RPF-0036-Tax_Planning_-_Income_Timing

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00:00:30.000 | Radical Personal Finance, episode 36.

00:00:34.000 | Welcome to the Radical Personal Finance podcast.

00:00:52.000 | I thank you for being here with us.

00:00:55.000 | Today is Wednesday, August 6, 2014.

00:00:58.000 | And today's show is going to be all about tax planning.

00:01:01.000 | We're going to continue our tax planning series.

00:01:04.000 | And today we're going to mainly talk about the three strategies for tax planning.

00:01:08.000 | Timing, income shifting and conversion.

00:01:11.000 | With a special focus on timing.

00:01:13.000 | I hope you enjoy.

00:01:14.000 | I don't know whether it thrills you with excitement,

00:01:25.000 | or blows your heart with excitement to think about doing a show on tax planning like it does mine.

00:01:29.000 | But this is going to be fun.

00:01:31.000 | We're going to dig into some meat and potatoes of financial planning.

00:01:35.000 | And I don't want the show to go off the rails into all philosophy or all politics or all economics, things like that.

00:01:42.000 | I want to balance this with a lot of meat and potatoes financial planning topics.

00:01:47.000 | And I think this is very, very important.

00:01:50.000 | And I want to share just a couple minutes as far as why this topic,

00:01:54.000 | why I hope this topic will be of interest and of value to you.

00:01:57.000 | And then we're going to dig into some meat and potato stuff.

00:02:00.000 | And I promise I'm going to make it fun.

00:02:02.000 | I'm going to make it interesting.

00:02:03.000 | And I'm going to make it understandable.

00:02:05.000 | We're going to be working with the highly theoretical today.

00:02:09.000 | We're going to be working with the highly theoretical.

00:02:11.000 | But I believe this information is intensely practical once you understand it.

00:02:16.000 | So I'm going to share that with you.

00:02:19.000 | The last couple show topics have been, again, a variety.

00:02:24.000 | We've talked about politics.

00:02:25.000 | We've talked about economics.

00:02:26.000 | I've talked about current events.

00:02:28.000 | I've talked about everything from welfare to philosophy to getting rid of your TV to dumpster diving.

00:02:33.000 | And what I really want to do today is I don't want to stay in that world.

00:02:37.000 | I think it's fun and it's important to go into that world.

00:02:40.000 | But today I want to dive deep into meat and potatoes financial planning,

00:02:43.000 | and I want to give you a framework that you can use to apply to your life, especially as regards tax planning.

00:02:50.000 | And I think you'll enjoy it.

00:02:51.000 | Now, any time it comes to financial planning, I've never heard somebody give some of this framework in a book.

00:02:58.000 | I've never read it in books as far as reading it in personal finance books.

00:03:03.000 | I haven't found it at Barnes & Noble.

00:03:05.000 | Most of this information, the best I've been able to find it, comes from college accounting textbooks and things like that.

00:03:11.000 | That's where this is laid out.

00:03:12.000 | And so before you roll your eyes back and say, "I don't want to study a college planning textbook," let me explain why this is so valuable.

00:03:21.000 | It's helpful to have a framework.

00:03:23.000 | And the example that I thought of to try to convey this is the example of a car mechanic.

00:03:28.000 | There's probably two ways to learn to be a car mechanic, and both of them I think are valid and important.

00:03:35.000 | So the first way would be learn how to bolt and unbolt certain parts.

00:03:38.000 | That's my level of expertise with car mechanics.

00:03:41.000 | I don't really understand how the cars work.

00:03:44.000 | I don't understand how the various components work.

00:03:46.000 | I do try from time to time to unbolt and bolt certain things on, and I have pictures, and I pull out a manual, and it gives me pictures, and I say, "Bolt this part here.

00:03:55.000 | Unbolt this part."

00:03:56.000 | I know how to turn a wrench, and if the bolting and the unbolting works, then, okay, great, it worked.

00:04:02.000 | But I don't understand how the systems work.

00:04:04.000 | I don't understand how the ignition system interplays with the fuel system.

00:04:08.000 | I don't understand that.

00:04:10.000 | So if I go to turn the key and the car clicks, I don't know what that might mean.

00:04:15.000 | But someone who is an advanced car mechanic can understand what that means.

00:04:19.000 | Now, how did they become an advanced car mechanic?

00:04:22.000 | Well, they may have started with bolting and unbolting things, or they may also have started with learning the theory behind how the car works.

00:04:30.000 | I think both are valid, and probably what is the most effective approach is to get in, roll your sleeves up, and start bolting and unbolting things.

00:04:39.000 | And then also to learn a little bit about the theory.

00:04:42.000 | So let's bring it over to financial planning.

00:04:44.000 | Most financial planning radio shows or books that you read, frankly, in the personal finance space are very much, "Here's how you bolt and unbolt.

00:04:54.000 | Here's how you turn a wrench."

00:04:56.000 | And that's valuable.

00:04:57.000 | That is really valuable.

00:04:58.000 | If somebody needs some instruction on you need to establish an IRA, and this will help you to establish an IRA,

00:05:05.000 | and that may be the very basic that someone can start with, or here's where you need to study it, here's how a budget process may work,

00:05:12.000 | and here's how you can use that budgeting process to enhance your life so that you have more money.

00:05:20.000 | Now, if it's all practical, however, we quickly run into a problem, and we run into this problem.

00:05:26.000 | Let's say that the book says establish an IRA, but you read another book, and this other book says you should establish a Roth IRA.

00:05:33.000 | Now you have two books, both of whom are written by learned, caring people, and they have differing recommendations.

00:05:40.000 | One says IRA.

00:05:41.000 | One says Roth IRA.

00:05:43.000 | How do you decide which one of them is right?

00:05:46.000 | Well, in order to do that, you need a little bit of theory.

00:05:48.000 | You need a little bit of a framework, and so you need to understand what the advantages and disadvantages are of either of them,

00:05:56.000 | and they work differently.

00:05:57.000 | They have different components, and so it's not smart just to say, "Well, I'll split the difference and do half and half

00:06:02.000 | and hope that I'm half right and half wrong."

00:06:04.000 | We need the framework.

00:06:05.000 | If you don't have the framework to understand what's going on, then you can't really make a rational decision between those two things,

00:06:13.000 | and basically what you're then doing is you find yourself following the personality of the person that you like the most,

00:06:23.000 | and then we get into a debate, and we say, "Well, my favorite personality says this, and my favorite personality says that,

00:06:29.000 | so therefore this is what I'm going to do,"

00:06:31.000 | and that personality may be right, or they may just be repeating something that they have heard,

00:06:35.000 | and they may not understand the framework,

00:06:37.000 | but once you understand the theoretical framework behind what we're going to talk about today,

00:06:41.000 | which is specifically the timing of taxes, the timing of shifting the timing of when you pay taxes,

00:06:49.000 | a tax planning strategy, then you can quickly look at a personal situation.

00:06:52.000 | I can quickly look at a personal situation.

00:06:54.000 | I can quickly look, gather some facts, and I can say IRA, or I can look and I can say Roth IRA,

00:07:00.000 | and I know why because I know the framework, so I'm going to share that framework to you.

00:07:03.000 | It's not a secret, but that's why the framework is important.

00:07:06.000 | We need both.

00:07:07.000 | We need framework, and we need technique, so the balance that I'm trying to drive at in this show,

00:07:13.000 | and I don't know whether I'm doing it successfully or unsuccessfully,

00:07:16.000 | but the balance that I'm trying to work at is to give you both of these things,

00:07:19.000 | give you the framework and give you the technique,

00:07:22.000 | and I believe that the integration, the synthesis between these two things is what will allow you,

00:07:27.000 | if you're a do-it-yourselfer, to do a much better job of understanding your situation

00:07:32.000 | and will allow you, if you're a financial planner of some sort, to do a much better job of helping your clients.

00:07:38.000 | I looked for this information when I was younger.

00:07:40.000 | I couldn't find it.

00:07:41.000 | I couldn't find the framework because I was lost in the world of personal finance,

00:07:46.000 | and in the personal finance, what you have is technique.

00:07:48.000 | You have theory.

00:07:49.000 | You have technique, but you don't have the framework, the intellectual framework,

00:07:52.000 | so I would read through books like I've referenced before on a tax planning book,

00:07:57.000 | and it would have a list of techniques, but I didn't have any way to fit it in,

00:08:00.000 | and so, again, where I ultimately found this information was through some of my tax planning books

00:08:06.000 | for advanced financial planning designations and also through accounting courses,

00:08:10.000 | and that's where I started to find the framework, and that helped me immensely

00:08:13.000 | because then I could synthesize the technique and the framework because techniques come and go.

