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Year-End Tax Planning Moves · Masters in Business

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  Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
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  Speaker 2: They're billing mombs? What about schools are falling?
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  Speaker 3: Tell me what in the hell of pay taxes for?
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  Speaker 1: Well? What a little?
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  Speaker 2: Stop paying text? Stop, what a lit Stop paying taxes?
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  Speaker 1: Stop paying tax.
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  Speaker 3: It's that time of year. You still have Christmas gifts
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  Speaker 3: left to buy, but you have to be aware that
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  Speaker 3: April fifteenth is just around the corner. Consider this your
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  Speaker 3: nudge that you have less than three weeks to make
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  Speaker 3: whatever year end tax moves you're planning for the calendar
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  Speaker 3: year twenty twenty five. I'm Barry Riddolts, and on today's
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  Speaker 3: edition of At the Money, we're gonna discuss the moves
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  Speaker 3: investors should be thinking about in order to reduce their
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  Speaker 3: twenty twenty five taxes. To help us unpack all of
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  Speaker 3: this and what it means for your money, let's bring
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  Speaker 3: in Bill Artsmarnian Full disclosure. Arts Ronian is the director
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  Speaker 3: of tax services at Richholt's Wealth Management and we've been
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  Speaker 3: working with him for just about five years. So Bill,
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  Speaker 3: let's start with a simple overview. You've said before tax
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  Speaker 3: advice is financial advice. I want to unpack that. How
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  Speaker 3: should investors be thinking about the role of tax planning
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  Speaker 3: in their overall wealth strategy, especially here in December.
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  Speaker 1: Well, thanks Barry for having me. Let's just think about
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  Speaker 1: a financial plan for a second. What part of a
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  Speaker 1: financial plan does not touch on taxes? I mean think
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  Speaker 1: about just space of cash flow planning. Taxes For our
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  Speaker 1: investors are often the largest expense in their annual budget.
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  Speaker 1: It's mortgage and taxes. Those are the largest costs. Life
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  Speaker 1: insurance is thinking about a tax free inheritance for the
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  Speaker 1: next generation or for your errors. State planning is all
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  Speaker 1: about taxes. If there was no estate tax, we wouldn't
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  Speaker 1: really have to think about estate planning. And then basic
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  Speaker 1: portfolio management is purely you know, not purely tax centric.
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  Speaker 1: But our investors are thinking about tax all the time.
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  Speaker 1: Our clients would rather save one thousand dollars on taxes
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  Speaker 1: than make six figures in a trading day. So it's
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  Speaker 1: all connected. And the end of the year is like
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  Speaker 1: the report card. Tax planning should be happening proactively for
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  Speaker 1: twelve months, but we don't even stop there. We're not
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  Speaker 1: thinking about taxes as a current year item or even
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  Speaker 1: a lifetime item. We're thinking about this generationally. We're thinking
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  Speaker 1: about how can we set up the next generation of
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  Speaker 1: client children, client grandchildren for tax success.
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  Speaker 3: So we have a few weeks left in the year.
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  Speaker 3: What are the big boxes that you think investors should
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  Speaker 3: be checking and what important items do they ignore? What
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  Speaker 3: are the big mistakes people make?
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  Speaker 1: I think one of the misunderstandings is on tax deferral
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  Speaker 1: rather than tax avoidance. Many strategies can avoid taxes or
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  Speaker 1: can defer taxes, but that bill will come do at
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  Speaker 1: some point. You know, think about even just a four
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  Speaker 1: oh one K a pre tax contribution, You're going to
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  Speaker 1: recognize that income at some point. Things like accelerated depreciation
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  Speaker 1: will come back to bite you on the recapture when
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  Speaker 1: you sell the asset. Opportunity zones are a tax deferral mechanism.
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  Speaker 1: These are all very useful because time value of money
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  Speaker 1: says that a tax deduction today is worth more than
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  Speaker 1: a tax deduction in the future, but eventually that there's
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  Speaker 1: going to be a tax hit. So I think that's
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  Speaker 1: a common misunderstanding. A few other mistakes is on capital
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  Speaker 1: gain timing. We see clients not really understand or consider
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  Speaker 1: the timing of when they recognize games. When we onboard folks,
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  Speaker 1: we're often pushing gains from the fourth quarter of say
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  Speaker 1: twenty twenty five, into the first quarter of twenty twenty six,
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  Speaker 1: because that gives us a full twelve months to tax
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  Speaker 1: lost harvest and create losses to offset any capital gains.
