Episode 013 – Financial End of Year Checklist Part 1

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Please listen to the disclaimer at the end of this episode. This is the Suburban Folk podcast episode 13. End of your checklist for budgeting and investments with JC Corrigan part one. In this episode, we cover investment and tax strategies to maximize your gains and limit your tax liability. There’s a lot of information to go over. So we’ve separated this into two episodes.

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I’m looking forward to having some real talk with some real folks. Hey, this is Greg with the Suburban Folk podcast. I have JC Corrigan back here with me today, JC How are you doing? Doing great. Thanks for having me. Again. For those that missed Episode Four JC is a certified financial planner, and his firm is personal financial experiences. We thought it would be a good time to do a financial check since we are at the end of the year. So we have a really good list of items for folks to go through their personal five

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finances, make sure they have everything in order so that when you get to the beginning of next year, in this case, 2020, you don’t have any surprises, you’re set up for success into the following year. But before we get to that we’re recording on Black Friday. So I thought it would be interesting to get a financial experts opinion on Black Friday, do you have any shopping habits? Or do you just forgo it all together? So Black Friday and itself to me is just, it’s a big marketing pitch. And the way that everything is so ubiquitous nowadays, I think the big thing is to put yourself in a place of what’s really going to add value to you. So go into the room that you have in your house with the most clutter and look at how many things are in there that you would not buy today. And now think about how that would look 10 years from now based on how you’re going to shop over the next month. So what we do with our kids is we have a rule. We they basically buy them for things and it’s something that you want something that you need something

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To wear and something to read. And by keeping those four things, it gives us just enough structure. And at the same time it gives the kids structure in terms of what they’re going to ask for. We will buy them other things on top of that, but they’re all experienced based. So a Busch Gardens passes $99 that’s, that’s easy entertainment. It keeps enough structure and freedom in the into our time with the kids in the summertime. But that structure is worked for us. Everybody else has their own tactics, they may work for them, but going with the plan, don’t just don’t go out there and just go willy nilly. It’s like going to a grocery store and you’re hungry and not a list. Yeah, cuz then you’re just going to buy things that you don’t need the adage that you’re not saving money if you buy something that you didn’t need in the first place, right? Precisely. I mean, I got 100% off the purchase I didn’t make

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and you know, there’s there’s other and we might be able to get to this one of the cash flow but someone said to me that you know, before they’ll buy themselves 100 pair, hundred dollar pair of shoes, they’ll put $100 into their brokerage account and to show that they really want it Am I willing to put $100 in my broker

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account so I can have these shoes. And that that works for them again, you know, got to find out what works best for everybody. But you know, we expand on that in other tactics later. I don’t tend to be a black friday shopper much at all this year in particular, I had a list of things that I do actually need. Here’s one, I was just looking at a personal VPN I’ve been looking at for a long time. So checking to see what the percentages off where and there are some deals out there, but looking for other things that kids do need some new shoes. Those things don’t seem to be on sale. It’s the same TVs that you probably don’t need or the mountains of toys that people probably don’t need. So I didn’t see that many real deals. I’m using that in quotes this year, like I thought I might, which I think even more so it’s it’s all on marketing. Everything’s on sale for a reason. Right? So if you if you go to wayfair that’s, that shows a great supply demand mismatch. Because there’s so many things on there and there’s no way that many people are buying that much stuff.

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I just don’t get it. So

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also we talked about in our episode four. And for anybody that has not listened to that one, I would encourage them to go back because we have a really good basis for retirement accounts and some methods for understanding what those accounts are and how you can maximize your dollars. We did get a couple of questions we invited folks to give some questions in and one was the Certified Financial Planner, is that something that should be looked at when choosing a financial advisor to work with? What are some of the other key things to look for ask questions on when you’re shopping around, if you will, for a planner, so clearly, I’m biased. So I think that you should look for the Certified Financial Planner designation for somebody probably equally as important is ask them if they are a fiduciary. So fiduciary is essentially someone who would treat that money as if it your money as if it was their own money and make their decision, those decisions in a very prudent manner.

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You can go

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Go out there and find very easily a link of questions. And maybe we can link that to the Episode Notes, and whatnot. But I think there’s basically up to 10 questions that you should be asking.