00:08:20.000 | Tax code changes all the time.

00:08:21.000 | Techniques come and go.

00:08:22.000 | Deductions are added.

00:08:23.000 | Deductions are disallowed.

00:08:24.000 | Tax rates change.

00:08:25.000 | Tax rates are adjusted.

00:08:27.000 | Tax bases are adjusted.

00:08:28.000 | New taxes are added, so all of that changes as time goes on,

00:08:31.000 | so if all you have is technique, your technique may soon be invalid.

00:08:35.000 | What do you do with your planning technique?

00:08:36.000 | Let me ask you a question.

00:08:37.000 | What do you do with your planning technique if your entire financial planning technique

00:08:40.000 | is built around the Roth IRA and Congress changes the tax laws about a Roth IRA?

00:08:45.000 | People scream from the top of the house and say, "This is the worst thing that could ever happen,

00:08:49.000 | so therefore don't trust the Roth IRA system."

00:08:51.000 | I don't think there's--I don't have anything to worry about.

00:08:53.000 | I'm not predicting anything, but I do know that Congress changes tax laws all the time,

00:08:58.000 | and so it's theoretically possible.

00:09:00.000 | If your whole plan was built upon Roth IRAs, your plan falls apart,

00:09:04.000 | but if you were using the Roth IRA as a tool and you understood the theory,

00:09:08.000 | you'll just quickly adjust your plan.

00:09:10.000 | I could accomplish exactly the same thing that the--I could accomplish 90% of the things

00:09:16.000 | that the Roth IRA accomplishes with other strategies.

00:09:19.000 | There are other ways to do tax planning depending on the situation.

00:09:23.000 | So I hope you like this information.

00:09:25.000 | Another thing that you need to understand before we get into this is you need to look at your personal situation.

00:09:30.000 | All financial planning is and must be intensely personal.

00:09:35.000 | If you are in a 30% tax bracket, that is very different--

00:09:39.000 | there are very different planning needs and planning priorities than if you're in a 0% tax bracket.

00:09:45.000 | So you need to look to see where it is your bang for the buck--

00:09:48.000 | where are you going to get the most bang for the buck in your planning horizon?

00:09:56.000 | If you are earning a relatively low income and you have a lot of deductions with children

00:10:02.000 | and family members and things like that, chances are your biggest bang for the buck

00:10:06.000 | is likely not going to come from doing sophisticated tax planning

00:10:12.000 | because your tax rates and your tax base is fairly small--

00:10:16.000 | your tax base is small and your tax rate is low.

00:10:19.000 | And if you don't know what those words mean, go back and listen to show number 15,

00:10:24.000 | which was the introductory show to tax planning.

00:10:27.000 | If you haven't heard that, stop now and go listen to show 15.

00:10:31.000 | You'll find it at RadicalPersonalFinance.com/15.

00:10:34.000 | That show was entitled "How to Eliminate Your Taxes--

00:10:37.000 | The Basic Foundation You Need to Understand to Do Good Tax Planning."

00:10:40.000 | So you need to understand what is my tax base, what are my tax rates,

00:10:45.000 | and what are the different taxes that I'm going to be looking at and planning for.

00:10:49.000 | So that show will cover those details for you.

00:10:52.000 | But it's likely that in terms of your personal finance, if you're at a low--

00:10:57.000 | again, if you're in a low-tax environment, your best bang for the buck

00:11:02.000 | is probably going to be prioritizing something like yesterday's show,

00:11:06.000 | talking about communications expenses.

00:11:08.000 | So yesterday's show, episode 34--excuse me, 35--

00:11:13.000 | was about saving on communications expenses, and that built on show number 4.

00:11:17.000 | Or it may come down to how can I dumpster dive or coupon my food

00:11:22.000 | and save $400 a month on my food costs.

00:11:24.000 | So I would encourage you to start there.

00:11:26.000 | But you should still be preparing for this information.

00:11:29.000 | So I'm providing this information for you.

00:11:31.000 | I think every person who's broke should be planning to be a billionaire.

00:11:35.000 | How are you going to become a billionaire if you don't plan to be there?

00:11:37.000 | So everyone starts somewhere.

00:11:39.000 | You've got to start with broke and then move on from there.

00:11:42.000 | So look at your situation to see where your biggest bang for the buck

00:11:45.000 | is going to come from.

00:11:47.000 | And this information is going to be just as valid for you

00:11:52.000 | whether you're making $50,000 a year or $5 million a year.

00:11:55.000 | This information is going to be every bit as valid

00:11:57.000 | because today we're going to be talking about framework.

00:11:59.000 | Now, in future shows with techniques, I'll give you an introduction to technique

00:12:05.000 | and say here are some techniques that are going to be useful at $50,000 of income

00:12:08.000 | and here are some techniques that are going to be useful at $5 million of income.

00:12:11.000 | So today's show is framework.

00:12:13.000 | The next point I want to make is the difference between tax planning and non-tax planning.

00:12:17.000 | This is where essentially you have to start all discussions.

00:12:24.000 | Basically, effective tax planning is all about maximizing the after-tax wealth

00:12:31.000 | while also achieving all of your non-tax goals.

00:12:36.000 | Just maximizing after-tax wealth is not a rational goal.

00:12:41.000 | If the goal were just simply to minimize taxes,

00:12:44.000 | then the simplest way to do that is just simply earn no income.

00:12:48.000 | So that may be a possibility for you.

00:12:52.000 | If you can figure out how to live and earn no income,

00:12:54.000 | and I'm going to profile people on the show who are doing that.

00:12:58.000 | There's a book on my reading list.

00:12:59.000 | I can't remember the exact title of it, but it was like The Man Who Lived Without Money,

00:13:03.000 | something like that.

00:13:04.000 | And I mean I've profiled people.

00:13:07.000 | That's why I profiled on Friday's show last week.

00:13:10.000 | I profiled a hobo, the guy that just refuses to work.

00:13:14.000 | I think that's an amazing thing to learn, but it also comes with some disadvantages.

00:13:18.000 | And so if that's the lifestyle you wish to pursue, go for it.

00:13:21.000 | Write a book and I'll read it.

00:13:22.000 | I would love to – I'll interview you on the show.

00:13:25.000 | I'd love to interview you about that.

00:13:27.000 | However, most of us are probably going to find some balance between minimizing the cost of taxes

00:13:33.000 | and maximizing the non-tax considerations.

00:13:36.000 | So you may – if we were just focused on minimizing taxes,

00:13:40.000 | the fastest and easiest way is just get rid of our income and just don't earn any income.

00:13:44.000 | But if you're not willing to go through the resulting poverty that would ensue,

00:13:51.000 | if you're not willing to live that way,

00:13:53.000 | or if you're not willing to live that way, then that's not a practical way to approach life.

00:14:02.000 | So good tax planning means that we need to factor in both the tax

00:14:06.000 | and the non-tax advantages and costs in every situation.

00:14:12.000 | Almost every financial transaction involves basically three people.

00:14:17.000 | You have the taxpayer, the other person, the other transacting party, and then the government.

00:14:25.000 | And you need to understand the roles between them

00:14:27.000 | because that will allow you to structure win-win deals between you, the taxpayer –

00:14:33.000 | I'm assuming that in this situation you're the taxpayer – and between the other party.

00:14:38.000 | So by understanding these, you can structure more advantageous deals.

00:14:41.000 | And when we get in the future – and I don't know whether this will be a couple years from now or what,

00:14:46.000 | but when we get into shows talking about how to structure a business transaction,

00:14:50.000 | how to do stock-for-stock transactions to avoid taxes and things like that,

00:14:54.000 | and buying and selling corporations, then that's where it's going to be very, very valuable.

00:14:59.000 | It's going to be important to understand those decisions

00:15:02.000 | because large financial transactions don't happen with money, with cash.

00:15:06.000 | They do happen with money and cash, but there may be other considerations.

00:15:11.000 | So I want you to understand those three things.

00:15:13.000 | So we always want to incorporate tax planning and non-tax planning considerations.

00:15:18.000 | So although we're focusing today on tax planning, a good financial planner is always going to factor in –

00:15:23.000 | and you, you being a good financial planner for yourself,

00:15:26.000 | or if you're hiring a good financial planner is always going to factor in the non-tax considerations.

00:15:32.000 | Hopefully those introductory remarks help.

00:15:35.000 | They're very, very important to understand those as we get into the meat here.

00:15:41.000 | So as I mentioned at the end of the last show in this tax planning series, which was episode 15,

00:15:48.000 | I mentioned that basically you can boil the major tax planning strategies down to three,

00:15:55.000 | and those three are timing, shifting, and conversion.

