So, you inherited an IRA–now what?
The rules surrounding inherited IRAs are more complicated than you think, so if you have already inherited an IRA or expect to in the near future, we are breaking down how you should think about making withdrawals.
In this episode, you’ll learn the three types of beneficiaries and the six questions you need to ask yourself when you inherit an IRA.
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What if you could take action now so that you have significantly more tax-free savings to utilize in retirement?
On this episode of Financial Symmetry, we’ll take a look at an often misunderstood tax planning opportunity.
The Roth conversion is a tool that can benefit you throughout different stages of your retirement saving journey. Today you’ll learn how to take advantage of Roth conversions during various periods of life. Listen in to learn the opportunities and pitfalls of Roth conversions.
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If you recently filed your tax return you may have noticed some unexpected surprises.
Video recap: https://youtu.be/G9q8k5fRNdQ
Since tax planning and preparation is an important part of what we do at Financial Symmetry, we wanted to make you all aware of the top 10 tax surprises that we see in our office. Listen in to hear if you are familiar with any of these tax prep surprises.
Tis the season to prepare your taxes!
Video recap: https://youtu.be/mWYWaKeP6-o
Whether you do your own taxes or you are gathering information for your tax preparer, you’ll want to make sure that you don’t miss a thing. Listen to this episode to ensure that you think about everything you need to do to prepare this year’s tax documents.
As you start your tax preparation journey by gathering documents and ensuring that you have everything in order, you may end up forgetting the obvious. Did you move in 2021? You’ll need to report the sale of your prior home if that was the case.
Also, if you use tax preparation software, be careful with the autofill feature. If you have used it before, your tax software will automatically fill in the information that you used last year. It is important to type in the correct address so that you don’t miss any communication with the IRS.
If you changed jobs in 2021 you may have multiple W2s. Make sure that you have them all together before you start your tax preparations. You’ll also want to look out for the forms if you made any 401K or Roth rollovers.
For the 2021 tax season, you’ll need to look out for the usual documents like W2s, 1099s, 1098s, or K1s, but you’ll also need to be watching out for the letter from the IRS if you received an advanced child tax credit. If you did receive an advance on your child tax credit, you may or may not receive any more or you may have to pay some of it back depending on your income in 2021.
Once you have all of your documents ready, then it is time to start thinking outside the box. Do you have your receipts or transaction history for charitable donations? What about real estate and property tax forms? Do you have a record of how much you spent on child or dependent care? Make sure to have a record of any crypto transactions and business and rental expenses.
Having this information together will decrease the legwork when the time comes to file your taxes.
Not all financial advisors focus on tax preparation, but at Financial Symmetry, we see tax season as an opportunity to generate ideas to improve your financial situation. Whether it is through improving your tax situation or taking advantage of missed opportunities, tax preparation is something we focus on to enhance your today and enrich your tomorrow.
Our clients have the opportunity to use the document vault in our Client Center portal as a type of digital file cabinet. Keeping documents together like this takes away some of the anxiety surrounding tax season.
Once you get everything you need together, take a step back and reflect. If you haven’t been keeping the best records now is a good time to implement a system to help you stay organized.
Listen in to hear how we can help you prepare for the upcoming tax season and beyond as Financial Symmetry clients. You’ll also hear why it doesn’t always make sense to file early. Learn why sometimes filing for an extension could be a better option.
The American Families Plan hasn’t yet become law, but that doesn’t mean that you can’t prepare for the changes that may be coming.
Video recap: https://youtu.be/DFVgJZPwEIc
In this episode we consider the planning opportunities that could arise with the changes in tax legislation. Our goal is to ensure that you have all the tools in your toolbox so that you can minimize your tax burden.
The current tax law comes from the Trump administration and dates back to 2017. Prior to the current tax cuts, the marginal tax rate for those making over $400,000 was 39%. The present marginal tax rate is 35% for married couples who earn $650,000 or more.
