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At The Money: Tax Day Special · Masters in Business

• 0:02
  Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
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  Speaker 2: They're billing mobs. What our schools unfolded? Tell me what
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  Speaker 2: in the help of pay taxes for well, the one
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  Speaker 2: a little stop paying, stop at stop paying taxes, stop paying.
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  Speaker 3: It's that time of year. I'm Barry Riddults and on
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  Speaker 3: today's edition of At the Money, we're going to discuss
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  Speaker 3: the moves investors should be thinking about in order to
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  Speaker 3: reduce their twenty twenty five taxes. To help us unpack
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  Speaker 3: all of this and what it means for your money,
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  Speaker 3: let's bring in Bill Artzmeronian Full disclosure. Arts Eronian is
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  Speaker 3: the director of tax services at Ritults Wealth Management and
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  Speaker 3: we've been working with him for just about five years years.
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  Speaker 3: So Bill, let's start with a simple overview. You've said
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  Speaker 3: before tax advice is financial advice. I want to unpack that.
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  Speaker 3: How should investors be thinking about the role of tax
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  Speaker 3: planning in their overall weal 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 basic cash flow planning. Taxes for our investors
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  Speaker 1: are often the largest expense in their annual budget, it's
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  Speaker 1: mortgage and taxes. Those are the largest costs. Life insurance
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  Speaker 1: is thinking about a tax free inheritance for the next
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  Speaker 1: generation or for your errors. Estate planning is all about taxes.
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  Speaker 1: If there was no estate tax, we wouldn't really have
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  Speaker 1: to think about estate planning. And then basic portfolio management
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  Speaker 1: is purely, you know, not purely tax centric. But our
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  Speaker 1: investors are thinking about tax all the time. Our clients
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  Speaker 1: would rather save one thousand dollars on taxes that make
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  Speaker 1: six figures in a trading day. So it's all connected.
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  Speaker 1: And the end of the year is like the report card.
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  Speaker 1: Tax planning should be happening proactively for twelve months, but
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  Speaker 1: we don't even stop there. We're not thinking about taxes
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  Speaker 1: as a current year item or even a lifetime item.
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  Speaker 1: We're thinking about this generationally. We're thinking about how can
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  Speaker 1: we set up the next generation of client children, client
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  Speaker 1: 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: to oh one k a pre tax contribution, You're going
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  Speaker 1: to recognize that income at some point. Things like accelerated
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  Speaker 1: depreciation will come back to bite you on the recapture
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  Speaker 1: when you sell the asset. Opportunity zones are a tax
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  Speaker 1: deferral mechanism. These are all very useful because time value
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  Speaker 1: of money says that a tax deduction today is worth
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  Speaker 1: more than a tax deduction in the future, but eventually
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  Speaker 1: that there's going to be a tax hit. So I
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  Speaker 1: think that's a common misunderstanding. A few other mistakes is
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  Speaker 1: on capital gain timing. See we see clients not really
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  Speaker 1: understand or consider the timing of when they recognize games.
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  Speaker 1: When we onboard, folks were often pushing gains from the
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  Speaker 1: fourth quarter of say twenty twenty five into the first
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  Speaker 1: quarter of twenty twenty six, because that gives us a
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  Speaker 1: full twelve months to tax lost havist and create losses
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  Speaker 1: to offset any capital gains. The flip side of that,
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  Speaker 1: of course, is even a small movement in a stock
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  Speaker 1: price can cost more than a tax built just to
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  Speaker 1: sell it, so you have to be pretty comfortable holding
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  Speaker 1: the position for a couple weeks or even a couple months.
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  Speaker 1: And then the last mistake is misunderstanding just basic payment obligations.
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  Speaker 1: There are safe harbors to avoid estimated tax penalties, but
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  Speaker 1: on the flip side of that is, if you pay
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  Speaker 1: too much, there's opportunity costs. If you have a big
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  Speaker 1: refund in April, that means you paid a little bit
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  Speaker 1: too much and that money could have been better put
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  Speaker 1: 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 1: Let's start with charitable giving. We'll talk about it more
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  Speaker 1: throughout the show, but it's often the most accessible lever
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  Speaker 1: to pull for tax savings. The caveat being you need
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  Speaker 1: to be conscious of where your total deductions fall. We
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  Speaker 1: see some clients give a certain amount of charitable gifts
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  Speaker 1: and they don't even itemize their deductions. So from a
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  Speaker 1: federal tax standpoint, maybe they gave away ten k, but
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  Speaker 1: they're still taking that standard deduction. They're not benefiting from
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  Speaker 1: that charitable gift. So that's where bunching strategies and some
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  Speaker 1: other strategies with don't advice funds can come into play.