00:16:00.000 | Timing, shifting, and conversion.

00:16:03.000 | Now these are theoretical but eminently practical mental constructs for you to use with tax planning.

00:16:10.000 | And this is how I think.

00:16:12.000 | As a tax planner, when I hear a technique, I'm quickly thinking,

00:16:16.000 | "Is this a timing technique, a shifting technique, or a conversion technique?"

00:16:20.000 | And that helps me to place it in my mind as far as to see where does this belong.

00:16:24.000 | So timing is basically doing planning with a timing technique.

00:16:31.000 | It's essentially all about are we taking income today and accelerating income,

00:16:37.000 | or are we deferring income to a future date?

00:16:40.000 | So are we moving income up, or are we deferring it?

00:16:44.000 | And then are we accelerating a tax deduction, or are we deferring a tax deduction?

00:16:50.000 | That's what timing is.

00:16:52.000 | Shifting is all about shifting income from high-rate taxpayers to low-rate taxpayers.

00:16:57.000 | That will be in a separate show.

00:16:59.000 | I won't be able to cover that today, but we'll do an entire show on that

00:17:02.000 | because there's some very effective techniques that you can use in income shifting,

00:17:05.000 | and that may be from a corporation to an individual,

00:17:08.000 | or from an individual to a corporation,

00:17:10.000 | or from a wealthy family member to a non-wealthy family member,

00:17:14.000 | or from an individual to a trust, or from a trust to an individual, et cetera, et cetera.

00:17:19.000 | And it goes both ways.

00:17:21.000 | So that's income shifting.

00:17:22.000 | And then conversion is all about converting income from high-rate activities

00:17:26.000 | to low-rate activities, and that can be done in a variety of ways,

00:17:30.000 | whether that's geographic.

00:17:32.000 | I wrote an article on corporate inversions on Monday's show.

00:17:35.000 | So that article on corporate inversions, you should understand that.

00:17:38.000 | That's a conversion strategy.

00:17:40.000 | The companies that are engaging in corporate inversions right now,

00:17:43.000 | leaving the United States to go to a lower-taxed authority,

00:17:49.000 | they're engaging in a conversion.

00:17:51.000 | They're converting income from high-rate activities to low-rate activities,

00:17:53.000 | but you can apply conversion strategies to your own individual situation.

00:17:57.000 | So let's talk about timing.

00:17:59.000 | When it comes to timing, it's all about when the income is taxed

00:18:06.000 | or when an expense is deducted.

00:18:09.000 | So if you can--in essence, one of the major constructs that you want to have

00:18:13.000 | is that any time you can have an expense, that's a deduction,

00:18:16.000 | and then you can avoid taxes.

00:18:18.000 | This, if you're an employee and if you've never run a business,

00:18:21.000 | this may be a concept that you're not familiar to thinking about.

00:18:26.000 | But in business, you're only taxed on profit.

00:18:28.000 | So you don't pay--if you earn $10--let's use $100.

00:18:33.000 | If you earn $100 on services provided, but in order to provide those services,

00:18:40.000 | you incurred $50 of cost, you're not taxed on the $100 of income.

00:18:45.000 | That's called gross income.

00:18:47.000 | You're only taxed on the $50 of net income or profit.

00:18:51.000 | So in the business world, one of the most important tax planning strategies

00:18:57.000 | is to use the deductions that we have available,

00:19:00.000 | and there are many more deductions available on the business side of accounting

00:19:03.000 | than there are on the personal side,

00:19:05.000 | but there are deductions available on the personal side as well.

00:19:08.000 | So our timing strategy is all about when are we going to take this income,

00:19:12.000 | when are we going to bring it in, or are we going to bring it in now,

00:19:15.000 | or are we going to push it to later, and when are we going to take this deduction.

00:19:18.000 | Are we going to push it out and take it in the future,

00:19:22.000 | or are we going to take it today?

00:19:25.000 | Now, as part of our timing strategy,

00:19:27.000 | there are two important things that we've got to keep in mind.

00:19:31.000 | So now I'm drilling down.

00:19:32.000 | We've got the three strategies now as part of timing.

00:19:34.000 | We've got income and deductions,

00:19:37.000 | and then we've got two important things that we need to keep in mind.

00:19:41.000 | We need to focus on the present value or the future value of taxes paid or taxes saved,

00:19:51.000 | and then we also need to focus on the tax rates and any changes in the tax rates.

00:19:58.000 | And timing strategies are in one way the simplest,

00:20:02.000 | but in another way the most complicated,

00:20:04.000 | and we're going to go over the variables.

00:20:06.000 | I'm going to go over and cover in detail these variables

00:20:09.000 | so that you can understand them fully,

00:20:11.000 | and then you can apply them to your situation.

00:20:13.000 | So let's start with present value and future value.

00:20:16.000 | One of the most fundamental concepts of financial planning

00:20:18.000 | is the concept of present value.

00:20:20.000 | This would also be known as the time value of money,

00:20:23.000 | and the basic idea here is that a dollar today

00:20:26.000 | is always worth more than a dollar in the future.

00:20:30.000 | Now, is that true?

00:20:32.000 | It's true, and the assumption comes from the fact that if you have a dollar today,

00:20:38.000 | you can invest that dollar and make a positive rate of return.

00:20:44.000 | If that's true, then you should always, if given the option,

00:20:48.000 | between having a dollar today and a dollar a year from now,

00:20:51.000 | you should always choose to have the dollar today so that you can invest it.

00:20:55.000 | Now, I'm going to cover a little bit of math,

00:20:57.000 | and these formulas are in the show notes.

00:20:59.000 | If you're driving, don't worry, look at the formulas.

00:21:02.000 | I think I can cover it in a way that is quick enough

00:21:06.000 | and interesting enough to do in an audio podcast,

00:21:08.000 | but yet still conveys the factor.

00:21:10.000 | But I want to give you a mathematical formula.

00:21:12.000 | I'm going to give you the future value formula

00:21:14.000 | and the present value formula so that you can do the math.

00:21:17.000 | And this math is important.

00:21:19.000 | We're going to be using it continually, but this math,

00:21:21.000 | you need to get comfortable with this math.

00:21:23.000 | It's a very simple formula.

00:21:24.000 | If you don't want to do this, I'll give you two ways to do it.

00:21:27.000 | I'll give you the formula, and then I'll tell you how to run it on a financial calculator.

00:21:31.000 | In the future, I hope to be able at some point when I get my production ability to do that,

00:21:35.000 | and there's probably videos on YouTube already done,

00:21:37.000 | but I want to teach you how to run a financial calculator

00:21:40.000 | because just a simple financial calculator, which you can find online for free,

00:21:44.000 | if you understand how to run it and how to run a financial calculator,

00:21:47.000 | it will do far more than all of the web calculators that you find online for you.

00:21:55.000 | There's a lot of value in the web calculators,

00:21:57.000 | but the problem is those are all built on the underlying assumptions,

00:22:00.000 | and it's easy to run a calculator and not understand what the assumptions are--

00:22:04.000 | the web calculator--not understand what the assumptions are.

00:22:07.000 | But if you know how to run a financial calculator,

00:22:09.000 | then it will be valuable for you.

00:22:13.000 | It's funny.

00:22:15.000 | When I started as a financial advisor, I didn't know how to run a financial calculator.

00:22:20.000 | Most financial advisors don't.

00:22:22.000 | Most financial advisors just simply don't know how to run it.

00:22:25.000 | And I started it because I thought, "Well, I need to learn this,"

00:22:27.000 | and I thought it would be cool if I did it.

00:22:30.000 | So my dad actually, when I started working in the financial planning business,

00:22:34.000 | he got me the same calculator he'd always use, which is a classic, an HP-12C,

00:22:40.000 | which was the classic one that hasn't changed in, I don't know, 80 years, 60 years.

00:22:45.000 | And so I thought it would be fun to learn--I thought it would look cool if I knew how to run it.

00:22:49.000 | So I just started originally because I thought it looked cool,

00:22:51.000 | and then I learned how to do it, and I just realized the power of the financial calculator.

00:22:55.000 | And like I've said it before, if you can run a financial calculator,

00:22:58.000 | you can give a pencil and a legal pad, and I can design a comprehensive financial plan.

00:23:02.000 | And it's a very, very valuable tool.

00:23:04.000 | So let's talk about the present value formulas.

00:23:07.000 | So the first formula that I'm going to start with is the future value formula.

00:23:12.000 | And please don't--I promise I won't go into too many details to make this boring.

00:23:17.000 | But the future value formula is the present value times 1 plus r raised to the n.

00:23:26.000 | This is the calculation that you need to figure out how much money is worth in the future.

