More Knowledge, More Wealth - Ep. 161: Tax Planning Opportunities

RAW VIDEO More Knowledge More Weatlh - 161

[00:00:00] gabe: Good day. This is Gabriel Shahin, Certified Financial Planner and your host of More Knowledge, More Wealth here on every weekend, talking about all important topics of personal finance. My goal is to give you the knowledge you need to increase your wealth, not to the listener. You can always reach out to myself or any one of our colleagues here at Falcon Wealth Planning.

[00:00:17] Our phone number is (855) 963-2526. That's 8 5 5 96 Falcon like the Bird, or visit our website@falconwealthplanning.com. That's falcon wp.com for short. Now I'm a principal of Falcon Wealth Planning. We are fee only, not fee based folks, but a fee only independent registered investment. All right. We do investment management as well, but we specialize in everything that involves a dollar sign.

[00:00:47] Folks, that's comprehensive financial planning. It can be something as simple as what's coming in, what's going out, when to retire, how much you need to have, where do you save it? When to take social security pension, lump sum, you name it, folks. Anything that involves a dollar sign in our specialty is tax planning.

[00:01:02] Sure. Investment planning as well. Making sure you're avoiding those high fees, high cost, high commissions, Estate planning, insurance. Like we said, you get the point, right? Anything that involves a. sign. So what does this mean? What are we discussing today? Well, what we're discussing is gonna be some tax planning opportunities.

[00:01:19] Now there's always tax planning opportunities really throughout the whole year, but at the end of the year, you get a sense of how your year has gone. Now, you don't wanna self-reflect at the end of the year, or excuse me, at the beginning of the next year, right? Cause you meet with your account. in next year around January, February, March or April for last year.

[00:01:41] But the problem is the planning needs to be done before the year is over. A lot of these tax planning techniques has to be done at the end of the year, folks. Now, essentially q4 let's discuss is when you should be meeting with the accountant. And it's not just a meeting for meetings, right? It's not just a meeting to have a meeting, but it's a conversation about what have you done today?

[00:02:01] What are your goals today, and what does tomorrow look. That's a whole lot of conversation, right? What does that mean? By the way, folks, if you need help with this, if you wanna relate this show to your situation, if you're looking for some tax planning, if you're looking at ways to, to legally saving in taxes or to help with your finances, give us a call.

[00:02:18] Folks, we can help all throughout the country. Our phone number is eight five five nine six. 25, 26. That's 8 55 96 Falcon like the bird. We'd be happy to put together personal, confidential, have a conversation to put an assessment together to help in your situation. Because here's the thing, We've seen this that people are not meeting with their tax professionals right now.

[00:02:42] You probably meet with your tax professional once or twice a year, and that's fine. That's great, but that is a tax. Very similar to what you can get through a Turbo Tax, if you will. Now, I understand some people's situations are complicated and I respect that, but just because an accountant does your tax, it doesn't mean they're liable for it.

[00:02:58] You're not delegating out that liability. No. You're still liable for everything that you supplied, so it's up to you. It's not like saying, Oh, I have an accountant, so it's not my problem. It's. No, no, no. It doesn't work that way. You still have to prove everything. The fact that your accountant wrote it off doesn't mean that you are off the hook.

[00:03:18] They signed something saying hopefully they sign it, a third party designee where they can talk to the IRS or your state, uh, tax agencies on your. , but the problem is they don't know enough about you. Most of these people, sadly I've seen this, it's kind of crazy actually. They do the taxes right in front of you at the same time.

[00:03:39] That's kind of insane. If you think about. Especially when you look at needing a fresh pair of eyes, being able to analyze everything, not data entering everything. Sadly, I see more times than not accountants are data enterers. And listen, I respect the position. I really do. I mean, we do tax planning here at Falcon Wealth Planning and Falcon Techs, which is an entity of Falcon Wealth.

[00:04:00] So, but what I'm discussing is certain situations need to have planning for next year, and it could be as something as simple as this, does your accountant know you're retiring? Does your accountant know you're planning to sell a business or a property next year? Does your, uh, tax professional know that your business might be slowing down?