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  Speaker 1: Number two is on the equity comp side. Equity compensation
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  Speaker 1: for folks compensated through their company stock, the timing of
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  Speaker 1: the income can often be flexible. Think about stock options
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  Speaker 1: company stock options, we should be asking the question, how
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  Speaker 1: much can we recognize in stock option income before the
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  Speaker 1: end of the year before we bump up against the
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  Speaker 1: next federal or state tax bracket. How much if these
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  Speaker 1: are incentive stock options, how much can we recognize without
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  Speaker 1: paying AMT alternative minimum tax. These are questions we should
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  Speaker 1: all be asking if we're paid through equity or if
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  Speaker 1: we have clients that are paid through equity. And the
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  Speaker 1: last one is for small business owners. There's a whole
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  Speaker 1: lot on the small business side of this. I'm focused
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  Speaker 1: a lot on qualified business income, which is a twenty
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  Speaker 1: percent deduction for pass through income, but there are limitations,
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  Speaker 1: and those limitations can be on based on how much
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  Speaker 1: you pay your employees or yourself in a wage If
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  Speaker 1: you don't meet a certain wage number, that QBI benefit
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  Speaker 1: could be significantly reduced or even reduced down to zero
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  Speaker 1: if you're really screwing this up. And then on the
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  Speaker 1: small business side, we should be looking at are we
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  Speaker 1: prepared to maximize retirement contributions? The max four one K
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  Speaker 1: is seventy thousand dollars this year between employer and employee contributions,
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  Speaker 1: and so you have to be ready to have that
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  Speaker 1: cash available to fund those contributions. Say you're a mom
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  Speaker 1: and pop shop to owners zero employees, maybe you're structured
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  Speaker 1: as an es corp. You're gonna have to come up
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  Speaker 1: with some cash to meet the four to one K
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  Speaker 1: obligations either before the end of the year before the
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  Speaker 1: 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: four O 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 k's,
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  Speaker 3: but IRA's health saving accounts. Five twenty nine. How have
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  Speaker 3: the rules changed around credits and ceilings for this year
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  Speaker 3: 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 one K? We just talked about it a
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  Speaker 1: little bit, but there's a seventy K limit. Now, if
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  Speaker 1: you're a W two employee and you don't own the company,
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  Speaker 1: you're gonna make employee contributions. Maybe there's a megabackdoor Wroth
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  Speaker 1: option in there for you. We talk to folks all
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  Speaker 1: the time who have this eligible or eligible in their plan,
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  Speaker 1: but they don't even know about it. Nobody's talking to
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  Speaker 1: them about this when they join the company, and that
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  Speaker 1: megabackdoor Wroth allows you to put after tax dollars into
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  Speaker 1: the four oh one K, convert it to WROTH, and
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  Speaker 1: have a nice Wroth tax free bucket growing alongside the
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  Speaker 1: pre tax contributions that you already made. Iras don't come
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  Speaker 1: up a lot in our world for a few reasons.