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How do you

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eat your own cooking is a great one. So like, how you invest for me, is that how you invest for yourself? You know, there’s there’s several questions on that aspect that I think need to be looked at. And I think if we link those to the notes so that people can get to it, I think it’d be probably the best way for people to that way they can print it out, and they don’t have to do any more thing. Right. And they can take that with them. As I agree with you. I will at least mention I think we said in the last episode as well that you have the ability to advise in any state in the country. I know there are specific requirements depending on which state but you have that ability. should somebody want to contact you directly. Yes, so the limit tends to be that you can only if you have so I’m licensed in Virginia and I’m licensed in Florida. I have clients in probably two dozen other states. The

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Big thing is that once you reach critical mass, which is the sixth client, then I have to go get licensed in that state. So I have enough clients in Florida in Virginia had to get licensed. The states have agreements with each other that you’ll do the cross check for me if you have under a certain number of clients, I am now in a place where I have to get audited by the state of Virginia, the SEC and the state of Florida. The SEC a lot of times if you’re under a certain amount will allow the state to do their due diligence for them. Okay, that’s so a little bit of legwork on your end, but at least you can have the conversation, right. Absolutely. And the other question that we got was around brokerage accounts. Like I mentioned, we talked a lot about the retirement accounts. We touched on the taxable brokerage account some but didn’t get into a lot of detail of how those would go together with those retirement accounts. I think in particular, if you need to bridge the gap from the age that you can start to draw from

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From your retirement accounts,

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to having enough money to live on, let’s say if you do retire before you get to that age, yeah, so you can start taking money out of your retirement accounts penalty free at the age of 60. There’s a lot of reasons why you would do that. It depends on everybody’s unique situation in terms of the brokerage accounts. Everyone I think, should be in a place where they are striving to hit for in terms of their savings goals that they have enough money to actually put money into a into a brokerage account, that’s taxable when you realize the games. Personally, I want to be in a place where I use that as ballast. So the risk I take in my retirement accounts is gonna be much higher than the risk I’ve taken a brokerage account for a couple of reasons. One, the gains that I have in my taxable account, I get to I will realize at any point that I actually make a sale. So if I do not want to have a big tax bill, I want to make sure I’m in something that is not going to create a lot of tax. So I own a lot of Muni bonds because they don’t have state taxes on them and they don’t they pay that tax exempt interest, money.

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If I do have anything in there, it’s in a place where I realized that, hey, if I sell this, it’s going to create a tax bill for me. So I just want to make sure that regardless of what I do that I think about it through a tax lens,

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don’t discourage anyone from savings, but make sure that if, if you want to take less risk in your brokerage account, I think that’s okay. So that you can avoid some some taxes and maintain liquidity. You may want to have more risk in your retirement accounts so that you stay balanced so that that way you don’t have to pay the not a penalty to the taxes.

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which actually is a good segue into what we have listed here for the checklist for the end of the year. And the first one that we have is your losses and gains from investment sales. And I’m sure there’s more that go into that. So what should people be looking for as they’re reviewing their year in review? So I think the first thing on the tax front is set yourself up so that you’re dictating tempo and your your tax returns.

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prepares ally. Last thing you want to do is show up on March 15. With all this documentation that isn’t organized, and expect your your your accountant to actually get everything done. Now’s the time to start looking at that you should be talking to them now about opportunities you may have. I mean, between the last year and all the tax code changes that there have been, you might be leaving some opportunities on the table. A good accountant will not think about your taxes just this year, they’ll think about your taxes over a lifetime. So the thing that I would want to know about is I will know what investments sales have happened. If they created gains, they created losses, does it make sense for you to take losses this year based on changes in your income next year and and swap that out? You take gains this year based on what you know is going to happen with your income the following year. So I think that that’s something that you really need to look at. If you do use a brokerage account right now. I would

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I would steer you away from making that contribution to a new