[00:04:22] You might be exiting out, You might be switching jobs, You might be making a big charitable deduction. Contribution, commitment. Do we know your situation right now on your, how much you have in your retirement accounts, your investments, your assets? How much are in brokerage accounts, how much are in Roth?

[00:04:40] Because if the answer is they don't know, and by the way, it's very tough for them to know that's not a tax planning. It is so important to understand those key concepts cuz there could be a lot of opportunity and strategy available for you. , and what do I mean by that? It could be something as simple as pre-funding charity.

[00:04:58] It could be something as doing deductions this year versus next year. It could be something as simple as maybe prepaying, especially if you're in a cash basis. Accounting, it could be as something as simple as doing, buying that. Uh, uh, automobile , uh, this year versus next year. Or on the contrary, it could be buying it next year versus this year for two reasons, because there are still bonus depreciation that's available to you, but then you might be able to get tax credits of assuming it's a, maybe an electric vehicle.

[00:05:28] These are in depth conversations that I know you're. Which is why we're offering a free financial assessment. Folks, you can divulge everything. Now, here's the thing, you don't know what to offer. You have to be asked questions. There needs to be a tight process to guide you through the right questions to answer.

[00:05:46] Now we know those questions to ask. Your job is to answer. And if you're not getting that help right now, especially towards the end of the year, this could be for a business owner or non-business owner, Whoever give us a call, we're happy to help. Our phone number is (855) 963-2526. That's 8 5 5 96 Falcon like the Bird, or visit our website@falconwealthplanning.com.

[00:06:12] That's Falcon WP dot. For sure. By the way, folks, so if you're just joining me, you're listening to Gabriel Shahin, certified financial planner, and you're host of more knowledge, more wealthier on every weekend, talking about all important topics of personal finance. And I want to discuss with you the importance of tax planning.

[00:06:29] And I had a client, this was last year, he reached out saying, You know what I, And the issue is he didn't reach out and the issue is he spoke to an accountant. Now the issue is they really didn't divulge, they asked this specific. Okay. This is why it's important to always discuss with your financial advisor in addition to your accountant, and that was, I'm looking to sell one of my stocks for a very large, Something as simple as that.

[00:06:56] Now, by doing that, you have to pay capital gains taxes. So the question was just simply, can I rebuy the same stock right after? How long do I have to wait? The answer is, there's something called a wash sale, and you have to wait 30 plus days. Okay, now this is on a loss. It's a wash sale loss on a gain. If you're realizing gain, there is no waiting period.

[00:07:17] So there was a situation where they didn't rebuy it. The stock continued to go up. Now, then they bought it as a high, and then what happened? In 2022, the market started crashing. So they missed up on the upside and only captured the downside folks. And this was a sad situation. But sadly, I see this time and time again.

[00:07:35] People are not talking to discussing with a tax professional. The tax professional doesn't need to be a CPA enrolled agent or even a tax prepared. It's someone who does tax planning folks here at Falcon Wealth Planning. That is what we do and that is why we're offering our services. So if you have any questions on that, feel free to give us a call or visit our.

[00:07:55] as I discussed earlier. That's 8 5 5 9 6 3 25 26. That's 8 55 96. Falcon like the bird. Now, understanding what strategies are available to you could be important. Now, I heard something today from a financial professional that I greatly respect, by the way, and they said that the goal of tax loss harvesting, and I'll discuss what that is in a.

[00:08:19] Is to reduce taxes for current year. Current year is what they said to reduce taxes for current year. Now, there is some truth to that, but that's not the full reality of it. That comment is made by somebody who's not a tax planner. It's designed for somebody who just thinks they understand the true meaning of tax.

[00:08:41] Harvesting, but that's not how it goes. Tax sales harvesting is capturing a loss in your portfolio like now and buying something similar right away. Now you can't buy the same thing if you do. That's called a wash sale. So if you buy an s and p 500 fund at Fidelity, you can't repurchase that same one. You have to buy something different.

[00:09:01] So like a similar s and p 500 fund in Vanguard for. Now by not doing that, you are leaving money on the table, and I'll explain why. So if you had a hundred thousand dollars this year, and let's say dropped to, let's say a 10% drop, dropped to 10,000. Okay? So a hundred thousand dollars investment. At a 10% loss, Jo lost $10,000.