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  Speaker 1: The flip side of that, of course, is even a
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  Speaker 1: small movement in a stock price can cost more than
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  Speaker 1: a tax bill just to sell it, so you have
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  Speaker 1: to be pretty comfortable holding the position for a couple
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  Speaker 1: weeks or even a couple months. And then the last
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  Speaker 1: mistake is misunderstanding just basic payment obligations. There are safe
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  Speaker 1: harbors to avoid estimated tax penalties. But on the flip
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  Speaker 1: side of that is, if you pay too much, there's
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  Speaker 1: opportunity cost. If you have a big refund in April,
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  Speaker 1: that means you paid a little bit too much and
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  Speaker 1: that money could have been better put to use.
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  Speaker 3: So Bloomberg has a fairly sophisticated audience of high earning professionals.
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  Speaker 3: What are the three top moves you see for folks
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  Speaker 3: like that, they have a portfolio, they have a pretty
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  Speaker 3: decent income, and they can expect to continue that for
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  Speaker 3: the foreseeable future.
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  Speaker 2: Let's start with charitable giving.
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  Speaker 1: We'll talk about it more throughout the show, but it's
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  Speaker 1: often the most accessible lever to pull for tax savings.
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  Speaker 1: The caveat being you need to be conscious of where
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  Speaker 1: your total deductions fall. We see some clients give a
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  Speaker 1: certain amount of charitable gifts and they don't even itemize
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  Speaker 1: their deductions. So from a federal tax standpoint, maybe they
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  Speaker 1: gave away ten k, but they're still taking that standard deduction.
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  Speaker 1: They're not benefiting from that charitable gift. So that's where
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  Speaker 1: bunching strategies and some other strategies with don'tant advice funds
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  Speaker 1: can come into play. Number two is on the equity
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  Speaker 1: comp side. Equity compensation for folks compensated through their company stock,
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  Speaker 1: the timing of the income can often be flexible. Think
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  Speaker 1: about stock options company stock options. We should be asking
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  Speaker 1: the question, how much can we recognize in stock option
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  Speaker 1: income before the end of the year before we bump
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  Speaker 1: up against the next federal or.
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  Speaker 2: State tax bracket.
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  Speaker 1: How much if these are incentive stock options, how much
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  Speaker 1: can we recognize without paying a MT alternative minimum tax.
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  Speaker 1: These are questions we should all be asking if we're
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  Speaker 1: paid through equity, or if we have clients that are
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  Speaker 1: paid through equity and the last one is for small
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  Speaker 1: business owners.
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  Speaker 2: There's a whole lot on the small business side of this.
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  Speaker 1: I'm focused a lot on qualified business income, which is
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  Speaker 1: a twenty percent deduction for past through income, but there
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  Speaker 1: are limitations, and those limitations can be on based on
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  Speaker 1: how much you pay your employees or yourself in a wage.
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  Speaker 1: If you don't meet a certain wage number, that QBI
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  Speaker 1: benefit could be significantly reduced or even reduced down to
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  Speaker 1: zero if you're really screwing this up. And then on
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  Speaker 1: the small business side, we should be looking at are
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  Speaker 1: we prepared to maximize retirement contributions? The max four one
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  Speaker 1: K is seventy thousand dollars this year between employer and
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  Speaker 1: employee contributions, and so you have to be ready to
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  Speaker 1: have that cash available to fund those contributions. Say you're
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  Speaker 1: a mom and pop shop to owners zero employees, maybe
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  Speaker 1: you're structured as an es corp. You're gonna have to
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  Speaker 1: come up with some cash to meet the four to
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  Speaker 1: one K obligations either before the end of the year
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  Speaker 1: before the tax filing.
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  Speaker 3: So I'm glad you brought up tax advantage accounts. Like
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  Speaker 3: for a one k's there always seems to be a
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  Speaker 3: last minute frenzy to maximize not only for A one
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  Speaker 3: k's but IRA's health saving accounts five twenty nine. So
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  Speaker 3: how have the rules changed around credits and ceilings for
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  Speaker 3: this year and for twenty twenty six?
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  Speaker 1: Right at least once a year with our clients, we're
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  Speaker 1: running through the quote unquote basics of all of these contributions.