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Mutual Fund, because mutual funds pay their capital gain distributions at the end of the year. And all yourself, all you’re doing is buying yourself attacks, you’re in a much better place if you actually wait and do that until that particular mutual fund has made their distribution. And that might be December 10, it might be December 30. But don’t go and buy yourself a taxable distribution for the just because you have the money to do it right now, you might be better off wait until January. And if you wait till January, then maybe you should be putting that into an IRA. So that’s something that would definitely look at, if you have if you’re over the age of 70. And you’re, you’re taking minimum required distributions right now. You need to be in a place to make sure that you’ve taken out enough because of the penalties and because of the paperwork nightmare if you haven’t. So, and that also includes inherited IRAs. So there’s special rules for that based on the age of the person that died and whatnot and it’s way too complicated to get into here, which is why you need a an advisor if you do have one of those accounts, but being a place where your

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Right now we have five weeks to get everything done. And with Christmas and whatnot, you probably don’t have a lot of time. But trust me, if you don’t have time to do this now, you’re definitely not going to have time to do it to correct it after the tax after tax season’s over the tax year calendar for a lot of things ends December 31. We got to hit those now, breaking down a couple of the things that you mentioned there going back to the basics of stock, ETF mutual fund or the mutual funds, the only ones that would have those dividends that you could have to pay money on without the sale of the actual investment. The so all of them have them to some degree, some of them it when you say ETF versus mutual fund, but there are a lot of ETFs based on the way that they’re structured and they don’t have to pay those capital gain distributions. Mutual Funds tend to have to pay those. And therefore and you know, last year we had, you know, the market bottomed last year December 24, and the markets probably up like 20

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22% since then, right? Well, when you look at it through that lens, and they’re going to pay the capital gains distributions on that, you might be staring at a pretty big tax bill. So that’s probably one of the biggest reasons that I can. And I can get a link to that too, on the Episode Notes, of looking at ETFs versus mutual funds, mutual funds, from a pre tax standpoint might be equal to ETFs. On a post tax standpoint, they are definitely not equal to ETFs. Yeah, and I think that’s a good point to make there between the two. And there are, like you said, other comparisons between the ETF and the mutual funds, but that in particular, I know I’ve read that you can get hit with those at the end of the year. And just to be clear with everyone. ETFs are exchange traded funds. They are basically like mutual funds, but they trade like stocks and based on the way that they’re structured, they can avoid those those capital gain distributions. So what other investments could we be talking about as far as gains and losses, the one that comes to

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to mind for me, for example is if you happen to have investment property, and there’s a sale there, or if you’re claiming losses that are there, what other types of investment gains and losses could we be talking about other than stock market? The Real Estate’s a big one, I think when you look at real estate, you know, if you look at what’s happened in the market, and you know, local markets may vary. But if you had a gain of say, $50,000 on a real estate property that you’re running out that you used to live in or something like that, it’s really important to get your records together, especially depending on what your tax bracket is, because if you have a $50,000 gain and you’ve been writing it off and depreciating it as a rental property, now you’re in a place where, okay, you have to recapture all of that depreciation if you sold it for again, right. So if, let’s say that’s the case where you had a $200,000 property, you sold it for 250. But you were depreciating it because of the rental down to 150. Well, guess what, you have $100,000 gain

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Getting your act together in terms of my broker expenses, my or for selling the property, the all the maintenance that you put into the property during that time. I mean, that will make that hundred thousand go down to maybe 50 or $40,000 because of all the upkeep expenses. And that may not seem like a task, but that that task of going through and making sure that you have all your records together could save you easily $25,000 or more based on what tax bracket you’re in, right. So it’s worth the exercise. I mean, you’re basically making your minimum wage for yourself on another property on on the act of keeping your records for that. So that’s something I think should be really looked at closely if you have any sort of rental property that Oh, totally agree. I was an accidental landlord for some amount of time when we first came down to Virginia and I learned a lot as far as what you can write off as far as depreciation you mentioned. I didn’t know that was part of the whole country.

