Finishing Strong: Smart Year-End Tax Moves

[00:00:00] Adam Werner: Hi everyone, and welcome to AB Conversations, where we will help you CFP your way out of it. A podcast where you get into the minds of a couple certified financial planners on how we think and feel about everyday financial planning questions, and what should really matter most to you. A healthier financial life starts now. 

[00:00:28] Ben Haas: So as we kind of speed along here towards the end of the year we thought it'd be a great opportunity today to kind of peel back the curtain a little bit. There's, I'd say this is probably one of our busier times of the year. And that's really just based on the calendar, as it is for taxes. I know tax season feels like the first quarter of every year because that's when you gotta get things done. 

But everything that shows up on a tax form that you and I are coaching our clients through, those transactions, those things, those decisions have to occur before December 31st. So, let's just jump in, man. There's a lot that goes on behind the scenes. A lot of it needs to be proactive. Even if it's small moves, we know they can be big. 

Let's just go through the different areas where we're kind of helping our clients think proactively knowing all these things are gonna show up on their 1099s in various other forms in Q1. 

[00:01:21] Adam Werner: Yeah. Yeah. One of the first ones that kind of we is on our radar to get as we get closer to the end of the year, is just a general gain and loss review for our non-retirement investment accounts. 

Right? What, do we have any losses that we would want to take, right, to help offset other income or have help offset other gains? You know, are there other investment changes we would wanna make from a tax perspective? Just again, the idea there being we have maybe some runway before the calendar year is over. 

Are there any other maneuvers that we would make that could either, again, reduce your income, right? Are there losses that we have to take, but for us, again, peeling back the curtain. We did some of this analysis already. It's been a very good run in the markets these last few years. 

So the opportunities for tax loss harvesting aren't as numerous as they may have been going back to like 2022 was a great year for tax loss harvesting because of how bad investment returns were. So that's probably a much smaller opportunity this year than in years past. But, sometimes if it is just a specific stock investment, right? If people are investing outside of us and have, you know, say their own quote unquote play accounts with, you know, some individual stocks, those could have opportunities in, very small pockets to be able to take advantage of that. 

[00:02:47] Ben Haas: Yeah, and I think that's where this gets a little time consuming, 'cause yeah, we can, with a broad brush, look at kind of all the investments that are underneath our purview, but how many different client situations do we have where maybe they had a big carry loss forward in prior years and now, okay, now's the opportunity to gobble it up. 

Maybe we know there are, may be future transactions that are gonna be coming for them based on their planning situation. So now, okay, is now the time to do it? Should we be doing it another time? Are there funds that we were looking to replace anyway, you know, this is where you and I, it's funny, we had a little bit of this conversation on Tuesday. 

You know, mapping out our end of the year, we could go, all right, I think we're covered here. And then two days later, you and I are talking about replacing a bond fund and we're like, well, crap, let's go back and reevaluate all of that. So a lot of give and take, but a lot of individual review goes into this too, for sure. 

[00:03:38] Adam Werner: Yeah. And one, one other thing beyond just, I'll say the bigger picture. Do I have investments that are to gain in the loss? And would I wanna do something different? Are those pesky little capital gains distributions? Typically these are going to happen from mutual funds. Yeah. ETFs can certainly kick them off as well, but they, by their nature, they're just more tax efficient. 

It's just less likely for your ETF investments to kick off these taxable distributions in a non-retirement account that you can't control. If you own the fund, you're going to get this income passed to you whether it's reinvested, or you receive it, it's going to show up on your 1099 like you said earlier. 

So those fund companies start to put out their estimates on what they think those distributions may look like. And typically most of those happen in December. But we're starting to compile some of that information now. And because it has been a good few years in the markets, there are some funds that have some outsized gains that are going to kick off double digit percentage, capital gains distribution. So just to quantify that, if you have a hundred thousand in a particular fund and it's gonna pay a 10% capital gain distribution, that's $10,000 of income that you're gonna show on your tax return. Again, whether you receive those funds or not, you're gonna be paying the taxes on. 

[00:04:57] Ben Haas: Yeah. And that's why being proactive about this is so important. So I think to put a little bow on this part of it. As we've shared, we are doing a lot of this work, right? That's our responsibility within your plan to kind of digest the magnitude of it doesn't matter or doesn't it, but this is why you may get a message from us closer to the end of the year that's, hey, we may need a little bit more data from you, whether it's, Hey, we want to use our tools and see what kind of tax impact this is gonna have what, you know, show us a pay stub, or if you've got outside accounts, let's see what kind of income distribution happened over there. So holistically, we can put this together for you. 

So it's to make you aware of not only what's going on behind the scenes, but if we are bothering you for info at the end of the year here's why. Right? We just really want to be passionate about things. 

[00:05:44] Adam Werner: Yep. Exactly. All right, so let's go to the next one. 

[00:05:48] Ben Haas: Yeah. We had new legislation this year. It's not every year that you have a real big tax bill and changes in things, but under this one big, beautiful bill act legislation. The one thing we're really paying attention to within that right now is for our senior clients. Those over the age of 65, there's gonna be an additional $6,000 per person standard deduction for the next couple years. 