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  Speaker 1: Are you on track to hit each of these with
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  Speaker 1: a four oh one K? We just talked about it
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  Speaker 1: a little bit, but there's a seventy K limit. Now,
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  Speaker 1: if you're a W two employee and you don't own
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  Speaker 1: the company, you're going to make employee contributions, Maybe there's
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  Speaker 1: a megabackdoor, a WROTH option in there for you. We
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  Speaker 1: talk to folks all the time who have this eligible
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  Speaker 1: or eligible in their plan, but they don't even know
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  Speaker 1: about it. Nobody's talking to them about this when they
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  Speaker 1: join the company, and that megabackdoor WROTH allows you to
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  Speaker 1: put after tax dollars into the four to one K,
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  Speaker 1: convert it to WROTH, and have a nice Roth tax
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  Speaker 1: free bucket growing alongside the pre tax contributions that you
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  Speaker 1: already made. I raise don't come up a lot in
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  Speaker 1: our world for a few reasons. Number one is most
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  Speaker 1: of our clients are employed with a retirement plan and
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  Speaker 1: through their employer, and if that's the case, deductible IRA
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  Speaker 1: contributions may be limited. However, there is a backdoor option
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  Speaker 1: in the IRA. If you don't have any pre tax
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  Speaker 1: money in any iras, you can make after tax contributions
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  Speaker 1: and again convert to ROTH in the IRA just as
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  Speaker 1: well as you can in the four to one K.
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  Speaker 1: And then the HSA. I love tax owners love hsas.
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  Speaker 1: You need to be on a high deductible plan, which
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  Speaker 1: isn't for everybody. My colleague Bill Sweet and I we
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  Speaker 1: ran an analysis on high deductible plans and we found
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  Speaker 1: that there's a pretty there's a pretty attractive break even
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  Speaker 1: on high deductible plans because the premiums are lower and
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  Speaker 1: the long term benefit of investing deducting HSA contributions and
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  Speaker 1: treating those as another retirement vehicle. Again, those are like
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  Speaker 1: roths where they're tax free. Those those can compound very
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  Speaker 1: very nicely. Where maybe you retire early and let's say
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  Speaker 1: you retire sixty instead of sixty five, you have a
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  Speaker 1: five year gap where you need to cover probably significant
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  Speaker 1: healthcare premiums that HSA can be used in that case,
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  Speaker 1: and it's nice tax free bucket to have.
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  Speaker 3: And what do the ceilings look like on all these
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  Speaker 3: tacks of entergs accounts for twenty twenty six? How has
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  Speaker 3: the recent legislation changed the max people can kick into those?
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  Speaker 1: The big change in twenty twenty six is that catchup
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  Speaker 1: contributions for folks over age fifty are now forced to
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  Speaker 1: be ROTH contributions again starting twenty twenty six. Historically, catchup contributions,
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  Speaker 1: which are going to be seventy five hundred this year
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  Speaker 1: seventy five hundred next year, Folks in their fifties are
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  Speaker 1: often in their highest earning years. Therefore the pre tax
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  Speaker 1: option is usually preferred. However, starting next year, the catchup
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  Speaker 1: contributions that seventy five hundred are going to be required
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  Speaker 1: to be WROTH contributions. My theory is, I don't mind
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  Speaker 1: this at all. Nobody ever regrets a ROTH contribution. Nobody
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  Speaker 1: ever really regrets a ROTH conversion because once you pay tax,
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  Speaker 1: you don't really think about it. And so you know,
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  Speaker 1: if we have investors in their fifties and sixties that
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  Speaker 1: are forced to make a small ROTH contribution instead of
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  Speaker 1: a pre tax contribution. That just gives them exceedingly more
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  Speaker 1: flexibility down the line, because now they're going to have
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  Speaker 1: different buckets of money to pull from in retirement.
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  Speaker 3: Sounds really interesting. You mentioned earlier tax loss harvesting. We've
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  Speaker 3: been using Canvas as our direct indexing product, but it
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  Speaker 3: seems like this has become ubiquitous. What are your thoughts
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  Speaker 3: on tax loss harvesting. What does thoughtful harvesting look like?