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situation, which was very helpful from a tax standpoint. And then yeah, keeping really good records as far as the money that’s coming in, of course, from the rental as well as any maintenance things that you have going on, and how that ultimately fills in for the rest of your personal income tax records when they come through. So there is a lot of things I think that if people don’t know about when they’re filing with a rental property that they could be leaving some money on the table, presumably, if they don’t have everything in order, yes, and and that also holds true if they’re getting selling one to buy another one. There’s something called a like kind exchange. And to make that light kind exchange, you can actually be in a position where you defer those gains, potentially, but you still need to have your records together so that you’re in a good position to do that. And you mentioned the accountant and making sure that the account is set up for success based on you having good records and keeping them up to date with what’s going on. Do you have any guidelines for when somebody

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Nobody could get away with a Turbo Tax or something like that, too. When you’re in over your head, you need a professional to be able to sort through these things, maximize your investments and minimize what your potential tax burden would be Turbo Tax and Tax Act and all those. They’re really sophisticated to a certain point. And if you have a very simple situation, given the changes in the tax code, right now, you’re in a position where we went from 30% of the population, having deductions itemized deductions down to 15%. Right. So now that that increase the opportunity, I think for tax, AX, Turbo Tax, etc. So given that, if you’re on w two and you can’t itemize, I can’t think of a reason why you wouldn’t use Turbo Tax or Tax Act. I prefer Tax Act. I think that you’re not paying for a lot of the marketing. I think it’s pretty simple and whatnot and

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But the more complexity you have, I mean, accountants can run anywhere from 300 to $3,000. Right? So you need to figure out what value they’re going to add or what time they are buying you. So if it takes you a really long time to do all that stuff and keep it up with the tax code itself is is quite the investment in time as a serial podcast earlier about something that was passed in the 1970s, about self insuring small businesses, and how that’s a complete right off and like one, I never knew that. Right. And so there’s so many laws out there and so many opportunities that finding the right tax attorney or tax preparer or whatever, it’s it’s time and money well spent if your situation lends itself to that. Yeah, or even referring back to our prior episode, talking about the wealth being a lifestyle thing, not necessarily just how much money do you have in the bank and I will say from personal experience for me, once we got to a certain level of complexity, that’s a lifestyle considerations.

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So that you’re not driving yourself nuts or driving your spouse nuts when you’re not sure which box goes where, again, depending on how complicated it can get that it becomes my health span at that point. Well, it’s it’s interesting you say that because my, my accountant just told me that she had more people file for extensions this year than any year in the past. Because you would think that, you know, because of that itemized deductions, you would have felt that the tax code got simpler, when in fact, they got a lot harder between all the small business considerations between all the different tax brackets, losing some of the some other elements of the deductions and how they got all pulled together in the standard deduction. It just created a lot of questions. It created more questions and answers, and that’s really what we shouldn’t have from a tax code. Unfortunately, that’s that’s our current reality. So that’s, that’s when you got to make the decision. Is this a good lifestyle choice for me to want potentially avoid an audit and

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To save myself time, just to make sure I hand over the record so that everyone’s well posture to succeed. That audit part is also a very good point that there is a certain sense of security in knowing that if you do actually get audited, you have that professional in your corner, so to speak, that will have all the records be able to show what the logic if that’s the right word was with how everything was filed versus having to do that on your own. Again, I know that turbo taxes, tax acts and so on have certain level of coverage with the audits. I can’t necessarily compare because knock on wood I haven’t been audited. But I would think having that individual go to person would have its own certain level of comfort, should you actually get audited and you know, even walking you through how that process works, right. There’s that there’s also the concept of just judgment, right so I can think of several exists so I think of two stories are off the top of my head number one, the last government shutdown led to

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The IRS being way behind on all their inquiries. So I know someone in 2017 that just got their personal audit back. And basically he made two. He made two data entry errors. And they just sent him some money back because of that correction that he that was incorrect in the way he entered it. Yeah. So that was the 2017 tax return. And he’s just getting there. Just getting it back now. So that’s one consideration. I think. I also think back to the

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Oh, it was the when they did the cash for clunkers. Yeah. Credit back in 2009. I believe it was 2008 2009. There was a situation where somebody bought a car in 2010. In December for the cash for clunkers program. They get the car, it smelled like cigarette smoke because the person that drove it to them smoked in it the whole way. So they said we’re not buying this car right? bought the car in January instead the next car, they they

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Came available, talk to the accountant about it and said she made the call that since you demonstrated intent, and you had a contract in December and you got a new car, I’m going to allow this because you were trying to get the benefit of the program. And the fact that they had a car, they delivered a car that would didn’t meet your standards isn’t your fault. That’s their fault. So she she took the deduction, even though they finalize the sale in January, okay.