So that could be 12 grand, a couple. That certainly creates opportunities to maybe recognize more income for those that are in lower tax brackets. Question mark? Yeah. 

[00:06:26] Adam Werner: Yeah. Well, yeah, there's definitely that opportunity where it gets a little tricky. Love our tax code. Let's just, I'll get that out of the way for the government that's listening to this podcast, we love the tax code. 

Yeah. Sarcasm over it's needlessly complex, right? We're gonna, we're gonna give you this extra 6,000 per person over a 65 deduction, but by the way it's affected by there, there are phase out ranges. So for a single person, that phase out starts at 75,000 of income, and then you're completely phased out by 175,000. 

For a married couple filing jointly, it starts at 150 and it's completely phased out by 250,000. All of this means there, you could be in a situation where with this extra deduction, like you said, maybe there's opportunity to realize some more income in this given year and not have that trigger additional taxes. 

But it becomes a bit of a balancing act depending on that person's other income sources that if you did a, which we'll talk about some of the strategic timing of income, right? A Roth conversion or do I take out, just take a bigger withdrawal from my IRA to help knowing that I'm gonna have maybe this additional deduction that can kind of offset things or just other spending that you may want to have happen. 

There is this area where you could trigger more income and now push yourself into that phase out. And now you're not getting, inadvertently getting the full. Yeah. Or, and either not getting the full value of the 6,000 per person or if somebody just has just generally higher income, they may not even be eligible for that additional deduction in the first place. 

So it's a kind of a tricky balancing act to make sure you're taking advantage of it, but not triggering, maybe too much income where you lose too much of that added bonus. 

[00:08:11] Ben Haas: Right. So in the same theme as the, you know, talking about gains and losses, totally our job, right, to think about your situation, be aware of your situation, try to be projecting accurately where you kind of fall, so that we can then give good recommendation on, yeah, maybe it makes sense to take a little bit more, or maybe it doesn't, but this is where, we really need our clients to be in good communication with us, right? That person that we didn't know has stockpiled a lot of cash at the bank that was now paying them 4% interest, and now, yeah, there's more income than we knew it was coming, or, Hey, unfortunately my uncle passed away. I got this 20 grand. 

Didn't know it was all ordinary income from a retirement account, but I took the lump sum. Okay, now we didn't have all the info we needed to really do a good job thinking holistically for you. So it just goes back to these changes in legislation. We want to be really thoughtful about being efficient for you. 

Does it matter for you, doesn't it? We're gonna review that, but it really helps us when you can confirm what came to you this year. Is it different than last year? What may have changed, what didn't? 

[00:09:18] Adam Werner: Yeah, which dovetails kind of right into the next, our next kind of topic, and that is just the idea of just being strategic with your income timing, right? 

Yeah. Or income planning. Right? So that extra deduction certainly starts that conversation for a lot of people this year that maybe didn't have that much kind of wiggle room in the past, but it's, the idea that we just want to take advantage if somebody's in a lower tax bracket, lower being relative for everybody, but we wouldn't, we would want to try to maximize the impact of those lower tax brackets. So if there is the opportunity to convert money from an IRA to a Roth IRA and still stay within a reasonable tax bracket, then we certainly would encourage that, but we would want to talk through what that impact looks like. Again, with that extra deduction, are we having some unintended consequences by, you know, losing some of that added bonus? 

So it's, sometimes it is. We talked about this earlier. Maybe it is just, hey, I know I'm gonna need some additional cash flow for next year. 

[00:10:20] Ben Haas: Yeah. 

[00:10:21] Adam Werner: Maybe I take my withdrawal this year because that's going to make sense from a tax standpoint. And then just, you know, have that cash kind of set aside knowing I'm gonna need it at some point next year anyway. 

So just some of those ideas of does it make sense to kick the can down the road on some of this income? Or does it make sense to maybe accelerate some of that into a year where maybe I don't have as much other taxable income and based on my bracket, it makes sense to try to take more advantage of that. 

[00:10:48] Ben Haas: Yeah, and I'm gonna, I'm gonna point out another subgroup of people that we work for that are out there that the whole idea of being forced to take distributions at a certain age from their IRA, that shifted a lot these last couple years with legislation. What used to be, I have to do that by the time I'm 70 and a half. 

72, 73. There's been different ages. That's confusing in itself. But now we get this new legislation that says, Hey, if you're over 65, this is an added deduction that you have, but only for the next three years. Four years. Yeah. 

[00:11:21] Adam Werner: I guess it's four years total. 

[00:11:23] Ben Haas: Four year tax. Four tax years. Yeah. So yeah. Now let's talk about that. 

If you haven't needed to take money from that, but we know you're gonna need to in the next couple years. This could be a great opportunity. Again, we gotta run projections, but let's be strategic and efficient and use that extra deduction that you have, if that's gonna save you from having even more taken out once you reach that magical age. 