00:23:29.000 | So if we were going to use dollars, and in the 1 plus r, in the mathematical term,

00:23:34.000 | that 1 plus r is in a parentheses.

00:23:37.000 | So the present value--I mean, what's the money worth today?

00:23:41.000 | And we're going to multiply that, but we've got to do this other function first,

00:23:44.000 | times 1 plus r, r being the rate of return, expressed in a decimal.

00:23:50.000 | So if you had a 10% rate of return, that would be .10.

00:23:55.000 | So 1 plus .10 equals 1.10, raised to n.

00:24:00.000 | And n is the number of years of the formula that we're investing for.

00:24:04.000 | So 1 plus r raised to the n, and then multiply that times the number of dollars.

00:24:09.000 | So if you--let's say that you were going to get a 10% rate of return,

00:24:12.000 | how you would do this function is you would say a 10% rate of return is 1 plus 1.--

00:24:18.000 | excuse me, 1 plus .10 equals 1.10.

00:24:22.000 | Let's just do this for one year.

00:24:24.000 | So 1 plus .10 raised to the 1 is 1.10.

00:24:29.000 | And let's say you're investing $100.

00:24:31.000 | You would take $100, and you would multiply that times 1.10,

00:24:34.000 | and that would equal the answer of $110.

00:24:38.000 | So if you had $100 today, and you could invest it at a 10% rate of return for one year,

00:24:44.000 | you would have at the end of one year $110.

00:24:49.000 | Intuitive.

00:24:50.000 | Now what if you could do it for two years?

00:24:52.000 | Well, in this situation, all you need to do--and here's where you probably need a calculator--

00:24:55.000 | you could do it by hand, but do it with a calculator would be a lot easier.

00:24:59.000 | So now if you were going to do it for two years, you would do 1 plus .10 is 1.10,

00:25:07.000 | and you would raise that to 2.

00:25:10.000 | And the answer there, if you were putting it out, the answer would be 1.210.

00:25:15.000 | Then you would multiply that times your $100,

00:25:18.000 | and multiply 1.210 times 100, and at the end of two years, you would have $121.

00:25:25.000 | So there would be $10 of interest credited in the first year,

00:25:28.000 | and then $11 of interest credited in the second year.

00:25:31.000 | This is the basis of compound interest.

00:25:33.000 | This is why money grows over time.

00:25:36.000 | If you were going to do this for 10 years, you would do 1.10, raise that to the power of 10,

00:25:41.000 | and the answer there would be 2.5937.

00:25:45.000 | Let me just drop this to two decimals.

00:25:47.000 | So the answer would be 2.59, multiply that times $100, and you would have $259.37.

00:25:55.000 | So if you could invest $100 today, and you could invest it each year at 10% interest for 10 years,

00:26:02.000 | at the end of 10 years, you would have $259.37.

00:26:06.000 | That's the future value formula.

00:26:08.000 | Now, on a financial calculator, you basically have five buttons on your financial calculator that you can operate.

00:26:15.000 | If you have a financial calculator, get it out, pull it out, or take a look.

00:26:18.000 | I will put a link to an HP 12C, an online calculator I've often used, in the show notes that you can use.

00:26:28.000 | So the way a financial calculator works is you have these five buttons,

00:26:31.000 | and these buttons are N, which stands for the number of years, or rather the number of periods.

00:26:36.000 | So you could use this in years, you could use this in months, you can use it in quarters,

00:26:40.000 | you can use it in six-month periods.

00:26:42.000 | And this is important to a financial planner because oftentimes you'll use an annual number,

00:26:46.000 | but what if someone's contributing monthly?

00:26:48.000 | Well, then you might compound something monthly, or if you were calculating bonds,

00:26:51.000 | you would compound bonds, or generally the interest is paid twice per year.

00:26:54.000 | So you would use six-month periods, you could use quarters, you can do whatever you want to do.

00:26:59.000 | But N is the number of periods, I is the interest rate per period, PV is the present value,

00:27:06.000 | PMT is the payment, so the cash flows in or the cash flows out, and FV is the future value.

00:27:13.000 | So if we wanted to check our math on the $259.37, that our $10 would--excuse me,

00:27:21.000 | our $100 would grow to over 10 years, I could do this.

00:27:23.000 | I would do $100 for my present value, and when you're doing a present value calculation,

00:27:28.000 | you're going to put that in as a minus.

00:27:30.000 | So I would change sign, put in $100 as a present value.

00:27:33.000 | I would put in 10 as my interest rate for 10% annually, compounded annually.

00:27:38.000 | I would put in 10 for my number of periods.

00:27:40.000 | I would put in zero for my payments because I'm not putting in any cash flows,

00:27:44.000 | and I'm not taking cash flows out, and I would press the future value calculator--future value number,

00:27:49.000 | and then the calculator will calculate, and my answer will be $259.37.

00:27:54.000 | So I've proved that my formula works both ways, both by using the calculation function

00:27:59.000 | and by using my formula.

00:28:02.000 | If you are a financial planning student or if you are a financial--if you're preparing for something like the CFP exam,

00:28:08.000 | learn how to do these things both ways, and what you'll find is just by running the financial calculator,

00:28:13.000 | you can always check yourself, and once you understand the end, the payments, the future value,

00:28:17.000 | and all of that, you can check yourself to make sure that you're getting your formulas correct.

00:28:21.000 | So this future value formula is very important because we know that a dollar today

00:28:26.000 | is much more valuable than a dollar in the future,

00:28:30.000 | but this depends upon the rate at which we can grow our money.

00:28:35.000 | So if I offered you $100 today or $100 in a year, which would you choose?

00:28:42.000 | Well, to run this and calculate this actually, what you would need to do is you would need to run the calculation

00:28:50.000 | and see what the present value of the $100 in a year would be today

00:28:55.000 | or what the money is worth today and what the money is worth in a year.

00:29:00.000 | So if we assume that you can grow your money at 10%, which is an assumption,

00:29:04.000 | and I don't care what number you use, 3%, 8%, 10%, I'm going to use 10% to try to keep the math very simple

00:29:11.000 | for those of you who are just listening.

00:29:13.000 | If we assume that you can grow your money at 10% each year, what I'm actually offering you is

00:29:20.000 | would you like to receive, in terms of future value, would you like to receive $110 today or $100?

00:29:30.000 | And the answer is $110.

00:29:33.000 | So that's what we're going to choose.

00:29:38.000 | Now, the flip side of this calculation would be the present value.

00:29:42.000 | So we did a future value calculation that the exact flip side of this is the present value.

00:29:46.000 | And so from here, we want to always calculate what the present value is.

00:29:51.000 | So the present value is basically--the formula for the present value is the future value divided by 1 plus r raised to the n.

00:30:04.000 | So if we had--let's continue with our $100 and 10% number.

00:30:11.000 | If we were going to use $1, we would use $1, 1 plus .10 and raise that to the number of periods.

00:30:18.000 | And so if we raise that to 1 period, then the answer of what that would be is 1.10.

00:30:26.000 | And then putting that into the formula, we would take $1 and divide it by 1.10,

00:30:30.000 | and we would wind up with an answer of .91.

00:30:34.000 | And we would call that our discount factor.

00:30:37.000 | The discount factor is essentially--it is a numerical factor that we can use to apply to figure out what is the present value of money today.

00:30:49.000 | So I think that's as deep as I need to go into the math.

00:30:52.000 | Look at the formulas and learn to work with these present value and future values.

00:30:56.000 | Now, let's bring it back to taxes.

00:30:58.000 | What we always want to figure out is would we rather have the cash inflow or the cash outflow today

00:31:03.000 | or would we rather have the cash inflow or the cash outflow in the future?

00:31:08.000 | So let's do an example.

00:31:10.000 | And I am--this is a good example that I read in one of my financial planning textbooks.

00:31:15.000 | And so the example here is let's say that you go to a--let's say that you go to one of these furniture places where they say,

00:31:24.000 | "We'll give you--we'll sell you furniture today with no money down and no payments for one year."

00:31:30.000 | And so let's say that you buy $1,000 worth of furniture and you go--let's say two couches, $1,000 worth of furniture,

00:31:38.000 | and you decide you're going to do no money down and no payments for one year.

00:31:41.000 | So the question would be what is that worth to you?

00:31:44.000 | Ignore all the personal finance nonsense of how the contracts work and fixing it and being in debt and all that stuff.

00:31:49.000 | Let's just figure it out mathematically.

00:31:53.000 | I shouldn't have said the word nonsense.

00:31:54.000 | It's not nonsense.

00:31:55.000 | It's important.

00:31:56.000 | But let's just focus on the math.

00:31:57.000 | So let's say that you can annually grow your money every year at 10%.