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And we think that was okay. She’s she said she would go, she would go to court for it. Okay. Well, that goes back to that security, because I know I would be very wide eyed. If I heard that scenario on the other side of the table. Right. And yeah, the person assured me that that they would go to that level as far as court or just being available for the audit and that is definitely part of that security. Yeah. And just experience that you’re getting right, somebody? Absolutely. Yeah. It reminds me of the

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incentives that you got from the first time homebuyers. And when it was under george bush, it was a tax free loan at the time, which of course is when I bought know, hey, it’s not free money, but it’s, you know, a loan without any interest in it was over like a 15 year period. Of course, the very next year is and I think that was when Obama came in, it became $8,000. And it was just a gift.

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I kept waiting for them to somehow retrofit that for what I had, but it never happened. And actually into what we’re talking about with taxes once I ended up converting that to a rental property like I was mentioning, we then had to pay all of that money back at once because one of the requirements is that it was your primary residence, right? It couldn’t be a rental property. So that actually probably segues into the taxes points that we have here as far as what to be planning for now and into the future as well as

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You’re budgeting. Again, I think that we hit most of the things for December what you can be doing now working with your professional. But then looking into the next year and beyond, in particular, around your Roth, if you have a Roth conversion, your standard retirement accounts, what should we be looking at coming into the new year and further so as you look into 2020, and now’s the time to do that, because there might be some things you can do today before 2020 hits is you need to look at your taxes now versus taxes over a lifetime.

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The Roth conversion is is a huge example of that. So the Roth conversion was is when you take a traditional IRA and you convert it to a Roth and let it grow tax free. And that situation, all of the all of the tax deferred value of that traditional IRA or 401k is taxable now. So that might be the difference between a 12% tax bracket and a 25% tax bracket and you have to go through the exercise

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And go through the math and say, Okay, if I have $100,000. And after all is said and done, this is going to cost me $20,000 in taxes to do this conversion. Is it worth it? And you got to think about all right, what are the returns for the next few years? What’s Am I willing to write a check? Do I have $20,000 in a check to write because the last thing you want is to say, all right, it’s $100,000. I’m converting but only make it at and pay the taxes because now that tax, that compounding growth has been throttled back by 20%. So that’s not something you want to do. You want to make sure you have things in place to take advantage of that. So I look at it from that standpoint, can you make the Roth IRA contribution based on what the Roth IRA limits are? I think that’s something to look at and in a Roth 401k. You know, I’ve been having a lot of conversations with clients about this right now is that if you if your program has a Roth IRA, as long as Trump is president, and we have the current tax code in place,

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Roth 401k makes a lot of sense. The tax brackets came way down. And making that happen is is well worth it.

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In most cases now there might be were some places where at the upper end of the tax code and whatnot that you may say, hey, I want to I don’t know if I really want to do this, and that’s fine. It depends on when you’re going to retire. So it becomes, you know, it’s it’s a multivariate analysis, all of them are. So I think being in that places is a good thing to think that through in terms of the Roth 401k, is there any sliding calculation that can be applied for how many more years until you think you’re going to touch the money in the account versus whether or not to do the Roth now, like you said, it is a multi varied calculation, but how much does that factor into the hit that you’re going to take now? And correlation to number of years that it’s going to grow tax free.

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It’s it’s not that simple because we’re going to have a continuous change in in Washington DC. It is a calculated risk, right? And, you know, some people do it based on the tax code, some people do it based on market valuation. My take is that you should do what you’re comfortable doing today, what’s going to make you sleep best at night? Because that’s something I can control. I can’t control the tax code. So I’d rather be in a place where I say, okay, and if in doubt, go half. So if you have 100,000, where you can do a conversion and you have you’re having some some doubts about it, does that doubt go away if you’d make that half?

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So, and a lot of times, that’s all it takes is like on you know what, I’m just gonna do half the amount that way i hedge, and I feel better about my situation, good rule of thumb to start with, and then I guess if it keeps you up at night, then that’ll tell you whether or not you need to ratchet it up or down at that point. And obviously, I think, you know, for me, I do have that Roth 401k available. So I know that’ll be one of our

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checklist items. Yeah, what that percentage should be? Yeah, absolutely. Absolutely.

