now there are a couple different ways that, you know, you can put money aside for medical costs.


There's the health savings account. Um, if you are on Medicare, you can get a health, um, an HRA a health, uh, now it just fell outta my head anyway, an HRA is, is what you put aside for those medical expenses if you're on Medicare. But, um, you can also put away money into a flexible spending account. That's an fsa. But the difference is with an HSA health savings account, whatever you accumulate in there, you can just continue to build up until you need it. With a flexible spending account, whatever you don't use by the end of the year, you lose, it's gone. So if you've been putting a certain amount of money every paycheck into it and you haven't been keeping up on it and you didn't need that much for medical bills, then you'll lose that by the end of the year. So you wanna take a look at that and just see what else do I need to stock up on my prescription medications?


Do I need to, you know, see a doctor before the end of the year, whatever it is, you wanna make sure you clear out that FSA before the end of the year because whatever hits the, whatever's left there on December 31, it goes away. And you can be pretty creative about that sometimes. So, you know, some, some years ago I was having some back issues and so I decided to get a better office chair because I'm in the chair a lot. Get an office chair with a nice back support, you know, a, a better one more organ ergonomically designed. So, um, I went to my doctor and said, Could you write me a prescription for this? And they wrote me a prescription and then when I went to the office supply store and bought it, I could turn it in and claim it against my FSA so I could use that money that I've been piling up before the end of the year. Cuz I didn't have other medical bills, I didn't have any doctor bills. So you can, sometimes you can be creative about what it is, you just wanna make sure that you clear it all out because if you don't, it's gone

Speaker 2 (10:47):

And get my doctor to write me a script for a Ferrari,

Speaker 3 (10:50):

It's worth, you know, it just, and so for my mental

Speaker 2 (10:54):


Speaker 3 (10:54):

If, yeah, I mean if you're, if you're, if you're deferring $40,000 a paycheck into that, then ab that's exactly what you want to do. That's

Speaker 2 (11:01):

Exactly why I did

Speaker 3 (11:02):

It. It's, it would be good for my mental health to have a Ferrari . Absolutely.

Speaker 2 (11:06):

You know, one thing that I, I have been wondering about, uh, charitable contributions mm-hmm.  cuz that's always the thing that we do at the end of the year is we gather up all our receipts and make sure that we have everything together. Exactly. Um, how does that work for this?

Speaker 3 (11:20):

Yeah, that's another thing that, that, you know, and, and I've been guilty of that more years than not, where I'm sitting there on, you know, December 29 or 30 at my computer saying, Oh, I wonder how much I've given to charity this year. And so I, I take a look at it and I make all my charitable contributions, you know, in the last day or two of the year. Not all of 'em, but a significant amount. But that's one thing that you wanna do before year end two, because it only counts if you've made it during the calendar year. Now that also bears, um, bears some looking into, because since they raised the, uh, standard deduction, um, a lot fewer people are itemizing. And if you give to charity, it doesn't do you any good on your taxes unless you itemize your deductions. So if you've got a standard deduction of $25,900 and you don't have deductions, all that add up to more than that, including charity, including all the other things that you can deduct.


If you don't have enough to add up to more than that, you've kind of wasted it because it'll, you just file with your standard deduction anyway. So one of the clever things that we do is we call bunching deductions. So what you may do is if there is an organization that you give money to every year, what you could consider doing is going to them and say, Listen, I'm gonna write you a big check this year. Don't get too excited because I'm gonna do this every other year instead of every year. And what you do is you try to gather as many deductions as you can into one year when you can itemize, and then the next year you don't do it and you use the standard deduction. Mm. And so, you know, if you give a thousand dollars to an organization, you know, you might give 2000 this year if it, if it pushes you, if, if that along with all of the other things that you might itemize goes well above that 25 9, then um, you want to gather all those up in one year and do as much as you can to bunch 'em all up in one year so you can itemize and then next year you won't do any of that stuff and you'll use the standard deduction.


That's, that's how you can make use of that standard deduction.

Speaker 2 (13:24):

Well, I'm sure they'll appreciate anything that you give them.

Speaker 3 (13:26):

Of course, 

Speaker 2 (13:29):

At oh, paying extra mortgage payments.

Speaker 3 (13:32):

Yeah. That's another way. That's just that, that goes into that same idea of bunching up as many, as many deductions as possible. So for example, for a lot of people, one of the bigger deductions they take is the interest on their mortgage. So if you've got a payment that's due in January, pay it in December. If you're bunching it up this year, pay it in December because that's just another payment that will show up on your 10 98 forum from the bank and that you can increase that deduction. Let's, let's, before we leave the, uh, the topic of charitable deductions, let me throw another possibility out there. If you have, if you're gonna give money to an organization and you have a portfolio, if you have a taxable account, this does not work with retirement plans. But if you've got a taxable account and you've got an old stock in there that has gone up way up in value, even after this downturn is way up in value, you might consider giving that stock directly instead of selling it and giving them the cash. If you sell it and give them, if you sell it, you have to realize the capital gain. If you just give them the stock, then

Speaker 2 (14:33):

You can just, I didn't even know you could just give a stock to someone. Yep. Or to an

Speaker 3 (14:38):

Organization. You can, and most, most organizations are used to that because some of their higher donors do that kind of strategy. So if you call the, um, development office or the advancement office in that organization and say, Hey, listen, I wanted to make a contribution, but I'd like to give it to you as a stock instead of in cash, they'll know what to do. They'll, they'll, they'll be able to show you how to do it.

