These Tax Mistakes Are Robbing Your Wealth - Here's How to Reduce Your Tax Bill

hi everyone welcome to another edition of we are talking money I'm Phil Clark wealth advisor and founder of omnistar Financial Group and I'm Dustin Hawkin wealth advisor here at the firm when it comes to planning for your finances for retirement everyone gets so fixated on the money and how to grow it but there's something else Dustin that people should get fixated on and that's taxes that's right Phil taxes can play an important role when it comes to accumulation and distribution in your financial plan and it's not talked about enough today we're going to talk about the top tax mistakes that we see every day with clients before we get started Phil and I invite you to hit that Thumbs Up Button And subscribe to our YouTube channel if you love this type of content we're putting out new content weekly so be sure to ring the bell so you're notified of all of our new videos let's get started mistake number one one fail you to diversify your retirement accounts Phil see this a lot people putp money in their 401K over and over and over throughout their entire career they get their retirement and all their money is in an IRA we think that diversification is key when it comes to taxes Roth IRA taxable investment accounts very important yeah we're not talking about diversifying Investments here we're talking about the vehicle in which those Investments rest everything should not be in one account and it has to do with taxes tell us about it that's right so an easy way to look at this is and how I explain this to clients is if we need $10,000 a month of retirement income where are we going to get that income and how much tax are we going to pay so let's just assume I don't know we have three to $4,000 a month of social security so now let's say we need another $6,000 a month of income on top of our social security well where are we going to get it so if we only have 401K money or IRA money well we have to pay tax on that so if we need 6,000 we probably have to pull out 8,000 to get the 6,000 so now all of a sudden we're paying $2,000 a month in taxes $24,000 of tax throughout the year the other option is what if we have some money in a taxable brokerage account or potentially a Roth IRA and we can say why don't we take 3,000 taxable and 3,000 tax-free so on that 3,000 taxable we may pay $1,000 a month of taxes well we just cut our taxes from 24,000 a year to 12,000 a year huge huge change that alone takes the requirement of such a large distribution out of the equation so now that money can last a lot longer right exactly okay so next we're going to talk about legitimate tax deductions and while they're legitimate they get missed a lot uh charitable deductions medical expenses um there could be mileage on your car if you own a business we see this a lot with business owners there's a square footage in your house if you work work in your house cell phone if you're using some of those calls for your business so there's so many different legit tax deductions that you just want to be aware of so many people want to give to Charities but sometimes people will give cash to Charities and really that's the mo one of the most ineffective way to give money so a couple options just to throw on the radar one is a qualified charitable donation or qcd so this is if you are over the age of 70 and a half and you have a required distribution you can actually give that rmd to the charity so that distribution never hits your tax return better than a tax deduction it just doesn't show up on the return that's a 100 Grand that escapes the tax return and that affects other things like Social Security other things could be taxed because of that distribution in this way it's removed big tax saver yep another great charitable strategy is to give High highly appreciated stock so most Charities especially if they're large enough they're going to have some type of brokerage account that you can donate stock to and then they'll liquidate they won't have to pay any taxes on the capital gains and you'll get the full value of the gift speaking of those required minimum distributions Dustin so those become very important it's crucial that you understand how they work because failure to take them can lead to some big penalties and the problem with the required minimum distribution is they're not going to affect everyone the same way depending on whether you're a spouse or a non-spouse a trust a charitable entity those things get affected differently but if you are supposed to take an rmd a required distribution and you miss it 25% tax penalty Stripped Away from you and you're not going to get it back and it used to be 50% so we've actually gotten a benefit from secure act 2.0 but 25 % that's a hard tax wow 25% is a big cut what if you inherit a Roth IRA and so a Roth IRA they have required distributions as well yes they're tax-free but when it comes to required distribution you still have them now if that account has been in place for five years likely all the distribution's going to be tax-free but if you inherit a WTH and you're not the spouse you still have to make those required minimum distributions not contributing to retirement accounts and other tax deductible accounts this is very common because people maybe they have the money to save but they don't know where to save it and they might just put it in a joint account or an individual brokerage account take advantage of the retirement accounts on those tax deductions so 401K for example you can put in 22,500 and that's 100% deductible each dollar you put in if you're over 50 put another 7,500 for 2023 that's $30,000 tax deduction right there also Roth IRAs take advantage of those so those you don't get a tax deduction today but they grow taxfree and we can pull them out taxfree in the future the other account that's missed a lot is the HSA or health savings account we have other shows so please watch our videos on the HSA and everything you need