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  Speaker 1: I think the term thoughtful there implies to me that
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  Speaker 1: there should be an ongoing activity, not just a year
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  Speaker 1: end item. Historically, taxpayers, sell DIY, investors and even advisors,
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  Speaker 1: they'd look at the portfolio in December, they'd say, okay,
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  Speaker 1: what's underwater. Let's book those losses through direct indexing. This
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  Speaker 1: is now an ongoing activity, but you don't need a
• 10:46
  Speaker 1: direct indexing portfolio to look at your portfolio. Even if
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  Speaker 1: you're not in a direct indexing setup, you can still
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  Speaker 1: tax lost harvest throughout the year. Why just December? This
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  Speaker 1: should happen with regularity. There's nothing saying we can only
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  Speaker 1: book losses in December. Now a lot of this is
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  Speaker 1: dictated by individual stock market volatility, but with an ultra
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  Speaker 1: diversified bucket of stocks. Some will ultimately be losers, so
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  Speaker 1: you sell those, you pick up tax losses, you invest
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  Speaker 1: in a similar company, so you keep the fidelity of
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  Speaker 1: the portfolio, and then you don't trigger wash sale rules.
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  Speaker 1: The only caveat here is state by state stuff. New Jersey,
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  Speaker 1: for example, does not allow tax loss carry forwards. So
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  Speaker 1: we're doing in December, we're doing a bit of the
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  Speaker 1: opposite with our New Jersey clients. We're actually we're looking
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  Speaker 1: historically over the first eleven months, what did we realize
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  Speaker 1: in losses. Let's go make a game's harvest. Instead of
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  Speaker 1: realizing more losses, We're going to realize capital gains so
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  Speaker 1: we can use them at the state level this year.
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  Speaker 3: That's really interesting. So I know the deductions have changed,
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  Speaker 3: the standard deductions have become permanent. There are new floors,
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  Speaker 3: There are new ceilings for that for itemized and chatterable gifts.
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  Speaker 3: How should those people who are charitably inclined think about
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  Speaker 3: you mentioned and bunching donations or donor advice funds. Give
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  Speaker 3: us a little more detail about how people should be
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  Speaker 3: using these vehicles.
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  Speaker 1: Yeah, we're doing a lot of this with our clients
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  Speaker 1: throughout the year. But specifically at the end of the year.
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  Speaker 1: We kind of tee up charitable planning. I'm like, hero,
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  Speaker 1: let's think about what we want to accomplish, and then
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  Speaker 1: let's take a look at the end of the year
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  Speaker 1: and figure out how we're going to get this done
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  Speaker 1: and if it's the right year to do it. What
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  Speaker 1: we need to be conscious of is all the other deductions. Right,
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  Speaker 1: Like I mentioned previously, you might have a hurdle rate
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  Speaker 1: before you even start to deduct your charitable gifts. And
• 12:29
  Speaker 1: that's where you might want to consider bunching maybe three years,
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  Speaker 1: maybe five years, maybe ten years worth of charitable gifts
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  Speaker 1: into twenty twenty five. For example, twenty twenty five. Maybe
• 12:40
  Speaker 1: it's a high income year. Maybe you're paying down your mortgage,
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  Speaker 1: so you're not getting that mortgage deduction anymore, and you
• 12:46
  Speaker 1: want to take advantage of an appreciated security that you
• 12:49
  Speaker 1: gift for charitable purposes.
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  Speaker 2: We do a lot of this.
• 12:53
  Speaker 1: We take maybe a client comes to us, they've worked
• 12:56
  Speaker 1: at a tech company. The tech company, they've been compensated
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  Speaker 1: well in that stock. They have charitable intent. We say, okay,
• 13:02
  Speaker 1: let's use that stock. Let's send it to a donor
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  Speaker 1: advised fund. Let's bunch five years worth of gifting, and
• 13:08
  Speaker 1: now you have your own little charitable fund that you
• 13:10
  Speaker 1: can make grants out of over the next five years.
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  Speaker 1: So we're gonna time the deduction, but we're not actually
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  Speaker 1: going to change the way you're giving.
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  Speaker 3: Really really interesting. So I'm in New York, you're in Philly.
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  Speaker 3: These are big salt regions. I know. The most recent
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  Speaker 3: big beautiful bill changed all sorts of things. Where are
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  Speaker 3: this is a question I hear all the time. Where
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  Speaker 3: are we with salt deductions today? How has this changed?
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  Speaker 3: I know we're not quite back the way we were,
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  Speaker 3: but it seems to have improved for a lot of people.
• 13:43
  Speaker 3: Tell us what's going on with the state and local
• 13:45
  Speaker 3: tax deductions.