Speaker 2 (14:59):

Very cool. Yeah. I'm gonna put that on my

Speaker 3 (15:01):

List. There it is.

Speaker 2 (15:02):

All right, Steve. Well that's good, uh, on the expense side, but what about the income side? Well,

Speaker 3 (15:08):

You can do stuff there too. You can manage that to some extent. So let's say that, especially if you do gig work or if you are an entrepreneur, you can, you can just, um, you know, defer some billings into next year or you can, you know, when you're working with your customers, you can ask them to pay you in next year as opposed to this year, as long as you're on a cash basis. Any cash that you don't get this year, you don't have to report. If you get it next year, you report it next

Speaker 2 (15:34):

Year. Actually that's a, that's a pretty good idea, Steve. Um, I'm an entrepreneur. I got the studio here and, uh, I think maybe it might be in my best interest to, to kinda wait and, and bill some people late. I've got a couple of big, big projects in December, so yeah,

Speaker 3 (15:49):

Take a look. Interesting. You know, if you've got, if you've got people and you've got some flexibility on billing, you wanna see where you are in that tax bracket and maybe it would make sense to bill 'em in January instead of December. Yeah. Even in a job at work, if you are in line to get a bonus, you might talk with your boss or you might talk with somebody in HR to say, Hey listen, could you pay me that bonus next year instead of this year? And so you may be able to sort of constrain your income a little bit this year that'll help keep you in that lower bracket. Hmm. And there's another kind of income that we should worry about too. And this is a really sneaky one, so this is a really important point. If you own mutual funds in a taxable account, um, those mutual funds, whatever profits they've made during the year, so whatever, whatever they've gathered up, mostly the thing you have to watch for is the capital gains.


Cuz if there are, if there's interest being paid into that portfolio, if it's a bond portfolio for example, and it's collecting interest all the time, or if it's collecting dividends, they have to pass those through. And especially with income oriented funds, they do that on a regular basis, but at the end of the year, anything that they've, any money that they've made by buying and selling things. So if the manager has been actively managing the portfolio and they've been buying and selling things and, and net they've made a profit doing that, they have to distribute that to you at the end of the year. That's usually a big distribution, a big dividend that it pays a capital gains dividend. And in a year like this where the market is down, sometimes that can be a really rude surprise at the end of the year because it may be that at the beginning of the year they sold a bunch of positions at a big profit and if they've held onto everything in the portfolio, they haven't realized any losses.


They made a profit early on in the year, you're gonna get distributed that even if your position is down. So even if the value of the mutual fund is down, if they made money early in the year, they're gonna distribute that to you in December. And that can be one of those really frustrating kinds of experiences where, wait, my mutual fund is down 10 or 15% and I'm getting this capital gain for, you know, 10 or 12%. So I've gotta pay tax on that even though I'm in a losing position. Yeah. So if you own significant positions in mutual funds in taxable accounts, if it's in a tax-deferred account, ira, something like that, more matter. But if it's in a taxable account, you may want to contact your advisor or contact the mutual fund company to say, Hey, are you gonna distribute any capital gains this year?


And if they are and the position is down, you might even wanna just sell out of that position and wait for a month or, or put it into something different. Because if you sell it and wait for a month, even if you buy it back, you get to you, you can avoid that distribution and even potentially harvest that loss that you can use someplace else. You can move it into something else that's relatively similar so it doesn't change your portfolio or you could just sell it as long as you wait 30 days. If you buy it back within 30 days, they'll disallow the loss. But if you wait for 31 or more days, then you can buy it back, realize the loss for this year as long as you don't buy it back before they declare that gain. And you can avoid that. So that's, that's, that's, that's kind of a pro level tip, but that's, but it, but if you have significant holdings in, um, taxable account, mutual funds, it can be, it can be a lot.

Speaker 2 (19:07):

Really. Make me wanna play with the pros here. Yeah,

Speaker 3 (19:11):

Well of course, you know, I'm a big believer in advice, so I think everybody should work with a financial advisor. .

Speaker 2 (19:18):

Well, uh, when we come back, Steve's gonna give us some advice in his 30 minute action plan. Stay with us.

Speaker 4 (19:27):

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 Wing 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 TA 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 (20:52):

All right, so we're talking about year end tax moves and Steve has his action items. Yep. What

Speaker 3 (20:59):

Do you got? 30 minute action list. Review your retirement accounts and see how much you've put in there and see, um, you know, whether you need to convert or something like that for this year. And review your taxable investment accounts and look for gains and losses and that includes gains and losses that you've realized and any hidden gains that may be distributed from mutual funds before the end of the year. That's your 30 minute action list.

Speaker 2 (21:26):

All right. And you could find all of the, uh, previous podcasts at three zero minute Domo and you can find the podcast wherever you get your podcasts. We'll see you next time on 30 Minute Money.

Speaker 1 (21:40):

Thanks for listening. If you like the show, leave us a review on Apple Podcast or like the Stephen Worsting CFP Facebook page. And feel free to leave us a suggestion for what topics you would like to hear discussed on the show. Securities offered through registered representatives of Cambridge Investment Research Incorporated, a broker dealer member FINRA, S I P c Advisory services offered through Cambridge Investment Research Advisors Incorporated a registered investment advisor. Focus Wealth Advisors and Cambridge are separate entities. Discussions in this show should not be construed as specific recommendations or investment advice. Always consult with your investment professional before making important investment decisions.