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As far as income decreases or increases in the future, how much do you expect somebody to be able to plan for that? I mean, obviously, if you lose your job, you don’t probably know that that’s coming. What other things would go into unknown income increase or decrease down the road? One rental property to severance is being offered to people. So if you’re going to be offered a, let’s say, It’s October, and you’re getting some sort of severance check, well, guess what, congratulations, you just increase the amount of money that the federal government’s making, if you know that your company’s cutting back, and you think you might be getting a severance check in March might be, that’d be one year severance or what have you. And if you’re being offered a one year severance, my guess is you’re probably gonna be working within six months. So there’s little life event triggers for you and events for your company.

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It could be stock options could be this, your stock options are vesting, it could be that the something had a really good year net, and the stock value went way up and you’re looking to buy a vacation homes, you have to sell those. So most of them tend to be life events or corporate events for your company, that we’re going to help you decide whether or not you are going to have some serious increases or decreases and, you know, company could sell and all those options vest immediately. So that could create other so it’s really about what life events do I see that I have control of what do I have visibility on with my company that might create a significant tax event for me. And that’s also of course, a consideration for how you view your retirement as well, right? I mean, in the long long term future, how much you budget for versus how much you’re making now could be two very different numbers and then factoring that in for what tax bracket you would ultimately be in because presumably

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You’re working years you’re saving hopefully some amount of money for retirement versus what you get to retirement. It’s not that same amount of saving. So again, to the real big picture you’re having to do as much of that consideration as well. Yeah, there’s, there’s no doubt about it. you need you need to be in a place where you’re always thinking about, okay, this is this is what I have visibility of today. This is how it affects tomorrow. So yeah, yeah. And the next one we have here is carry forward losses. Can you tell us what that means? So let’s say you bought Dendreon A while back so there’s a book out there called the Dendreon effect and this this wild biotech company that Jim Cramer was just pumping no end on CNBC. Well, the stock went way up. Yeah. And then it just fell flat on its face, because people were shorting it. PME is basically it’s an amazing story. It’s it’s one reason why I tend to walk away from any individual stocks. That said, if you lost a lot of money in something like that, the most

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You can write off as $3,000 a year. So let’s say you lost $200,000 in some hot stock tip biotech from your brother in law or something like that, right? That that company tanks and you lose $200,000. But you can only write off 3000 of that a year. And that’s only if you have a taxable account. So this doesn’t hit a lot of folks. But knowing that that’s there might affect how you use your current stocks and actually harvest some games. So like if you own this Dendreon stock and you’re down $200,000 and then you own apple and it’s up $150,000. And let’s say Tim Cook has a heart attack and dies tomorrow. You may want to sell your stock now until Apple you know writes the ship and has some clear vision. So you would you would have those hundred $50,000 in gains but they would be offset by the $200,000 lost in the biotech company. So understanding your last situations very important. It is there ever a cut off for when you can

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claim those losses. So like you mentioned, if you lose 200,000, I’m not going to quite do that math on the fly. But that’s many, many years. If you divide that by 3000, that you could write it off. Well, any cut off, it’s there isn’t a cut off. And essentially, it becomes a, a, what I call a convertible Roth. Right? So it’s like going, Hey, I have $200,000. In losses, I’ve essentially created my converted my brokerage account right into a tax free account. So I can choose to take gains, or I can choose to have more stocks in there knowing that I have that loss in my back pocket to offset any gains I get. So okay, yeah, that’s a way to make lemons into lemonade, at least. You have to sometimes but yes,

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tax brackets we’ve hit Of course, in some of these scenarios that we’ve talked about. We also have a note on Medicare, luxury tax, high level, anything we haven’t hit as far as the considerations for these things. Yeah. So let’s say you’re 61 years old, and you’re still working or you have a pension coming in.