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  Speaker 1: Number one is most of our clients are employed with
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  Speaker 1: a retirement plan through their employer, and if that's the case,
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  Speaker 1: deductible IRA contributions may be limited. However, there is a
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  Speaker 1: backdoor option in the IRA. If you don't have any
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  Speaker 1: pre tax money in any iras, you can make after
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  Speaker 1: tax contributions and again convert to WROTH in the IRA
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  Speaker 1: just as well as you can in the four oh
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  Speaker 1: one K. And then the HSA. I love tax owners,
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  Speaker 1: love hsas you need to be on a high deductible plan,
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  Speaker 1: which isn't for everybody. My colleague Bill Sweet and I
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  Speaker 1: we ran an analysis on high deductible plans and we
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  Speaker 1: found that there's a pretty there's a pretty attractive break
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  Speaker 1: even on high deductible plans because the premiums are lower
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  Speaker 1: and the long term benefit of investing deducting HSA contributions
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  Speaker 1: and treating those as another retirement vehicle. Again, those are
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  Speaker 1: like roths where they're text free. 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 a nice text 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: taps advantage accounts for twenty twenty six? How has the
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  Speaker 3: 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 rough
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  Speaker 1: catchup contributions for folks over age fifty are now forced
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  Speaker 1: to be rough contributions again starting twenty twenty six. Historically,
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  Speaker 1: catch up contributions, which are going to be seventy five
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  Speaker 1: hundred this year seventy five hundred next year. Folks in
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  Speaker 1: their fifties are often in their highest earning years. Therefore
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  Speaker 1: the pre tax option is usually preferred. However, starting next year,
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  Speaker 1: the catchup contributions that seventy five hundred are going to
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  Speaker 1: be required to be wroth contributions. My theory is, I
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  Speaker 1: don't mind this at all. Nobody ever regrets a roth contribution.
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  Speaker 1: Nobody ever really regrets a roth conversion because once you
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  Speaker 1: pay tax, you don't really think about it. And so
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  Speaker 1: you know, if we have investors in their fifties and
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  Speaker 1: sixties that are forced to make a small ROTH contribution
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  Speaker 1: instead of a pre tax contribution, that just gives them
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  Speaker 1: exceedingly more flexibility down the line, because now they're going
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  Speaker 1: to have 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 indexting 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 harvest thing. What does thoughtful harvest thing look like?
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  Speaker 1: I think the trend 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
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  Speaker 1: direct indexing portfolio to look at your portfolio. You can
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  Speaker 1: even if you're not in a direct indexing setup. You
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  Speaker 1: can still tax lost harvest throughout the year. Why just December?
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  Speaker 1: This should happen with regularity. There's nothing saying we can
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  Speaker 1: only book losses in December. Now a lot of this
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  Speaker 1: is dictated by individual stock market volatility. But with an
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  Speaker 1: ultra diversified bucket of stocks, some will ultimately be losers,
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  Speaker 1: so you sell those, you pick up tax losses, You
• 10:52
  Speaker 1: invest in a similar company, so you keep the fidelity
• 10:54
  Speaker 1: of the portfolio, and then you don't trigger wash sale rules.
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  Speaker 1: The only caveat there is state by state stuff. New Jersey,
• 11:03
  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
• 11:14
  Speaker 1: in losses. Let's go make a game's harvest. Instead of
• 11:17
  Speaker 1: realizing more losses, We're going to realize capital gains so
• 11:19
  Speaker 1: we can use them at the state level this year.
• 11:22
  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 charitable 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 bunching donations or donor advice funds. Give us
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  Speaker 3: a little more detail about how people should be using
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  Speaker 3: 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, like here, let's
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  Speaker 1: think about what we want to accomplish, and then let's
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  Speaker 1: take a look at the end of the year and
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  Speaker 1: figure out how we're going to get this done and
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  Speaker 1: if it's the right year to do it, what we
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  Speaker 1: 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
• 12:09
  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
• 12:19
  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
• 12:25
  Speaker 1: want to take advantage of an appreciated security that you
• 12:29
  Speaker 1: gift for charitable purposes. We do a lot of this.
• 12:32
  Speaker 1: We take maybe a client comes to us, they've worked
• 12:35
  Speaker 1: at a tech company. The tech company, they've been compensated
• 12:38
  Speaker 1: well in that stock, they have charitable intent. We say, okay,
• 12:42
  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
• 12:47
  Speaker 1: now you have your own little charitable fund that you
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  Speaker 1: can make grants out of over the next five years.
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  Speaker 1: So we're going to time the deduction, but we're not
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  Speaker 1: actually going to change the way you're giving.
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  Speaker 3: 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,
• 13:19
  Speaker 3: but it seems to have improved for a lot of people.