00:32:01.000 | You have an investment opportunity, whether that's an investment in yourself, whether it's an--let's say that you're going to invest that $1,000 into your own education in some way,

00:32:11.000 | and you expect that to increase your income by 10%.

00:32:14.000 | So how much is your deal worth to you?

00:32:17.000 | Well, the discount factor that we just calculated would be .909, would be the--.91 to .909 would be the discount factor.

00:32:28.000 | So if you multiply $1,000 times that discount factor of .909, you wind up with the answer of $909.

00:32:36.000 | So you saved $91 by taking that no money down and no payments for one year number because you either have to pay the $1,000 today or you have to pay the $1,000 one year from now.

00:32:48.000 | But by pushing your $1,000 payment forward one year, you can now satisfy that payment for only $91 because you can take that $91, invest it at 10%, and that $91 will earn you $9 of interest.

00:33:02.000 | Excuse me, your $909, and that'll earn you $91 of interest, and that'll grow to be the $1,000 that you need.

00:33:08.000 | Let's get out of the math weeds.

00:33:10.000 | So hopefully this makes sense to you.

00:33:12.000 | We would always--anytime that we are--anytime that we're going to spend money, the rule is this.

00:33:18.000 | Anytime we're going to spend money, so we're going to have a cash outflow, we want to always take whatever is the lowest present value, the lowest cost.

00:33:27.000 | And anytime we're going to earn money, we're going to take a cash inflow, we're always going to bring in the higher present value.

00:33:34.000 | That's the rule.

00:33:36.000 | So let's apply this present value, future value, and let's look at tax rates and timing of income.

00:33:42.000 | When it comes to tax rates, we need to understand are tax rates constant or are they changing?

00:33:50.000 | Constant is simple.

00:33:51.000 | It's fairly simple.

00:33:52.000 | Changing is a little bit more complicated, and this is why you get so much disagreement in the finance space about what you should do with your money.

00:34:00.000 | So one economist thinks that tax rates are going down, another economist thinks that tax rates are going up.

00:34:05.000 | One financial planner says you should--your personal tax rate is going to be lower in retirement.

00:34:11.000 | Another financial planner says your personal tax rate is going to be higher in retirement.

00:34:16.000 | And so the answers would be different depending on what assumptions you use.

00:34:20.000 | So when tax rates are constant, we want to always accelerate our tax deductions, and we want to defer our income.

00:34:31.000 | And the reason we want to do that is because of this present value calculation.

00:34:36.000 | If we can accelerate our deduction, then we can invest that money that we save, and it'll have a higher present value than if we take that deduction a year from now.

00:34:48.000 | And if we defer our income to the future and pay those taxes in the future, then we can pay those taxes with cheaper money, money that has a lower present value.

00:35:00.000 | So when tax rates are constant, we always want to bring up the deductions, and we want to push off our taxable income.

00:35:07.000 | That's it. It's as simple as that.

00:35:09.000 | And because we're maximizing the present value of the tax savings from bringing forward the deductions,

00:35:15.000 | and we're minimizing the present value of the taxes that we're paying by pushing them off.

00:35:19.000 | Now, I'm using the technical financial planner words for this, but this is intuitively true.

00:35:26.000 | So if the words are confusing to you, just think about this.

00:35:29.000 | If you have the--let's use IRAs as an example that most people are familiar with.

00:35:34.000 | If you have the possibility, if you're going to pay the same $100 of tax on the income--so let's assume that you're going to earn the income now,

00:35:41.000 | you're going to be at the same tax rate now, and you're going to be at a tax rate later.

00:35:44.000 | If you're going to owe $100 of tax on--let's say it's at an effective--let's use 10%.

00:35:49.000 | Let's say you're in a marginal bracket of 10%.

00:35:53.000 | So you're going to earn $1,000. That means you're going to owe $100 of tax.

00:35:56.000 | Would you rather pay that $100 of tax today, or would you rather pay that $100 of tax in the future?

00:36:01.000 | Future.

00:36:02.000 | So you want to accelerate your deduction and defer your income.

00:36:05.000 | It's as simple as that.

00:36:07.000 | The key, however, is we need to be careful of when our cash flows are coming in or going out.

00:36:16.000 | I'm not going to spend too much time on this, but it's not--it is as simple as saying,

00:36:21.000 | "Bring forward the deductions and push off the recognizing the income."

00:36:25.000 | But, by the way, recognizing income, that's another accounting word that means

00:36:30.000 | that recognition of income means at the point--we now are showing the income at the point we have to pay tax on it.

00:36:36.000 | So we're going to push off the recognition of the income.

00:36:39.000 | We may earn it at an earlier period, but we're going to push the recognition back to the time when the taxes are triggered.

00:36:45.000 | If there is a large cash outflow that we have to incur now in order to get a deduction,

00:36:52.000 | then we need to run the math very carefully on that, and it's too complicated to do on the podcast,

00:36:57.000 | but just be aware of that.

00:36:59.000 | So, essentially, any time you can accelerate a deduction without accelerating the cash outflow that you need to get the deduction,

00:37:08.000 | then this is going to be your best option.

00:37:11.000 | So can you actually do this?

00:37:13.000 | Well, yes, absolutely.

00:37:14.000 | First of all, any type of taxpayer who is a cash method taxpayer, you can often control when you're paying your expenses,

00:37:23.000 | and so that's a key number is when you are paying your expenses.

00:37:28.000 | So individuals may do this when it comes to your property taxes.

00:37:32.000 | Let's say you're going to pay your property taxes, and you have the choice to go ahead and pay your property taxes

00:37:36.000 | two years' worth in December versus one in December and one in January.

00:37:40.000 | That would be an option that you have, and if those property taxes are deductible in some way,

00:37:45.000 | you may choose to accelerate that deduction.

00:37:48.000 | This is very, very common in businesses.

00:37:51.000 | So in an accrual method of accounting for a business, then here is where you are going to--you have a little bit more--

00:37:59.000 | you have a few more restrictions on you because in accrual, it's not just about when it's--in accrual accounting,

00:38:07.000 | it's not just when the income is--when you actually get the cash.

00:38:11.000 | It's about when it's actually earned.

00:38:13.000 | But you may use an accelerated depreciation schedule for a depreciable asset.

00:38:19.000 | So a little tax tip for you.

00:38:21.000 | Have you ever heard somebody say, "Buy a heavy car," or you may have heard somebody say, "Buy a heavy luxury car."

00:38:30.000 | Let me explain.

00:38:31.000 | This would be a good example of accelerating deductions.

00:38:35.000 | In this case, the deduction that we're accelerating is a depreciation deduction.

00:38:39.000 | And let me just give you a little bit of background, and I think you'll understand how you can use these tax strategies

00:38:44.000 | to measurably impact the quality of your life if you know what you're doing.

00:38:48.000 | So businesses often will involve a car.

00:38:52.000 | So business use will often involve a car.

00:38:55.000 | If you were running a business, there's a car that's probably involved,

00:38:58.000 | and you are going to be using that car for business purposes.

00:39:01.000 | There are tons and tons--by the way, quick disclaimer.

00:39:03.000 | There are tons of details that I'm trying to avoid going deeply into

00:39:09.000 | because it just can't be done in audio format in a compelling way.

00:39:13.000 | I want to give you big-picture ideas.

00:39:15.000 | Don't do anything with what I'm telling you without going and researching the current law.

00:39:19.000 | But take what I'm doing as an idea, and then think about it if it may apply to your situation.

00:39:23.000 | So businesses will often involve running a car.

00:39:26.000 | So if you were a business owner, and you are in--let's assume you're in a high-tax bracket.

00:39:29.000 | I'm going to assume you're in a 30% marginal bracket.

00:39:32.000 | So you're in a relatively high bracket, and you're using a vehicle in your business.

00:39:37.000 | You have plenty of money.

00:39:39.000 | You're not worrying about what you're actually spending every month.

00:39:42.000 | You have enough money.

00:39:44.000 | Would you like to go ahead and have a nicer car?

00:39:47.000 | And then because you basically--by running it in your business,

00:39:51.000 | you basically get a 30% cheaper car.

00:39:54.000 | If you can buy a luxury automobile, then you can run that luxury automobile

00:39:58.000 | and enjoy the 30% break that you get on the expenses that are associated with it.

00:40:02.000 | So business owners would do that, and they would run a luxury automobile.

00:40:07.000 | Well, that would be politically unpopular, so Congress decided,

00:40:10.000 | "We're going to limit the deductions that you can take on a luxury car that's used for business."

00:40:14.000 | So we understand that you're going to have expenses associated with a normal car,

00:40:18.000 | but we don't want to allow you to deduct expenses associated with a luxury car.