[00:11:47] Adam Werner: Yeah. And going back to something you had said earlier, that's where it's, so important for us to have as many pieces of the tax puzzle, or at least the income puzzle from a client perspective, so that, yeah, I mean, we, can work in a vacuum over a very short period of time, but knowing what's to come over a, you know, maybe 2, 3, 4, 5 year period gives us the power to kind of pick and choose or just plan out, maybe some more of that tax efficiency. Just the more pieces of the puzzle we have, I think the more precise we can be with trying to take advantage of the tax code, the way it's written and try to be efficient with things moving forward. 

[00:12:28] Ben Haas: Yeah. Well said. Couple, I mean, there are two or three other things that I think we could hit on just real quickly. Yeah. On that front, if you are in that age where distributions have to be taken, let's make sure we check that box. Whether that's your IRA or whether you inherited an IRA or you have a Roth IRA that you inherited. 

Yeah. There are rules around distribution and again, we try, we do the best that we can with those things that we can see in our system that we control that we're advisor of record. Call it whatever you want. There needs to be good communication on those things that aren't within our purview. And if we know about them, we'll double check with you, but it's really good because the penalties for not doing what you were supposed to do by December 31st are pretty substantial. 

Yeah. Let's just make sure we check that box. 

[00:13:15] Adam Werner: Yep. Yeah. And another thing that we'll be doing, peel back the curtain again. We'll be doing in the next month or so before the end of the year, and we've been doing this last couple of years, for those people that either have an RMD, or are just taking, you know, systematic withdrawals or we've had a conversation that is, Hey, I have this big project next year I'm gonna need X amount of dollars. 

Part of our job is to make sure that we have enough cash on hand within somebody's account that we don't know where the markets are gonna go next year. We know we've had quite a good run these last few years. These you know, bull markets. They say bull markets don't die of old age. Right? There usually is a catalyst that causes some sort of pullback, but again, we've been on quite a run. 

It would not surprise us to see some additional volatility. Maybe we see the market take a bit of a breather. Yeah. We just wouldn't want somebody to put themselves in the spot. And we certainly wanna put, wouldn't wanna put them in a spot where now they need access to some of their investments and the market's down and now we're feeling like we're just selling things at an inopportune time. 

So part of our process will be to look at all of our accounts and see who's taking money regularly and what do those RMDs look like, and generate that cash now, while the markets are still in really good on really good footing. 

We're still near all time highs, even with some recent, you know, kind of jostling in the market, a little bit of a pullback. It's the prudent thing to do in our mind. Just make sure that somebody has six months. We often like to err on the side of, if we can basically cover all of 2026, and it really doesn't matter what happens in the markets, it should not affect their withdrawal need, right. 

Their cash flow side of things. So just another thing that we're kind of doing behind the scenes, just to further insulate ourselves from market impacts. 

[00:14:58] Ben Haas: It sure sounds like a lot, doesn't it? 

[00:15:01] Adam Werner: It can be. 

[00:15:02] Ben Haas: I started by saying I know that we have our hands full. We try to be proactive. I hope the takeaway here is, you know, especially for the people that work with us that are listening to this, first of all, thank you. 

Let's just, it's all about good communication, right? All that we ask of you is, you know, don't feel bad reaching out to us if there's things changing in your life, if that's income, health, you know, other investments, we certainly want to know those things so that as we go through this year end planning on your behalf, whether we're talking about it or whether we're doing that behind the scenes for you. 

It's a partnership, right? We wanna do the analysis, but we need your context to kind of make sure that the puzzle that we're trying to put together is not missing major pieces. 

[00:15:41] Adam Werner: Yeah. Yeah. What's the saying? It's like, different context, but the idea of, okay, I've been saving for something so long. 

I'm climbing up this ladder only to find out when I get to the top of the ladder, it was leaning up against the wrong wall the whole time. 

[00:15:55] Ben Haas: Right, right. Hopefully not that dramatic here, but, yeah, it's not just about saving taxes, right. Let's, we just, we wanna be intentional. So if we haven't chatted in a bit because things feel fine, that's great. 

We can certainly use the end of the year here to make sure we're just touching base too, so. 

[00:16:13] Adam Werner: Yeah. Yep. 

[00:16:14] Ben Haas: Lean on us. Thank you, sir. As always. Till next time. 

[00:16:17] Adam Werner: Thank you. 

[00:16:18] Ben Haas: Bye. 

[00:16:19] Adam Werner: Bye. 

[00:16:25] Ben Haas: Hey everyone, Adam and I really appreciate you tuning in. Please note that the opinions we voiced in the show are for general information only, and are not intended to provide specific recommendations for any individual. To determine which strategies or investments may be most appropriate for you, consult with your attorney, your accountant, and financial advisor, or tax advisor prior to making any decisions or investing. Thanks for listening. 

Investment Advice offered through Great Valley Advisor Group, a Registered Investment Advisor. Great Valley Advisor Group and Haas Financial Investment Advice offered through Great Valley Advisor Group, a Registered Investment Advisor. Great Valley Advisor Group and Haas Financial Group are separate entities. This is not intended to be used as tax or legal advice. Please consult a tax or legal professional for specific information and advice.  are separate entities. This is not intended to be used as tax or legal advice. Please consult a tax or legal professional for specific information and advice. 

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