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  Speaker 3: Tell us what's going on with the state and local
• 13:25
  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 the for Since twenty seventeen,
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  Speaker 1: the state and local tax deduction as part of your
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  Speaker 1: total itemized deductions was limited to ten thousand dollars for
• 13:42
  Speaker 1: folks bury in New York, California, New Jersey, Connecticut, Pennsylvania.
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  Speaker 1: Ten thousand dollars just wasn't cutting it a lot of
• 13:49
  Speaker 1: You know, we see tax returns here every day where
• 13:51
  Speaker 1: there are sometimes six figures of state and local taxes
• 13:55
  Speaker 1: between real estate and income taxes. The new limit is
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  Speaker 1: forty thousand dollars. That was maybe the most talked about
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  Speaker 1: provision of Trump two point zero tax bill. It's an
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  Speaker 1: increase from ten k to forty k with caveats. If
• 14:09
  Speaker 1: you're earning more than five hundred thousand dollars of total income,
• 14:13
  Speaker 1: you start to get phased out. These are for both
• 14:16
  Speaker 1: single filers and married filers. Once you had six hundred thousand,
• 14:19
  Speaker 1: you're all the way back to ten k. So we
• 14:21
  Speaker 1: have some clients that are not going to see a
• 14:23
  Speaker 1: change at all. They make a million dollars a year,
• 14:25
  Speaker 1: they're not going to benefit from this whatsoever. We see
• 14:27
  Speaker 1: other clients where we're having tactical discussions on all kinds
• 14:32
  Speaker 1: of income. Maybe we defer a capital gain into next
• 14:34
  Speaker 1: year because we want to take full advantage of that
• 14:36
  Speaker 1: salt deduction this year, or maybe vice versa. But there's
• 14:39
  Speaker 1: a lot more planning to do on all of these deductions.
• 14:42
  Speaker 1: We talked about charitable This is along the same lines.
• 14:45
  Speaker 3: What else from the Big Beautiful Bill has changed the
• 14:48
  Speaker 3: way you think about year end planning. Do any of
• 14:51
  Speaker 3: these provisions show up as actual savings for clients?
• 14:56
  Speaker 1: I think it's back to the charitable piece. There are
• 14:58
  Speaker 1: some changes next year that are going to impact charitable giving,
• 15:01
  Speaker 1: which make twenty twenty five perhaps more attractive from a
• 15:05
  Speaker 1: charitable landscape. Next year, there's going to be a quote
• 15:08
  Speaker 1: unquote a floor on charitable gifts where the first zero
• 15:11
  Speaker 1: point five percent of your agi will not be deductible
• 15:14
  Speaker 1: for charitable purposes. So if you make a million bucks,
• 15:16
  Speaker 1: the first five k you give away to charity provides
• 15:19
  Speaker 1: zero federal tax benefit. The other change for the highest
• 15:23
  Speaker 1: earning folks, folks in the thirty seven percent bracket, they
• 15:26
  Speaker 1: are going to be limited on their overall deductions. They'll
• 15:29
  Speaker 1: be treated as thirty five percent taxpayers. So that two
• 15:31
  Speaker 1: percent delta can can really add up when we're talking
• 15:34
  Speaker 1: about when we're talking about big deductions. So we're doing
• 15:36
  Speaker 1: a lot of shifting of charitable salt deductions, even mortgage
• 15:41
  Speaker 1: even mortgage deductions. We're trying to get most of that
• 15:44
  Speaker 1: into twenty twenty five, especially for our highest income tax
• 15:47
  Speaker 1: paying clients.
• 15:48
  Speaker 3: So to wrap up, there's still plenty of time before
• 15:50
  Speaker 3: the year ends. There are lots of moves individual investors
• 15:54
  Speaker 3: can make to not only reduce the taxes they're going
• 15:58
  Speaker 3: to owe for the twenty twenty five year, but also
• 16:01
  Speaker 3: to think about long term planning their estate, maximizing every opportunity.
• 16:07
  Speaker 3: The government gives us lots of ways to either reduce
• 16:12
  Speaker 3: or defer our contacts Bill. Everybody should take full advantage
• 16:17
  Speaker 3: of what's on offer. I'm Barry Ridolts. You're listening to
• 16:21
  Speaker 3: Bloomberg's at the Money.
• 16:24
  Speaker 2: Stop paying, all right,