The American Families Plan essentially reverts the tax cuts back to the pre-2017 rates. Those most affected by the proposed tax plan are higher-income earners. The current administration sees the tax changes as a way for high-income earners to pay their fair share of taxes rather than burdening those at lower income rates.
If the American Families Plan passes and becomes law then the new income tax structure would go into effect in January of 2022 which doesn’t leave much time for tax planning.
In addition to the changes in marginal income tax rates and compressing the income brackets, there are proposed changes to the capital gains tax. The original capital gains tax plan had been to keep the capital gains tax at the income tax rate, but new changes to the legislation have dropped that rate to 25% for those who earn $400,000 or more.
Unlike the income tax plan, the capital gains tax proposal would take effect the day it was written which was in September of 2021. This leaves no time for advanced tax planning, however, Grayson Blazek offers plenty of ideas in this episode on how you can best prepare for any upcoming changes in the tax code.
The backdoor Roth has been a strategy that high-income earners have been able to utilize for years to continue to fund Roth IRAs. Under the new proposal, the backdoor Roth would disappear. Rather than lamenting the loss of this useful tax tool, a better outlook is to be thankful that you were able to implement it when you could. To ensure that you take full advantage of what could be the last year of the backdoor Roth, make sure to get all of your backdoor Roth contributions in by January 31, 2021.
The main way that this proposed legislation will affect families is by the extension of the expanded child tax credit. The American Rescue Plan increased the child tax credit up to $3000 per child and the American Families Plan would ensure the continuation of this credit. In addition, American families would continue to receive the benefit monthly as they have in the latter part of 2021.
Make sure to listen to the entire episode to hear the rest of the highlights of the proposed legislation. We want to keep you informed of all the potential effects of the changes in the tax code so that you can make careful decisions in your tax planning. If you have any questions regarding these changes or are looking for an advisor that stays on top of the latest in tax planning legislation, please reach out to us at FinancialSymmetry.com.
You may have heard a lot on the news about President Biden’s tax plan. Are you worried about how it will affect you and your tax situation? In this episode of Financial Symmetry, Grayson Blazek helps to demystify Biden’s tax proposal. You’ll learn how you may be affected and whether or not you should be worried. Don’t wait until April 15 to start your tax planning! Press play to learn what you can expect next year.
Short Video Recap: https://youtu.be/wFzuPLnT9qc
Even though you may have heard plenty about Biden’s tax plan, it still isn’t the law--yet. As of May 2021, there has been no bill signed. This much-discussed tax plan still needs to make its way through Congress. There may be changes that take place in the way the plan is structured as part of the negotiation process. Although it hasn’t passed yet, it is still a good idea to learn as much as you can about the proposed tax law so that you can get a jump start on your future tax planning.
If your annual income level is at or below $400,000 there are many tax planning opportunities that come with the proposed tax law. The most notable change to the current tax plan is in the child tax credit. This tax credit will rise from $2000 per child to $3000. Additionally, for children under the age of 5, the child tax credit will be even higher--$3600. You may even see your tax credit hit your account early starting in July of 2021. Learn what you should be watching out for as Grayson Blazek explains how the new child tax credit will work.
The proposed tax law could turn retirement planning on its head. Many people use a 401K as their preferred retirement savings vehicle, but with the new proposal, the tax benefits of the 401K may no longer be as attractive for high-income earners. The Roth IRA could become the preferred avenue. When the new tax plan takes effect you may want to change your retirement contribution strategy. Press play to learn why.
Even though it is important to plan ahead when it comes to taxes, you don’t want the tax tail to wag the dog. This means that you don’t want your tax planning to decide everything about your financial planning. Taxes are a big part of financial planning, but it is also important to note that they are simply an inevitable side effect of making money. Now that you know a bit more about the future of tax laws you can begin to think forward to next year and beyond to structure any big liquidation events and consider where you stand financially. Download the Biden Tax Plan Decision Tree at FinancialSymmetry.com.