00:40:21.000 | We're not willing to let the tax code finance your luxury--your luxury--your luxury's expenses.

00:40:30.000 | So in 1986, they passed a law that said you cannot take--you cannot--they limited the--

00:40:39.000 | excuse me--they limited the deductions that you can take on a luxury car that's used for business.

00:40:46.000 | Now, at that time, basically, the problem was that they--their definition of a luxury car

00:40:51.000 | was very different than what maybe your definition of a luxury car would be.

00:40:57.000 | Basically, it would cover any car, even as little as $11,000 in 1986 dollars.

00:41:03.000 | So they didn't want to impact real business vehicles, like trucks.

00:41:10.000 | So they said that any car with an unloaded gross vehicle weight over 6,000 pounds,

00:41:17.000 | so over 3 tons, was exempt.

00:41:21.000 | So any car with a weight of over 6,000 pounds, then it would not be covered by those limitations.

00:41:27.000 | So this opened up a--this opened up an opportunity that if your vehicle was heavy enough,

00:41:33.000 | then you could go ahead and deduct the full amount of it.

00:41:37.000 | And I'll get through some numbers in just a moment and show you how valuable this is.

00:41:41.000 | So that could be something like a van. That could be something like a pickup truck.

00:41:45.000 | That could be something like a large SUV.

00:41:48.000 | That could be something like a Rolls-Royce.

00:41:50.000 | You might have some big Rolls-Royce, and it's more than 6,000 pounds.

00:41:53.000 | Is that a luxury car? Absolutely.

00:41:55.000 | But it was written with--there was an exception because it's more than 6,000 pounds.

00:41:59.000 | So maybe you're shopping for a Range Rover, and you say, "Well, this is not a luxury car.

00:42:03.000 | It's more than 6,000 pounds."

00:42:05.000 | So people started doing that, and the tax benefits of that were awesome,

00:42:10.000 | just to be able to take the depreciation.

00:42:12.000 | And basically what happened is that there was--there is a section in the tax code

00:42:18.000 | that if you don't have to depreciate property, you can expense it.

00:42:22.000 | And in general, there's a difference in business taxes between depreciation and expenses.

00:42:28.000 | So--or excuse me, yeah, between deducting depreciation and expenses.

00:42:32.000 | If you have equipment that is large and valuable, then you have to depreciate that.

00:42:39.000 | So what that means is that as the value of the equipment reduces,

00:42:42.000 | you can only take a small expense.

00:42:44.000 | So if you buy $100,000 worth of equipment,

00:42:47.000 | you can't just write off $100,000 in the year that you buy it.

00:42:50.000 | You have to write it off based upon a depreciation schedule.

00:42:53.000 | For the simplicity of my show today, ignore the actual depreciation schedule

00:42:58.000 | and assume that it means that it's 20% per year for 5 years.

00:43:02.000 | So let's say that you can write off $20,000 this year, then $20,000 next year,

00:43:08.000 | then $20,000 the third year, then $20,000, then $20,000.

00:43:12.000 | So basically this applies generally to real equipment, real property.

00:43:16.000 | Now, there's another thing, however, that allows you to expense certain costs.

00:43:22.000 | So there's a section in the tax code called--in the U.S. tax code--

00:43:27.000 | called Section 179.

00:43:29.000 | If you can put something in under a Section 179 expense,

00:43:32.000 | then that allows you to expense the full amount, the full cost of it,

00:43:36.000 | in the first year.

00:43:38.000 | And this can be helpful in something like computer equipment.

00:43:40.000 | So if you can get your computer equipment in under a Section 179 expense

00:43:44.000 | instead of in as depreciable equipment, it will save you on taxes now,

00:43:47.000 | so you're accelerating your deduction.

00:43:50.000 | So what happened is that for a time, you could actually expense

00:43:53.000 | up to $100,000 of business expenses, and that $100,000 could be--

00:43:59.000 | if your car were over a certain weight--then that $100,000 expense

00:44:03.000 | could actually be applied to your vehicle.

00:44:06.000 | So now, as a business owner, that allows you to purchase a $100,000 car

00:44:09.000 | for your business, a luxury automobile.

00:44:11.000 | Because it's over a certain weight, though, it's not classified

00:44:13.000 | to be a luxury automobile.

00:44:15.000 | And in excess of that--and you could expense the entire thing,

00:44:19.000 | which means that you would save the $30,000 of taxes

00:44:22.000 | that you otherwise would have incurred in buying the car

00:44:26.000 | and using after-tax dollars.

00:44:29.000 | So this is an awesome strategy.

00:44:31.000 | And in case you're wondering why I think that the tax--

00:44:33.000 | and why I and most economists think that the tax code

00:44:36.000 | should be completely simplified, it's because rich people have the money

00:44:39.000 | to sit around and pay people to--well, pay people to sit around

00:44:43.000 | and think up this stuff.

00:44:45.000 | And poor people don't do it.

00:44:47.000 | So I'm just giving you the information now.

00:44:49.000 | So people were taking advantage of this.

00:44:51.000 | It was a great market.

00:44:52.000 | I'm sure Range Rovers sold lots of vehicles.

00:44:54.000 | Hummer, Chevys, Suburbans--they should be over 6,000 pounds.

00:44:58.000 | These big vehicles, they did awesome.

00:45:00.000 | And so it accounted for major sales.

00:45:03.000 | So then the tax code changed.

00:45:05.000 | So then in 2004, Congress updated the tax code,

00:45:09.000 | and they changed the limits.

00:45:11.000 | And instead of it being 6,000 pounds, then those limits became 14,000 pounds.

00:45:16.000 | Well, now that disqualifies basically anything except an actual truck.

00:45:21.000 | And there were still some limits for vehicles between 6,000 and 14,000 pounds,

00:45:26.000 | but it's a much lower number, and there's a much lesser pool.

00:45:31.000 | So now if you want to get your vehicle depreciation,

00:45:34.000 | you're going to have to drive a big old truck every day,

00:45:36.000 | not a 6,000-pound Rolls-Royce.

00:45:39.000 | This could still be applied to something like a heavy pickup truck,

00:45:42.000 | and this would be valuable for you if you were running something like a construction company.

00:45:48.000 | If you were deciding between a half-ton pickup truck and a one-ton pickup truck,

00:45:53.000 | it would be valuable for you to know.

00:45:55.000 | So the laws changed.

00:46:00.000 | But here would be--and even with the limitations, though, the knowledge of this--

00:46:04.000 | I'll give you one example here, and I'll read from half of a paragraph from--

00:46:08.000 | let's see, which book is this?

00:46:10.000 | This is Jeff Schnepper's "How to Pay Zero Taxes" book,

00:46:13.000 | and he gives some great examples here.

00:46:15.000 | But from page 737--and this is last year's edition--it says, "In 2012--

00:46:23.000 | so if you buy a new"--this is for 2012--

00:46:25.000 | "If you buy a new $60,000 SUV with a loaded gross weight over 6,000 pounds,

00:46:32.000 | you can expense the first $25,000."

00:46:35.000 | So because it's over 6,000 pounds, you can expense the first $25,000,

00:46:39.000 | but you can't expense the full amount like you used to be able to.

00:46:42.000 | "Half the remaining $35,000 cost," which would be $17,500,

00:46:47.000 | "qualified as bonus depreciation.

00:46:50.000 | You also get 20% of the leftover basis," which would be $17,500,

00:46:55.000 | "or $3,500 as regular depreciation.

00:46:58.000 | Use the car 100% for business, and you get a $46,000 first-year deduction."

00:47:04.000 | So this wouldn't apply to used vehicles.

00:47:07.000 | So the example here is if you are running a business,

00:47:12.000 | and let's say that you're going to buy a $60,000 SUV--

00:47:15.000 | let me pause here and run the math real quick.

00:47:17.000 | Okay, so I ran the math, and basically if you were to follow these rules,

00:47:21.000 | it would allow you to buy a new $60,000 vehicle

00:47:24.000 | for a cost of--out-of-pocket cost--of about $46,000

00:47:29.000 | because of about $14,000 of savings due to a $46,000 first-year deduction

00:47:36.000 | and a 30% bracket.

00:47:38.000 | So this would be a good example of how, when someone's in a high bracket,

00:47:41.000 | by accelerating the deduction by using this strategy,

00:47:45.000 | and this would also be an example of a shifting strategy, of a conversion,

00:47:50.000 | converting expenses if you could convert them over

00:47:53.000 | from the personal checkbook over to the business checkbook,

00:47:57.000 | this would be how you can make a major savings.

