What You Can Do to Maximize Tax Saving

Video Transcript

The most hectic time in my house is the time after dinner’s over with right up until the kids bedtime. And usually right after dinner, my son Zach, who is the shortest of our three kids comes up to me real sweetly tugs on my arm and says, “DADA, come play trains with me.” Now Zach, as a good six year old boy, is infatuated with trains and we play trains and we play it really intensely.

And as I’m playing trains my daughter, Maggie, comes over and she starts pulling on my shoulder and she wants me to play dolls with her. Alex wants me to show me his video games and all these things. And it is really, really intense for about half an hour, or 45 minutes until it’s bedtime. Because during that time period, my kids are trying to cram in as much as humanly possible because they think once bedtime’s here, they’re not going to be able to do it all over again.

Well, to them that end of the day, that rush, that is their year-end timeframe. And in our office, although it’s not as much fun as playing with trains, the year end as we’re approaching right now, that brings us some additional rush. And there’s some planning opportunities that are available to you that stop at year end.

So for example, one of the big things we look at is from a tax planning standpoint, are there any activities that you want to have take part in 2020? Now there can be two things. There could be recognizing the additional expenses if you own your own business, or if you’re self-employed. Or it could be the deferral of income, are you trying to defer income to the next year. Or to be counter-intuitive, and this is actually is the right thing for a lot of people is do you want to increase your income for this year? And that could be in the form primarily, we’re talking about a Roth conversion. Right now, if you’re in a really low tax bracket for whatever the reason might be, in the future you may not be, maybe now is the time that you want to look at recognizing more income.

And that could be in the form of a Roth conversion. That could just be an IRA distribution, a 401k distribution. There’s all these things that you want to think about. But you have a hard stop at December 31st. Because once that new year kicks in, we can’t do Roth conversions and have them effective.

We can’t do IRA conversions or IRA distributions, and have them effective for the current year. Now, everyone kind of gets confused because they think, “Well, I’ve got until April 15th to put my IRA money away, my Roth IRA money away.” And that’s true. We can deposit money into your IRAs and your Roth IRAs all the way up until April 15th.

But as far as distributions go, if we want to recognize income, we have only until the end of the year. And these are decisions, that if you make them, will have repercussions for the rest of your life and the rest of your family’s life. Because the ability to pay taxes, the low tax rates, 10, 12, 15% versus paying them much higher in the future.

Those are big deals, and they can mean a lot of money to you and your family. So as we approach the end of the year, make sure you are thinking about the year end tax planning possibilities. Normally when people think about year-end tax planning, they think about their business owner friends, and what they do for that.

But it’s equally as important for people who are approaching or in retirement, because like I’ve said many times before, now is the only time in life for most people that they get the chance to choose when they want to recognize income. And right now income recognition may be a good thing.

So like my kids after dinner who have a rush to play with Dad as much as they can, the year end, you actually have a rush to. But I will argue, my kids are gonna get a new day the very next day. There are certain things that come at the end of the year that we can’t go back and fix.

So please take advantage of that as best that you can.

I hope you got some value out of the video we just shared with you. And if you know somebody else that could find value in this, please feel free to share it with them. If you yourself would like to talk further about this, please use the link below to book a 15 minute phone call with our office. Thanks.