Nobody likes to talk about the 2 certainties of life: death and taxes. So much so that we delay important decisions on how to deal with our assets for our heirs. On this episode, Cameron Hendricks and Grayson Blazek join in to discuss specifics on how to handle accounts and property, filing taxes and how to better prepare for passing on your estate to your loved ones. Find out how to handle all of this now to save your loved ones added stress during a difficult time.
To ensure that others are prepared for your own passing, make sure that your loved ones understand your financial life as a whole. This will make your passing a much smoother process. It is important to ensure your will is readily available and is up to date. Another way to be prepared is to have your assets properly titled. It's also important to periodically check all of your accounts’ beneficiaries to ensure that you have the right beneficiaries named and that you don’t have too many. The more information that you provide up front will really help along the way.
Taxes can be confusing enough, but doing the taxes of for the deceased is even more challenging. This is why it is so important to ensure that your loved ones have all the information that they need to prepare your final tax return during this time. Before making someone an executor of your estate it is important to talk to them and give them all of the information that they may need. This will make sure that everything transitions as smoothly as possible. If you are the executor of the estate make sure that you know where all of these income sources are. The more information that you provide up front will really help along the way.
Preparing taxes for the deceased isn’t as complicated as you may think. A person that has passed is called the decedent. Whether you are the surviving spouse or the child of a parent that has recently passed someone will need to work through a couple of tax returns for the decedent. You will have to fill out the final 1040. It is similar to every other tax return that you have filled out. You can continue to file as married filing jointly if you don’t remarry within the year and you will include any income received. The second form you may encounter is the estate income tax return. The last tax form you may need is the gift tax return. Listen to this episode to hear Cameron Hendricks and Grayson Blazek provide their expertise on preparing taxes for the deceased.
There is a myth that people think everything is going to be taxed upon death, but that is untrue. Life insurance is not taxed and 401K’s and IRA’s will not be taxed in the way you think. When passing wealth to your heirs think about whether they are ready to be heirs. You can set up a testamentary trust and create rules around the trust to prepare your heirs for receiving an inheritance. You want to make sure to have an estate plan. The default estate plan will certainly not be what you actually want. Remember, you won’t be around to clarify your wishes so make sure you clearly state your intentions.
You may have seen more news stories mentioning Opportunity Zones of late, but there are still plenty of questions surrounding this part of the latest tax reform. Today we're discussing the ins and outs of investing in Opportunity Zones to help you understand how, in the right circumstances, they could help you save thousands on your taxes. We’ll discuss what opportunity zones are, why they were created, what the tax benefits are and how to spot the risks involved when investing in opportunity zones.
The new tax law was created to spur economic investment in low-income areas throughout the U.S. by providing individual investors with tax incentives for investing in impoverished communities. The low-income areas are called opportunity zones and are identified by governors of each state. Although it was rolled out in 2017 it wasn’t until recently that the IRS updated investors on how the program is actually going to work. This program is geared toward long-term private investors with a high net worth. There are 3 benefits to the tax side of this law: tax deferral, tax reduction, and tax elimination for an investment held for more than 10 years. The primary purpose of the reform is to help economically distressed communities and in turn, it can help you save thousands in taxes. Find out how by listening to this episode of Financial Symmetry.
Under the new tax reform law, you can defer capital gain tax from the sale of real estate, a business, or stock. You can also reduce your taxes on something you recently sold and even completely eliminate taxes by reinvesting.
Here’s an example:
You sell something and earn a million in capital gain. Normally you would pay $240,000 in taxes on that capital gain. Now with the opportunity zones if you reinvest your capital gains into a qualified opportunity zone fund within 180 days you get to defer the capital gain tax on the million dollar sale. So instead of paying those $240,000 in taxes in 2019, you won’t have to pay that until 2026. Then in 2026 if you continue to hold that investment in the opportunity zone then you only pay tax on $850,000 of the million dollar original capital gain. So you’ll save about $36,000 there. But the biggest benefit overall for the program is that if you put that money into a new investment for 10 years or more you’ll pay no capital gains tax on the original investment.