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  Speaker 1: Well, it's good news for most folks. For some folks,
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  Speaker 1: it's not going to change the damn thing. It's gonna
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  Speaker 1: what we have here is for since twenty seventeen, the
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  Speaker 1: state and local tax deduction as part of your total
• 13:59
  Speaker 1: itemize ABOUTS was limited to ten thousand dollars for folks
• 14:03
  Speaker 1: bury in New York, California, New Jersey, Connecticut, Pennsylvania.
• 14:07
  Speaker 2: Ten thousand dollars just wasn't cutting it. A lot of
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  Speaker 2: you know, We see.
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  Speaker 1: Tax returns here every day where there are sometimes six
• 14:14
  Speaker 1: figures of state and local taxes between real estate and
• 14:16
  Speaker 1: income taxes. The new limit is forty thousand dollars. That
• 14:19
  Speaker 1: was maybe the most talked about provision of Trump two
• 14:24
  Speaker 1: point zero tax bill. It's an increase from ten k
• 14:27
  Speaker 1: to forty k, with caveats. If you're earning more than
• 14:30
  Speaker 1: five hundred thousand dollars of total income, you start to
• 14:34
  Speaker 1: get phased out. These are for both single filers and
• 14:37
  Speaker 1: married filers. Once you had six hundred thousand, you're all
• 14:40
  Speaker 1: the way back to ten k. So we have some
• 14:42
  Speaker 1: clients that are not going to see a change at all.
• 14:44
  Speaker 1: They make a million dollars a year. They're not going
• 14:46
  Speaker 1: to benefit from this whatsoever. We see other clients where
• 14:48
  Speaker 1: we're having tactical discussions on all kinds of income. Maybe
• 14:53
  Speaker 1: we'd defer a capital gain into next year because we
• 14:55
  Speaker 1: want to take full advantage of that salt deduction this year,
• 14:58
  Speaker 1: or maybe vice versa. There's a lot more planning to
• 15:01
  Speaker 1: do on all of these deductions. We talked about charitable
• 15:04
  Speaker 1: This is along the same lines.
• 15:06
  Speaker 3: What else from the Big Beautiful Bill has changed the
• 15:08
  Speaker 3: way you think about year end planning. Do any of
• 15:12
  Speaker 3: these provisions show up as actual savings for clients.
• 15:16
  Speaker 2: I think it's back to the charitable piece.
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  Speaker 1: There are some changes next year that are going to
• 15:20
  Speaker 1: impact charitable giving, which make twenty twenty five perhaps more
• 15:24
  Speaker 1: attractive from a charitable landscape. Next year, there's going to
• 15:28
  Speaker 1: be a quote unquote a floor on charitable gifts where
• 15:31
  Speaker 1: the first zero point five percent of your agi will
• 15:34
  Speaker 1: not be deductible for charitable purposes. So if you make
• 15:36
  Speaker 1: a million bucks, the first five k you give away
• 15:38
  Speaker 1: to charity provides zero federal tax benefit. The other change
• 15:42
  Speaker 1: for the highest earning folks, folks in the thirty seven
• 15:45
  Speaker 1: percent bracket, they are going to be limited on their
• 15:48
  Speaker 1: overall deductions. They'll be treated as thirty five percent taxpayers.
• 15:51
  Speaker 1: So that two percent delta can can really add up
• 15:54
  Speaker 1: when we're talking about when we're talking about big deductions.
• 15:56
  Speaker 1: So we're doing a lot of shifting of charitable deductions,
• 16:00
  Speaker 1: even mortgage even mortgage reductions. We're trying to get most
• 16:04
  Speaker 1: of that into twenty twenty five, especially for our highest
• 16:06
  Speaker 1: income tax paying clients.
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  Speaker 3: So to wrap up, there's still plenty of time before
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  Speaker 3: the year ends. There are lots of moves individual investors
• 16:15
  Speaker 3: can make to not only reduce the taxes they're going
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  Speaker 3: to owe for the twenty twenty five year, but also
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  Speaker 3: to think about long term planning their estate, maximizing every opportunity.
• 16:27
  Speaker 3: The government gives us lots of ways to either reduce
• 16:32
  Speaker 3: or defer our current tacts. Bill, everybody should take full
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  Speaker 3: advantage of what's on offer. I'm Barry Ridults. You're listening
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  Speaker 3: to Bloomberg's at the Money, all right,