[00:09:24] So now your a hundred thousand is only worth 90,000. Now if you sell and rebuy something similar, you've just captured a 10,000. Now what other tax professionals are suggesting is that you can offset those losses against gains on something else in your portfolio. Okay? That is true. Okay. There are other things that you could have invested in that made money.

[00:09:46] You could sell those and offset it with the losses. But that's not the benefit of the strategy folks. All you're doing is you're bringing it net neutral, tax neutral, and you're reducing, All you're doing is reducing your tax basis from the investment you made money on, and then the investment you lost money on.

[00:10:07] You're actually reducing that basis, so it's a net neutral. Guys, I don't understand the excitement about that. I don't understand that even the tax strategy behind that, because at the end of the day, if you had one investment that was up $10,000 and one that was down $10,000, your net neutral is zero. It was net ne neutral zero.

[00:10:25] If you did nothing anyway, I don't understand the benefit of it. The only difference is your cost base is instead of a hundred thousand is 90. It makes frankly no sense to me unless you're planning to sell that investment that you made 10,000 on. The issue that I see is investment and financial professionals are making this recommendation and are do it to client's portfolios constantly.

[00:10:48] Now, folks, this doesn't matter in a Roth ira. Why? Because you never pay taxes on a Roth. Who cares? There is no strategy cuz you avoided the tax forever and always. This doesn't matter in a tax-deferred retirement account like your 401k or 4 0 3 B 4 57, or just a regular IRA account. Why? Cuz you don't have to worry about taxes until you pull the money out.

[00:11:08] This only matters in a taxable brokerage account. Folks, that's the pay as you go account. So what I want to do, cause we're gonna take a quick break, I'm gonna discuss to you the right way to do tax hauls harvesting, cuz I do not see this often, folks. This is sad. and it's unfortunate, but it's the reality and you need to know how to do it, especially when you consider your tax situation, cuz people don't do that when they do this strategy.

[00:11:31] And there are hundreds of tax strategies that are out there. And if you need help with them, we don't have time on the show, we can help. Give us a call at (855) 963-2526. That's 8 55 96 Falcon like the bird folks, we're gonna be right back after a few.

[00:11:47] Welcome back folks. This is Gabriel Shahin, certified financial planner and your host of More Knowledge, More wealthier on every weekend, talking about all important topics of personal finance. And today we are talking about tax planning and specifically tax house harvesting. How some financial professionals out there think you should sell what you made money on, an offset it against your loss, which is a net neutral effect, which makes no sense at all.

[00:12:08] That makes sense. If you wanted to take and sell what you made as a gain, that makes all the sense of the world. But at the same time, most people are looking to continue to ress. So for majority of us that are looking to take their money and utilize it later on in life, what to do in a situation like this.

[00:12:23] So now what I'm about to tell you is the tax planning approach, which is the right way, right? You can't call something tax dollars harvesting and not take into account the tax strategic benefit of doing so. And so looking at. What you want to do is you want to carry that loss. When you have a hundred thousand, that drops 10%.

[00:12:43] Let's say that's a $10,000 loss and you sell and rebuy something similar. You don't wanna hurry up and find something to offset it with a gain in your portfolio. No, that's ridiculous. What you want to do is take that $10,000 loss and just hold. You get to write that off over time, that $10,000, you are able to write off against your ordinary income.

[00:13:05] Now you are limited to a $3,000 loss, but that $3,000 offset against whatever your ordinary income tax bracket is. The important part about that is now you did start at a hundred thousand. Now you don't start at a hundred, you start at 90. Oh. So you reduced your cost bases by 10,000, which later on you'll have to pay the taxes back on that.

[00:13:26] But as long as you hold onto your investment for over a year, the long term capital gains is at a lower tax bracket than your ordinary income. So let's go at the brackets, the 10 and 12% bracket, that a hundred thousand, or excuse me, that $10,000 loss, you get to write off 1000 to $1,200 over time. Now, when you're in the 12% bracket or under capital gains is tax that.

[00:13:49] You pay no taxes when you repay the taxes, so you're still ahead a thousand to 1200 bucks. Heck up a thousand to 1200 bucks on a hundred thousand dollars portfolio. That's like up over 1% at 1.2%. Not on your investment, but on tax savings. Let's go to the 22% bracket. If you're in 22% bracket and you take that $10,000 write off, you get $2,200 back in tax savings.