To invest in opportunity zones and save on capital gains taxes you can invest in a qualified opportunity fund. A qualified opportunity fund is a corporation or partnership that is created for the purpose of investing in qualified opportunity zone property and holds at least 90% of its assets in qualified opportunity zones. The typical investment options are real estate, such as multi-unit apartment buildings, or a business located in a qualified opportunity zone.
You have to spend 100% of the purchase price in the first 30 months. So if you purchase a property for $800,000 then you have to spend another $800,000 within 30 months. The idea is that you are substantially improving the property for the amount that it is valued at. If you buy a business the same rules apply. You have to improve it somehow for that purchase amount. Remember, this is not an investment in the stock market, there is a higher degree of research involved.
There are different risks involved in taking advantage of the new tax reform law. As with all investing situations, attention to detail is key. Here are some of the risks with this type of investment.
Many people don’t take advantage of things because they don’t know about it. We’re here to give you ideas and strategies that you may not be aware of. The overall goal of the new tax law is a great cause but the investment options are still pretty new. This was just an overview of rules and regulations, so do your own research. Don’t let taxes decide your investment decisions. Remember a bad investment is still a bad investment no matter what the tax benefits are.
As the holidays near, visions of new tax savings dance in our heads. But knowing how to spot them is what really matters. With all the new tax law changes, Will Holt joins us again to guide you through seven tax opportunities you can take advantage of before year-end. Some of these tips can save you thousands of dollars, so listen in to see how you they may benefit your personal situation.
1. Tax Harvesting (Loss or Gain) – This hasn’t changed with the new tax law, but depending on your tax bracket, that percentage of tax you pay may have. If you’re facing a significant amount of capital gains or expect large capital gain distributions, with the rough October performance, you may want to consider tax loss harvesting. This allows you to offset some of those gains and even go a step further, by using $3,000 of net losses against your income. It may seem counterintuitive to sell at a loss, but it could be an opportunity to offset high taxes. If you are in the new 12% federal tax bracket and lower, realizing more gains could be an opportunity instead, as these could be realized at 0%. But knowing your tax rate and all expected income is required. Discuss with a professional to know for sure.
2. Max Retirement Contributions – Understanding how close you are to the max of your retirement accounts, could present extra tax-advantaged savings at the end of the year. Maxing your 401K contribution is the first place to check. If you get a big year-end bonus, this could be a good trigger. Don’t forget your HSA, as this account provides a triple threat of tax savings (tax deduction, tax deferral, tax-free withdrawals).
3. Convert a Roth IRA? – Doing a Roth conversion can help you stay in your tax bracket by moving an IRA into a Roth. With the new lower tax rates, this could be an opportunity to lower the inevitable tax you were going to pay on this savings. Additionally, you will be taking money out of a tax-deferred account and moving it into a tax-free account. This is a good option for early retirees with large taxable accounts. But you’ll need to be more precise going forward, as the opportunity to recharacterize if you overshoot is gone.
4. Bunching Charitable Contributions – The new tax law has increased the standard deduction for individuals to $12,000 and for married couples from $12,000 to $24,000. This means around 90% of people will now be taking the standard deduction according to the Tax Policy Center. If you forecast your itemized deductions could be higher than the standard amount, consider bunching your charitable contributions into 2-year bundles. One way to do that is by using a bunching tool called a donor-advised fund. The donor-advised fund allows for more flexibility in taking the deduction now, but still allowing for spreading contributions throughout the year. For more information about donor-advised funds, refer to episode 59 for more details.
5. Look at a Qualified Charitable Distribution Early in the Year – One of the opportunities, that hasn’t changed but is getting more attention, is the QCD or qualified charitable distribution. To enjoy this opportunity you are required to be age 70.5 and older as you can designate a portion of your required annual distribution directly to a charity. This takes some precision and should be targeted for earlier in the year when the RMD still needs to be taken as it must come directly out of an IRA and go directly to the charity of your choice.