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or whatnot. If you’re married and you have over $160,000 in taxable income, you will be put a Medicare luxury tax so that when you look at Medicare at 63, you’re going to be paying a lot more than other people. It’s called the it stands. It’s called Irma, and I can’t remember what it stands for at the top of my head, there’s just way too many of those that I have to try and keep up with. But that’s all it’s trying to do. So if you are in a position where you were tired, 60 and you’re trying to, let’s say, even out your tax brackets from 60 until you die and take out money out of your IRA. Now, that’s all well and good when you’re 60. It’s, I think it’s okay when you’re 61. Once you’re 62 that’s the year that they definitely start calculating what your Medicare premium will be right? And if you’re taking out a lot of money out of your IRA then then you’re going to be paying an extra

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tax on Medicare. So you have to go through the exercise and say, All right, let’s say my Medicare taxes and additional hundred and $50 a month.

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If I take out this money to get that hundred and $50 tax, how much tax is that saving me at 70 because of my required minimum distributions, right. So again, a multivariate analysis where you have a moving target, and it just creates a lot of craziness that you have to try and you know, which calculate your bet and you might be the first year you try to stay under it, to see what the impact is on your lifestyle, see how it may affect your future tax projections, and then start and then choose what to do on a long term basis until you’re 70 the other way, but a lot of times I’m saying get a baseline in place and figure out what you want to do, but you need to be aware of it so that you’re creating a conscious baseline. And that’s that’s the that is my warning signal to people in terms of the Medicare premium tax is being a place where your

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Set yourself up to know what the what the cost benefit is of any actions you take. And also to your point before with Washington, that it can change at any time. So you got to do what the best thing is based on the known information at the time, but also be aware that you should take some responsibility for staying up on changes, as well as again, working with financial professionals to make sure that any of those changes how they’re going to affect you what it might mean, what it might mean down the road. Right. And, you know, you asked me about what questions should we ask before hiring a financial advisor? I think it comes back to a question you need to ask your accountant. Are you a tax preparer? Are you a tax planner, because if you’re a tax planner, you’re meeting with them in November, so that you’re making sure you’re doing all the right things. If you have a tax preparer, you’re beating them on February 2, and you’re giving them a stack of papers. So it’s really important to stay on top of that stuff so you know the impact of all your decisions that you make. So

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Moving down the list of other considerations, charity and Donor Advised funds. I don’t know a whole lot about these. So you’re gonna have to educate me here. Yeah. So let’s go back to the last tax code change. And the bill passed and got signed by Trump and December of 2017. I can tell you that from December 15 to December 31. I had I think one day off, which was Christmas, because there were so many things and so many actions that people wanted to take in terms of their their taxes. So for example, itemized deductions there, they were changing that. My fees were tax deductible, right? So everyone’s telling me, please take out my fees as far in advance as you possibly can so I can get the deduction this year. Boom, we were doing that, right. Hey, given that this charity change and given that you’re losing that, that and given that you’re going to not be able to write off your property taxes anymore.

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It’s capped at $10,000. You need to give as much as you can to charity this year and not give it to it next year. So now that we’re two years removed from that, I think people are still people are still giving to charities and whatnot, need to be in a place where like on Okay, most charities their fiscal year is July 1 to June 30. So they don’t care if they get the money on December 31, or January 2, it’s still the same fiscal year. Right. So if you can be in a place where if you give $20,000 to a charity every year, are you better off giving 40,000 in December, and giving nothing the following year because they don’t know the difference on their books, but you definitely know the difference on your books. There’s also something called a charitable Donor Advised fund. So let’s say you have this strong passion for the World Wildlife Fund just for example, and you put in

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and you may

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$500,000 a year, you can put $250,000 into this Donor Advised fund, because it’s limited to 50% of your AGI, your adjusted gross income in terms of what you can write off to a charity, you can put all that into a fund right now get the full deduction

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and then be in a place where you can, you can trickle it to them on your terms, but you get the full right off now. Okay, so that can be a very advantageous tool. If you had a significant amount of money this year, throw all of that into one fund get the full right off and then give it to them as you choose as you choose with any sort your time though. Yeah, with it any certain timeframe. But basically, I think when you die, there’s some provisions are a little technical, but the fact is, you can get the full deduction in one year, okay. Like a lot of people did it with, believe it or not with Virginia sports.