00:47:59.000 | It allows you to buy a new $60,000 car for a cheaper price

00:48:03.000 | than some other people might pay for a used car

00:48:05.000 | because all those rules are only applicable to new cars.

00:48:08.000 | So hopefully that's a good example to say that this stuff actually does matter.

00:48:12.000 | I always get scared that I'm getting too deep,

00:48:14.000 | and I don't know if I'm getting too deep or not.

00:48:17.000 | You tell me if this was too deep or if this is good.

00:48:20.000 | So you can accelerate deductions, and if you can accelerate deductions,

00:48:23.000 | that will be extremely valuable.

00:48:26.000 | You can also defer income.

00:48:28.000 | So if you can defer the recognition of income

00:48:31.000 | without deferring the actual receipt of it,

00:48:33.000 | that would be a really amazing thing as well.

00:48:35.000 | So this is why IRAs are such a useful tool

00:48:38.000 | because the IRA law is explicit about the fact

00:48:41.000 | that you can defer recognizing the income for tax purposes

00:48:45.000 | without deferring receiving the income.

00:48:48.000 | So you can actually receive the income.

00:48:50.000 | You have constructive receipt, which we'll talk about in just a minute.

00:48:53.000 | It's on my notes to go over constructive receipt.

00:48:55.000 | You have the receipt of the income so that you can go ahead and invest it.

00:49:00.000 | So you can invest the money because you have received it.

00:49:02.000 | It's in your 401(k) account, but it is not recognized for taxes.

00:49:07.000 | And I'm going to go over constructive receipt in a minute

00:49:10.000 | because it'll fit in better.

00:49:12.000 | So that would be a good real-world example.

00:49:15.000 | So that finishes up as far as the timing strategy

00:49:17.000 | when tax rates are constant.

00:49:19.000 | Well, what about if tax rates are going to change?

00:49:22.000 | This is a problem.

00:49:23.000 | So this is why financial planning is in some ways a science

00:49:27.000 | but is in other ways an art,

00:49:28.000 | and why financial planning has to be integrated with economic analysis

00:49:31.000 | and it has to be run personally.

00:49:35.000 | When tax rates are constant, it's easy to do the math,

00:49:38.000 | but we don't know what tax rates are going to do.

00:49:41.000 | In the last 25 years, Congress has changed tax rates at least nine times.

00:49:49.000 | So if you go back and look at it, you'll see what are the maximum tax rates

00:49:52.000 | that are applied to ordinary income or capital gains.

00:49:56.000 | They've changed no fewer than nine times.

00:49:59.000 | So how do we know what Congress is going to do?

00:50:02.000 | Well, we don't.

00:50:04.000 | The marginal brackets changed just this last year,

00:50:07.000 | and depending on what you think about the political climate of this country,

00:50:11.000 | will it change more in the future?

00:50:13.000 | I don't know. I bet it's going to change.

00:50:14.000 | Which way is it going to change? I don't know.

00:50:16.000 | Now, here's where you'd have to look at an individual situation

00:50:19.000 | if you're talking about individual income taxes.

00:50:21.000 | Are you in a very high bracket or are you in a moderate bracket?

00:50:24.000 | The reality is that effective brackets haven't changed much for the majority of people,

00:50:30.000 | but they have changed at the margin.

00:50:32.000 | So this is where you have to look at an individual.

00:50:35.000 | So is the overall rate going to change, and what about your rate?

00:50:42.000 | So is your rate going to change because you lowered your income,

00:50:47.000 | because you raised your income, because you changed jobs,

00:50:49.000 | because you retired, because you started a new business,

00:50:51.000 | because you're pursuing a strategy of early financial independence?

00:50:55.000 | Your own personal rates are going to be a major factor.

00:50:59.000 | So we've got to figure out, are rates increasing or are rates decreasing?

00:51:04.000 | And this is a big question, because depending on if rates are going up

00:51:07.000 | or if rates are going down, then this is going to make a big difference

00:51:10.000 | as far as should we bring income forward or should we defer income.

00:51:15.000 | In general, the higher the rate, the higher the tax rate,

00:51:19.000 | the higher the tax savings for a tax deduction.

00:51:22.000 | The lower the tax rate, the lower the tax costs for taxable income.

00:51:27.000 | So everything being equal, in general, you would want to recognize your deductions

00:51:33.000 | during high tax rate years, and you would want to recognize income

00:51:37.000 | during low tax rate years.

00:51:39.000 | So all things being equal for retirement, if you are going to be at a higher tax rate

00:51:43.000 | while working than you are in retirement, which, by the way, most people will be,

00:51:46.000 | you're going to want to recognize more of your deductions during your working years,

00:51:51.000 | and you're going to want to defer your income towards your non-working years.

00:51:58.000 | Now, is that precise?

00:52:00.000 | It's precise if you know what tax rates are going to be

00:52:02.000 | and what your personal tax rate is going to be,

00:52:04.000 | but the problem is you don't know that.

00:52:06.000 | Now, you can do some calculations, some in general calculations,

00:52:09.000 | but ultimately this is incredibly personal,

00:52:13.000 | and that's why you have to look at the personal numbers.

00:52:16.000 | If tax rates are increasing--this is the really challenging one--

00:52:20.000 | because if tax rates are increasing, you have to do a complete calculation,

00:52:24.000 | and you have to figure out what is the actual calculation.

00:52:30.000 | There's no rule, because you would look and say,

00:52:33.000 | "How much are the tax rates increasing?

00:52:35.000 | Am I going from a 25% bracket to a 28% bracket?"

00:52:38.000 | And then you would calculate the present value of a tax deduction

00:52:41.000 | or calculate the value of the income.

00:52:43.000 | So you have to do the calculation, and I can't give you a rule for that.

00:52:47.000 | If tax rates are decreasing,

00:52:49.000 | then you're going to want to bring forward your deductions,

00:52:51.000 | and you're going to want to push back and defer your income,

00:52:55.000 | depending on whether rates are going up or rates are going down.

00:52:59.000 | Are there some general strategies that you can pull from this?

00:53:02.000 | I think there are, and that's why most financial planners

00:53:05.000 | would rather you take deductions now rather than in retirement.

00:53:09.000 | It's very hard to get the tax code to say

00:53:12.000 | that you're going to be in a higher tax rate at retirement

00:53:15.000 | than during your working years.

00:53:17.000 | It's very hard to get that to happen

00:53:19.000 | if, indeed, tax rates stay similar to what they are now

00:53:23.000 | or close to what they are now.

00:53:25.000 | However, is it possible that tax rates could change dramatically?

00:53:28.000 | Sure they could. Brackets could change, absolutely.

00:53:31.000 | And so is it likely that you're going to be? I don't know. It would depend.

00:53:34.000 | Are you making $5 million a year or $50,000 a year?

00:53:37.000 | There's no political will in this country for--

00:53:40.000 | or, frankly, most countries--

00:53:42.000 | to move the bulk of the tax burden onto people making $50,000 a year.

00:53:46.000 | There is a tremendous, it seems, political will

00:53:49.000 | to move the bulk of the tax burden onto people making $5 million a year.

00:53:53.000 | So you would have to consider this for yourself.

00:53:57.000 | So let's wrap up now with a couple of challenges

00:54:03.000 | and then a couple of examples

00:54:05.000 | and then a couple of challenges and a couple of examples.

00:54:08.000 | So timing strategies do have limitations.

00:54:12.000 | One of the limitations, for example, would be, in general,

00:54:15.000 | if you're going-- let's say that you're going to invest in an asset.

00:54:18.000 | You're going to invest in stocks.

00:54:21.000 | You can defer your income.

00:54:24.000 | You can defer recognizing the income on the stock

00:54:27.000 | if it's going up in value until you sell it.

00:54:30.000 | But you can't defer it any longer until you sell it,

00:54:33.000 | assuming it's held in a taxable brokerage account.

00:54:36.000 | So you can't let the tax strategy wag--

00:54:41.000 | you can't let the tail wag the dog, so to speak.

00:54:43.000 | You can't let the tax strategy dictate your investment decisions.

00:54:46.000 | You have to make your investment decisions

00:54:49.000 | and then figure out how to make them appropriate to the tax strategy.

00:54:53.000 | And when I explain something like that,

00:54:55.000 | you can see, then, how valuable some of the tools like tax-deferred accounts can be

00:55:00.000 | because a tax-deferred account does allow you to--

00:55:03.000 | if you can do all of your trading in an account

00:55:05.000 | that does allow you to defer the income completely,

00:55:08.000 | then--so such as a Roth IRA.

00:55:11.000 | Let's say you can do all of your trading inside of the Roth IRA.