6. 20% Deduction for Qualified Business Income – If you are a small business owner or entrepreneur the qualified business income deduction will be of interest. What’s come to be called the QBI deduction, or 199A deduction, is used for any business that is not a C corporation. If you have self-employed income or are an S Corporation, you can receive a deduction of 20% on your profit. However, there are income limitations. After you listen to this tip you’ll want to sit down with your tax professional and plan your taxes. We wrote a more detailed article on potential savings with QBI here.
7. Watch the Tax Torpedos – To truly understand your own tax planning, you have to watch specific income thresholds. We refer to these as tax torpedos. For example, if receiving a premium tax credit for health insurance, you could lose your entire subsidy if you surpass the income limitations by even $1. These are set according to the amount of family members (up to 4). A great example of why tax planning matters throughout the year as well. We discuss other important income thresholds dealing with the medicare premium surcharges, child tax credit cutoffs, and roth IRA limits.
As you prepare for the holiday season, make sure you take a second look at your tax planning. By watching out for these financial opportunities, you could end up saving yourself thousands of dollars in taxes. It’s important to have a multi-year tax strategy and always consider the big picture, not just what is happening now. Being financially smart means considering all aspects of your financial life. This time of year, that begins with looking for ways take advantage of new tax laws for your personal situation.
If you're a mid-career professional, life is full of demands. You've worked incredibly hard to get here. You're sandwiched between young kids and aging parents. Your job is challenging and life is busy. Be it a technology company, medical practice or your own small business, stress comes with the territory during this season of life. This is fertile ground for growing a financial mid-life crisis. With all that's going on, it’s hard to know if you are making the right financial choices, because you don't have time to stop and focus on the financial considerations of the moment. Understanding this, we've compiled a list of the 8 most important wealth builders for all of you hard-working mid-career professionals.
As income increases to it's highest point in life so far, higher spending follows suit during these years. Deciding how much to save brings new challenges as bigger questions come in to focus. Things like when you really want to retire, changing careers, buying a bigger home for kids, or just remodeling your current home. When entertaining life-changing transitions, taking inventory is the first step. Where have you saved to this point? How will a major life change impact the long-term picture. Weighing alternative lifestyles are ripe with complexity that only becomes clear when comparing planning customized scenarios.
Everyone loves finding more tax savings. The best way to ensure you don’t have unwelcome surprises come tax day is to dissect your tax planning at the end of each year. Many tax saving opportunities are left on the table when other priorities dominate your time. Longer work hours, traveling, and shuttling kids to events take all our attention in our 40s. Without proper attention, you never know when potential tax savings are missed.
When starting out, how much you are saving matters much more than the returns you can earn on those savings. But upon reaching mid-career higher earnings, your investment returns could become larger than the actual annual savings. At this point, your asset allocation moves front and center. Choosing how to divide your investments could pay off if busy lives don’t get in the way. Even an increase of 1.5%/year has a huge impact over time. As with many other things in personal finance, building wealth should be boring with little things adding up in a surprising way over time.
When the mid-career attention is divided, important items get ignored. Several of these include life, disability and health insurance for your family. We all know insurance can be expensive, but not having the right kind of insurance when you need it can be detrimental. Many people set up their beneficiaries when they first set up their accounts and then forget to ever update it. Part of your estate planning is choosing a guardian for your children and ensuring that the right people are the beneficiaries of your estate. Working with a professional can assure your estate is in order regardless of any eventuality.
As we approach year end, we now have the first major tax overhaul in over 30 years, which became effective January 1, 2018. As financial planners, we are focusing a great deal of our attention on the changes that are coming and how they are going to affect each of our clients in the coming years. The reform creates new opportunities for some, and closes the door on others. So, what are the major changes that are coming and how do they affect you? Join us in this episode as we discuss the biggest likely impacts that will influence your personal situation.
Some of the biggest changes are in these areas:
Read more detail in the show notes here: https://wp.me/p6NrVS-2UU
You likely would rather think about ANYTHING other than their taxes. And even though you want more tax savings, you rarely follow through with proper tax planning. Most people don’t realize the large amount of tax savings they could have by making a few simple tweaks. Instead they operate under the “penny wise, pound foolish” mantra. Missing substantial savings to save the cost of a professional. By performing professional tax planning towards the end of the year, there is often thousands in tax savings available. You can read more about our 10 tips to help you save more when filing your taxes this year.