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Virginia Tech athletics based on the changes to the tax code, you know, used to get a full deduction for your seats at the stadium, right? So everyone was pumping all this money into this fun in December of 2017. So they could get the full deduction, yeah, up to 50% of their AGI. And they bought themselves a seat at Scott Stadium, and being a place where they can actually get that full benefit that year, okay. And that they can still do that as a charity, but they have provisions that don’t let you do it for athletics. So it’s, it’s, you know, so if you want to do it for the College of Engineering at UVA, you could put in all that money, get the full deduction in one year and then trickle to them at a certain on a certain schedule. It’s funny that that’s the example you gave because I was going to make the point as we’re going through these things that

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talking about the media and whenever you hear the politicians say, Oh, these people with a certain level, and their

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Paying, you know, ex taxes, like they’re getting away with things and so on. And

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the scenarios are examples where if you want to call it, you know, air quotes, getting away with something, but the point is, is to be up on these things. And so if you hear the talking points of the people with all the money can can do all these things, and so on. These are the scenarios that I think everybody needs to be aware of, so that you can also maximize your own situation. Yeah, like the athletics sounds like was something that got tightened up a little bit, maybe in the last few years, if I’m following you correctly. Yeah. And I will say I would roll my eyes hearing that really like how is that a donation? So I think people will probably right to do that. But also, don’t just throw up your hands and say, Oh, well, you know, I can’t make it any better for myself. It is worth being educated on these tax code items and ways to

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maximized dollars and so don’t, don’t just throw your hands up. I think it’s something to reiterate. Yes. So if you don’t remember anything else I say today, remember this, the tax code was written by the wealthy, for the wealthy, right. And I can give several examples of that. Probably the best example I can give is in 2009, when they did the Roth conversion bill, where you can do it over two years in terms of how it hits your income, right? Everyone in DC who’s exempt from insider trading, I might add, is in a place where they said let’s do this because we think the markets bottomed and let’s have our game. You know, everything that we’ve had in our retirement accounts be paid over two years instead of one, right? That’s a great example of them writing the law, so it benefits them. Obamacare, everyone was worried about Obamacare and everyone was getting out of insurance companies and they made a couple tweaks to the bill. And then next thing you know, if you look at the care of the FDA

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stock price of health insurance companies five years after Obamacare was paid, they crushed everybody. Why did that happen? Well, I’ll tell you why it happened. It happened because the people that were writing the bills were make it beneficial for the people that were giving them money and supporting their campaigns and whatnot. So just remember that if something’s happening in Washington with the tax code, there’s probably a reason to and you should probably pay attention to what some of those people are doing, and what gets the first response so that you can position yourself to take advantage of it too. Now, I’m not saying you should be buying individual stocks, I’m just saying you should be posturing yourself with the tax code. Understanding while politics and investments don’t mix, positioning and allocation does. Stay tuned for next week’s episode, part two of our discussion, which will cover self employment deductions, saving strategies, insurance planning and 529 plans. If you enjoyed this episode, please be sure to give us a rating on Apple spot

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stitcher or wherever you get podcasts. If you’d like to be notified of future weekly shows, please hit the subscribe button. Thank you. Suburban Folk is part of the pod all the time Podcast Network with six other great podcasts, Nick here, and I’m the co host of a podcast called real aka true real aka true was a podcast that talks trending topics celebrity news music sports life the world around us and more to a wise yet hilarious aspect.

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We very very very funny with ours. So if you’re tired of those planes Dil popco. To starting quarterback and real aka true is the podcast for you. You can find real aka true on over 25 That’s right We are on over 25 podcast apps and formats whatever podcast app or format you use. Just type in real aka true in the search engine. Or you can go to our URL anger that FM slash real aka truth to

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This recording is for informational purposes only and should not be considered investment advice. opinions expressed our as of the date of the recording. Such opinions are subject to change. The participants on this podcast are not responsible for any trading decisions, damages or other losses resulting from or related to the information or opinions discussed or their use. All Investments are subject to investment

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Risk including loss of principle, individuals should consider if an investment is suitable for them by reference their own financial situation with their own financial professional before executing any financial decisions.

Transcribed by https://otter.ai