[00:14:10] When you go to repay the tax back, what do you pay? $1,500. Well, you got back 2200, so you're still ahead. 700 if you're in the 24% bracket gets a little tricky cuz there's a 3.8% Medicare tax. Long story short, still, you get $2,400 back and then you get 15% back on the sale side. Okay? If it's 3.8, then you add the 3.82 that even if you're on the top tax bracket folks.

[00:14:39] If you're under the top tax bracket, you write off that $10,000 at a 37% tax bracket. That's $3,700 in tax savings. When you go to repay it back, it could be as high as 23.8%, so let's just call it 2,400. You got back 37, you're still ahead, $1,300. The goal is not to offset it, is to take advantage of the.

[00:15:04] Benefits by understanding the tax law, capital gains taxation on long term had preferred tax treatment. I don't see people doing that for some bizarre reason. Hey, great for business for us, it's great for us that they're not doing it because our clients here are appreciating those strategies of a true tax planner, a true tax advisor.

[00:15:28] And there are so many different strategies that I've. People miss. And who are people to your person? I'm a person, but more importantly, people specific to this industry that you're going to for advice, I'll give you two. For example, one, your current accountant, your cpa, are they telling you these things?

[00:15:46] No. They're just preparing your taxes. What about your financial advisor? My financial right, and the reason I put that in quotes is they're not really your financial anything, right? Because if they were, they would've looked at your taxes and gave you recommendations based on your tax situation. That's the most important piece of financial documentation you have to your name.

[00:16:07] So how are they a financial advisor? If they're not giving you true financial advice, they're giving you investment advice that's different than full financial advice. Full financial advice is supposed to help you. Everything in regards to your dollar sign that's recommending your credit card rewards that you're taking based on how much you're spending in traveling.

[00:16:25] It can be as something as your mortgage and maybe going from a 15 to a 30 year, vice versa. Refinancing back when rates were at two and a half. This could be by putting your money into a savings account, earning two and a quarter at some of these online companies like Capital One, uh, amex, or uh, Ally Bank.

[00:16:45] This could be tax strategies that could be saving you money without you even knowing it, and I just don't see people doing that. Enough. By the way, folks, if you're just joining us, you're listening to Gabriel Shahin, certified Financial Planner and your host of More Knowledge, More Wealth here on every weekend, talking about all important topics of personal finance.

[00:17:03] And I'll give you an example I had with my mother. My mother today, we were talking tax planning and she's a realtor. She's a realtor over in Arizona, one of her clients saying, Well, if I don't get the price I want, I. Rent my house out and sell it later when the market comes up. Now, I think they were negotiating on something like five.

[00:17:22] They asked five, uh, 500 and let's just call it, uh, $75,000 was the asking price. Okay? They got an offer for $560,000. Okay? $15,000 off the price. Uh, they counter back what, 570,000 And so there's a $10,000 discrepancy. And so my comment to my mother was not for her to try to get the sale, but to help the client.

[00:17:47] Realtors aren't tax advisors or obviously accountant wasn't a tax advisor because if they were, they would've told 'em, Hey, I'm looking to sell my primary resident. Right? Then they would be getting what I'm about to say, advice from their accountant. And God forbid they did TurboTax well in a year, if you are TurboTax, great.

[00:18:06] You might be a W two employee, Do it all day long. I respect that. Okay, It makes sense. But if you have a triggering event like selling a property, primary residence, moving, selling a business, opening a business, come on guys, you can't afford to be cheap. It's gonna cost you tens of thousands, if not hundreds of thousands of dollars.

[00:18:24] I can't, I mean, it just bothers. How some people are are so cheap, and it's funny because the, you think you're saving money, but it's costing you 10 to a hundred times worth what you think you're saving. It's, it's, it's comical and I love telling people cuz I'm Chan, I like to think I'm positively changing their life when I'm telling them how much they messed up.