I’m not sure about you, but we haven’t met many people that wouldn’t love to lower their tax payments.
As we move in to the heart of tax season, do you find yourself wondering every year around this time, what other opportunities you may be missing?
Millions of people who file their tax return themselves overlook tax opportunities each year that could save them extra money in April but they hesitate to pay to have a professional prepare them. The hidden secret is that tax planning should be done year round. So we put together a list of a few things we see most often missed on tax returns.
One of the easier ways of avoiding tax now, is to save the maximum amount in all your tax-deferred accounts (401k/403b). Many have a tough time reaching the maximum savings limit ($18k per person in 2016). This often brings the focus back to your cash flow as overspending keeps many from hitting the maximum amount. Those over age 50 have an extra benefit where they can save $6,000 more each year until they stop working.
This is an excellent retirement account that offers a triple tax saving opportunity. Problem is many aren’t taking advantage of it. If you have a high-deductible health insurance plan, you have an opportunity to sock away savings tax-free, that can grow tax-free and then be withdrawn tax-free.
High income earners still have a way to make Roth contributions. It just takes a few extra steps and involves some monitoring to do it successfully. If you already have nondeductible IRA contributions, this is a great opportunity to get these contributions in to a Roth IRA, assuming you don’t have a larger deductible portion already built up (consider the pro rata rule in this case). Don’t forget to fill out form 8606 to keep an accurate record of your nondeductible IRA contributions.
If you have large capital gains from appreciated stock, it may benefit you to donate these shares instead of making cash charitable contributions. Another opportunity for those who are over age 70 ½, is to make a Qualified IRA Charitable Distribution which also qualifies as Required Minimum Distribution. This benefits you by not increasing Adjusted Gross Income on your tax return which in turn helps with medical expense deductions, social security taxation and Medicare rates to name a few.
Some of the more common we see left off of Schedule A are car taxes, investment fees, and charitable donations. Go through your potential itemized deductions. Look at the prior year return for some guidance. Also, if you made a 2014 estimated payment to the state in January of this year and/or owed when you filed your 2014 state tax return then you can add those payments as a federal tax deduction on this year’s return.
If in a low bracket, you may want to delay deductions and accelerate income instead. When your AGI ends up in the 15% tax bracket, capital gains are taxed at 0%. So realizing gains could be beneficial here.
High tax bracket earners have an opposite focus as they are looking to reduce income. Word of warning: watch the Medicare Surcharge (3.8%) on income over $200k for individuals and $250k for joint filers. If you find yourself in this area, you may want to look for ways to delay income depending on the control you have in your income.
Many retirees who no longer have an employer continued health plan and haven’t yet reached 65 now have a new option – buying medical insurance through the health insurance marketplace. Depending on the tax diversification in your investment accounts, some early retirees are receiving premium tax credits. But be careful, if receiving the credit and your income rises above 400% of the Federal Poverty Level for the number of people in your household, you could lose all the credit.
In this situation, managing tax brackets become vital. But to do so, you need to have saved in accounts with tax flexibility. Tara Signal Benard summarized a breakdown of this strategy in a New York Times article titled, “Devising a Tax Strategy After the Paycheck Is No More.”
If you feel a bit lost after reading these examples then look to hire a professional. Tax return for families can range from $300 to $500 depending on your situation. Could be money well spent if they find tax savings you overlooked.
When digging in to the numbers CNBC found the more you make the more interesting IRS auditors find you. The IRS begins to get more interested in those earning more than $200k. According to turbotax – only 1 percent earning less than that are audited. If you are over the $200k threshold, then 4% of your group will be audited. It’s not until you begin earning more than a million, to where 12.5% get an audit notification letter.
If you feel like you would like a second look, we’d encourage you to find a fee-only financial planner who has knowledge in the tax planning area. It’s very likely it could be worth it.