to know but the HSA is great because it's all tax deductible going in grows taxfree and if used for qualified medical expenses 100% taxfree great deal huge opportunity don't miss that HSA FSA be aware that is a use it or lose it so if you're putting money in the FSA and you don't use it in the year that you made the contribution you're going to lose that HSA on the other hand you take it all the way to the end this one gets missed a lot not using losses to offset your gains on the surface it's pretty simple so capital gain and capital losses can be used to offset one another for example if you had say a $6,000 gain and you could sell maybe a losing stock in your portfolio that has say a $4,000 loss you've all of a sudden netted the taxable component in that equation to only $2,000 that would have a capital gain tax if you had more losses maybe you went through uh 2022 which was a pretty bad year in in the stock market maybe you had more losses you could offset all of that capital gain so keep that in mind and what you don't use we can then take away up to $3,000 on your ordinary income and if that doesn't use all of your losses we can actually take it to the following year so the carry forwards are powerful don't forget those losses and there's great ways to use that but most people don't know how we talked about this one earlier not hiring a tax professional now this one is a conversation that we have quite often because sometimes people's situations aren't all that complicated and they think gosh do I really want to pay $500 or $600 or $1,000 for someone to just file my taxes for me when I'm taking the standard eduction there's not much going on there and what I always say is it's worth the money for the peace of mind and knowing that you're not missing out on anything and I have a story here when I was in college didn't have much money one year I tried filing my own taxes and when I filed my taxes this true story I had to pay $600 back first time in my life I had to pay any taxes well I was worried because I didn't have $600 at the time so I talked to my parents and they say well file taxes with the person who we always file the taxes with said okay sounds good and so we she files the taxes for me and I actually get $1,000 back total Game Changer when I was a broke college kit so I tell that story a lot but make sure you hire a professional it's worth the money also when you're looking for profession professional make sure they're what's called an enrolled agent so this is someone that is legally obligated to work on your behalf if you get audited by the IRS really important there you don't want a CPA or an accountant that really can't be with you if you do get audited tax credits are much more powerful than a tax deduction but people miss them a lot here's what I mean by that if you get a deduction of $1,000 that deduction is great and if you're in a 25% tax bracket it can save you $250 if it's a $1,000 tax credit that you're missing that could have offset your taxes dollar for dooll $1,000 so you don't want to ignore tax deductions but you certainly don't want to ignore tax credits and there's lots of them out there if you have questions on those call us we're happy to help you with them depending on your situation you might have tax credits that you're missing that's another reason dust why hiring the pro is a wise move and yes they're going to cost some money but just like your story where whatever you did to make you owe $600 I don't know what that was probably did not get any tax credits you probably missed a tax credit but then all of a sudden you get a th000 back that was well worth hiring the pro and lastly not staying informed about tax laws changes so you mentioned it secure act 2.0 a lot changed just a year ago so making sure you have a professional again who's up to dat with the tax changes because what worked last year really might not work this year and you want to be sure you're aware of everything and to your point Dustin our tax code I've said this in other shows it's voluminous the people that write it or that wrote they don't even know I mean no one's read the tax code from cover to cover and can honestly say oh sure we understand it they they'd be lying if they said that it is incredibly complicated it even says things in one place that contradict the same kind of thing in another place so there's lots of ambiguity in our tax code you will never know all of it I don't believe there's a CPA that knows all of it or any tax expert but I think the more expertise you get on your team the better chance you have of taking advantage of all that the tax code has to offer yep take out my yep that was stupid yep yes sir that's correct so there you have it I hope this video has inspired you to get a little more in touch with your tax planning whether that means you're doing it or you're hiring the tax professional when it comes to financial planning each element is important because actions in one element will affect another so tax plan planning is critical whether you're getting ready for retirement or you're already in retirement making smart decisions today will make a difference we'll see you next time on we're talking money thanks for joining us on we're talking money be sure to visit us at omnistar financial.com where you can learn more about how we provide value to our clients subscribe to the show and our newsletters and drop us a line with topic suggestions for upcoming shows if you enjoyed the show we would appreciate you passing it on to a friend and providing a rating on iTunes this podcast is a publication of omnistar Financial Group the content is developed from sources believed to be reliable and accurate with all information the information in this material is not intended as tax or legal advice and may not be used for the purpose of avoiding any federal tax penalties please consult legal or tax professionals for specific information regarding your individual 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