[00:18:44] Because you tried to say $200 by doing it on your own and it's now cost you $200,000 in. And I'll just, I mean, listen, I'm not trying to be a jerk, but part of me, like there's a smirk that comes out. I'm just like, Guys, are you serious? And let me explain in this situation what I was telling my mother, which you should tell her client.

[00:19:05] Now this person, their primary home, it's their primary home. They currently made about $400,000 on their home. And the tax all says if you're married, which this person is, they can sell their. and get tax free, $500,000 capital gain exclusion and not pay any taxes. Sell their primary home. The goal is you have to live in the home too outta the past five years, which they have.

[00:19:24] They've hold the house for 10 years. Okay, Now let's just say they decided to turn it into a rental and they want to sell it. Hey, rate interest rates are going up. What does that mean to real estate prices? They drop. Okay, so let's just say now the. , Okay. Jobs in value. They wanna wait five years until it comes back so they can get their extra $10,000 that they're negotiating.

[00:19:46] Cuz they don't want five 60, they want five 70. So now five years go by, they got their 570,000. Great. I'm happy as can be fantastic. And I was getting rental income that whole time. That tenant that I had was paying down my mortgage. Bravo. Now I have no issue with that for people that wanna hold onto the property long term, but this person specifically said they want to sell this home.

[00:20:07] Or later. So in a case like this, now they sell their home, they get their $570,000. Remember they had 400,000 in capital gains on the property, where before it was your primary resident, you lived in the house two of the past five years. Heck, I still live in it. So you could sell that home and pocket that 400,000 plus the everything else, right?

[00:20:27] You still, It's just the 400,000 was what they bought it for, to what it's worth today. So they bought. For 170,000 and selling it for 570,000 net commission. And so that 400,000 in their pocket, But if they have no mortgage on it, they pocket the whole 570,000, but the 400,000 is gain. So where am I going with this?

[00:20:47] That gain is now subject to taxation on the federal and state level. That could be 30% in taxes. Okay, so 30% in taxes now in the federal and state. on $400,000. Folks, that's $120,000 in taxes they now pay. And remember, they're trying to save that extra five to 10,000 of negotiation, but now they gotta pay $120,000 in taxes.

[00:21:13] I mean, talk to a tax professional. What the heck are you doing? And who's to say the market's gonna come back? Who's to say it's gonna come back in the timeframe you want? Who's the same? You don't come into tough times. Who's to say you can carry on two mortgage? I mean, there's just so many things wrong with that situation.

[00:21:35] If you're gonna buy high, you should sell high. If you're gonna sell your property low, go ahead and buy another property low. Don't wait for it to go lower. Who's to say it will, Especially if the property you're gonna buy is gonna be the next five to 10 years? Folks, that is a true financial planner, is understanding your full situation.

[00:21:50] Being able to accommodate accordingly by not being so tunnel focused on just the simple goal, like, No, I need to sell. I guess they were Russian. I'm not sure who I was trying to imitate there, but you get what I'm saying. Like you gotta say, Okay, I understand you wanna sell house, but the goal is to what?

[00:22:06] Make money from the house or to get rid of the house, Like, you know what I mean? The goal is to make money, understand the tax impact on that. Folks, if you need help with this, give us a call. This is what we do on a daily basis. So we are offering one to two meetings of our time, one to two hours of our time at.

[00:22:22] Cost. Folks, give us a call. Our phone number is (855) 963-2526. That's 8 5 5 96 Falcon like the Bird, or visit our website@falconwp.com. That's Falcon wealth planning.com. Folks, that was a fast, fast show. I could talk all day long. I'm very passionate about this. The goal is you need help. Everybody needs help.

[00:22:48] I need help in one way or another. Does it matter if you're a professional in this industry or. It's always important to get unbiased, unemotional point of view of your situation on what you should be doing. You're gonna retire one to two times in your life. You're gonna retire or buy a house a few times in your life.

[00:23:02] You're gonna buy cars a few times in your life. You're gonna invest a few times in your life. Well, we did 30 to 50 last month alone. Okay? And when you've been in the industry for over 18 years, you've seen a thing or two. , feel free to reach out. We're offering a free financial assessment. Our phone number's (855) 963-2526.

[00:23:24] That's 8 5 5 96. Falcon like the Bird, folks, you've been great. Have a great week, Have a great weekend, and God bless.