00:55:14.000 | Well, then now you can ignore the tax consequences of your trades,

00:55:17.000 | and you can buy and sell, buy and sell, buy and sell,

00:55:20.000 | because the tax consequences are already squared away.

00:55:24.000 | But then again, you have to pay income taxes on that money.

00:55:29.000 | It may be better for you to use--if you're using--

00:55:31.000 | you have limits as far as who can participate in those accounts.

00:55:34.000 | So there's a lot of things interplaying here.

00:55:37.000 | And in fact, I forgot--I was trying to stay away from using U.S.-centric examples.

00:55:41.000 | If you're an international listener,

00:55:43.000 | today's show should be completely valid to your local tax environment

00:55:47.000 | because the concepts are the same no matter what tax environment

00:55:50.000 | and no matter what tax authority you're dealing with.

00:55:53.000 | So you do have some limitations.

00:55:57.000 | And then you get the whole question of can you afford to defer income.

00:56:00.000 | If you are a single mom and you're raising--you're a single mom with three kids

00:56:05.000 | and you're earning minimum wage, you probably can't afford to defer income.

00:56:09.000 | So this whole idea of Joshua has this fancy tax strategy of,

00:56:12.000 | "I'm going to defer my income," this is pointless.

00:56:15.000 | This doesn't do any good for you because you need the money now.

00:56:18.000 | But if you don't need the money, then there's a lot that you can do.

00:56:21.000 | I was working on some tax strategies for an early retirement person,

00:56:27.000 | a popular early retirement personality,

00:56:29.000 | and I was just struck by how if you are able to save a huge percentage of your income,

00:56:34.000 | man, it allows you to be so efficient.

00:56:36.000 | It's amazing.

00:56:37.000 | If you don't need the money that you're earning,

00:56:39.000 | it's amazing how efficient you can be from a tax flow perspective.

00:56:43.000 | So consider the non-tax scenarios and the tax scenarios.

00:56:48.000 | You've got to always consider both of these things.

00:56:51.000 | Are you going to defer income forward or are you going to pull it back?

00:56:53.000 | And I want to finish with constructive receipt,

00:56:55.000 | and this is both a limitation but an advantage.

00:56:58.000 | So there is a doctrine in tax law that is called the constructive receipt doctrine.

00:57:04.000 | And basically the idea is that if you receive money, if it is yours,

00:57:10.000 | you can't pretend it's not.

00:57:12.000 | So you would think if you're an individual,

00:57:16.000 | say you're an individual employee, then you would think,

00:57:18.000 | "Well, if someone gives me money, then, yeah, I'm going to go ahead and get it."

00:57:22.000 | But here would be the example.

00:57:24.000 | So if I give you a check on December 1, 2014,

00:57:32.000 | and I'm making a payment to you on December 1, 2014,

00:57:37.000 | when do you receive the money?

00:57:40.000 | Do you receive the money on December 1, 2014?

00:57:43.000 | Or if you just simply put the check in your drawer and don't cash it

00:57:48.000 | until January 10, 2015, did you receive it on January 10, 2015?

00:57:54.000 | Or did you receive it on December 1, 2014?

00:57:57.000 | Or just whatever the date I said was.

00:58:00.000 | Which year did you receive it in?

00:58:02.000 | Well, the answer is that you received it when I gave you the check

00:58:07.000 | because you must report your income when the income is received,

00:58:12.000 | whether it's received in the form of cash, received in the form of property,

00:58:15.000 | or received in the form of services.

00:58:17.000 | You must recognize the income when it is actually or constructively received.

00:58:25.000 | And so constructive receipt means that you are legally--

00:58:31.000 | you are assumed to have received the money

00:58:33.000 | if the income has been credited to your account

00:58:36.000 | or if the income is unconditionally available to you

00:58:41.000 | or if you are aware of the income's availability to you

00:58:45.000 | and if there are no restrictions on the taxpayer's control over the income.

00:58:50.000 | So let's say that I give you the check.

00:58:53.000 | That means that you've received it.

00:58:55.000 | I've given you the check.

00:58:57.000 | It's unconditionally available to you.

00:58:59.000 | You're aware of it being available to you,

00:59:01.000 | and there's no restrictions on your control over the income.

00:59:05.000 | So what if I put the check in your box?

00:59:08.000 | Let's say that you work for me as an employee

00:59:10.000 | and I decide to put the check into your box

00:59:12.000 | and you're going to receive a bonus check at the end of the year,

00:59:14.000 | and I deposit it there on December the 20th.

00:59:16.000 | But you don't want--and it's a $100,000 bonus--

00:59:19.000 | but you don't want to get the $100,000 bonus,

00:59:21.000 | so you just decide, "You know what?

00:59:23.000 | "I'm going to go away and I'm going to take the last two weeks of the year off,

00:59:26.000 | "and I'm not going to go into work and pick up the check,

00:59:28.000 | "and I'm going to pretend I don't know that it's there."

00:59:30.000 | Would that get you out? No.

00:59:32.000 | Under the doctrine of constructive receipt,

00:59:34.000 | you have control over the income.

00:59:38.000 | You could go into your box at work or into your desk

00:59:41.000 | and you could pick up the check.

00:59:43.000 | So even though you said, "I'm not going to go in and get it,"

00:59:45.000 | you still got it. You still received it.

00:59:48.000 | So now, does Congress catch--excuse me--

00:59:51.000 | does the IRS catch most people that do things like this

00:59:53.000 | when they push things forward or push things back?

00:59:55.000 | Probably not.

00:59:56.000 | There's a very low audit rate.

00:59:58.000 | Many people do this all the time.

00:59:59.000 | Does the IRS really care if you are going to screw around

01:00:04.000 | with your $5,000 end-of-year bonus check?

01:00:07.000 | I don't think so.

01:00:08.000 | Probably--I mean, they care if they're auditing you,

01:00:11.000 | but you're not a--you're not a big target.

01:00:13.000 | What about a $5 million check?

01:00:15.000 | And that's where the IRS is going to get involved.

01:00:19.000 | So this doctrine of constructive receipt

01:00:21.000 | will actually influence just about all of our planning.

01:00:24.000 | And when we get to talking through financial planning strategies

01:00:27.000 | such as, let's say, non-qualified deferred compensation programs,

01:00:31.000 | which that's probably a mouthful for you,

01:00:34.000 | but a non-qualified deferred comp,

01:00:36.000 | one of the things that we're going to get to

01:00:38.000 | is you figure out who has the money.

01:00:40.000 | Has the employee received--constructively received the money,

01:00:43.000 | or does the employer still have it?

01:00:47.000 | And when you, as a business consultant or a benefits consultant--

01:00:51.000 | when I'm designing a plan--

01:00:53.000 | let's say I'm designing--let's say I'm working with a physician, okay?

01:00:56.000 | And this physician has a small independent medical practice.

01:00:58.000 | Let's ignore group practice because that's more complicated.

01:01:01.000 | And the physician is making $500,000 a year.

01:01:04.000 | And I'm sitting here, and he says,

01:01:06.000 | "Joshua, I need help with my tax planning strategies."

01:01:08.000 | Well, frankly, if you're earning $500,000 a year,

01:01:11.000 | a 401(k) doesn't get you that far.

01:01:14.000 | A $17,500 that you can defer may be an additional $5,000,

01:01:18.000 | so a total of $22,500 that you can defer out of your income

01:01:22.000 | if you're over the age of 50.

01:01:24.000 | And a business--let's see what that number is.

01:01:27.000 | So $22,500.

01:01:29.000 | So this guy says to me, "Joshua, great.

01:01:32.000 | "I can defer a total of 5% of my income into--

01:01:35.000 | is that right, $500,000?

01:01:38.000 | No. Yeah, right.

01:01:40.000 | So I can defer under 5% of my income there.

01:01:43.000 | That doesn't get me where I'm trying to go.

01:01:45.000 | I'm 55 years old, I'm a successful physician,

01:01:48.000 | and I'm trying to defer my income into--

01:01:51.000 | I'm trying to build it for retirement,

01:01:53.000 | and I'm just sick and tired of this tax bill that I have.

01:01:56.000 | Well, $22,000 doesn't get me there.

01:01:58.000 | So let's say then that I can go ahead and I can say,

01:02:01.000 | "Well, let's design your 401(k) plan properly,

01:02:04.000 | and let's max it out.

01:02:06.000 | So let's design it where instead of the $22,500 limit,

01:02:09.000 | let's use the other sections of the code,

01:02:12.000 | and let's get you to the ability to defer $17,500

01:02:15.000 | and to contribute an additional amount."

01:02:17.000 | So you can contribute $50,000, and then on top of that,

01:02:20.000 | you can do your additional $5,000 catch-ups.

01:02:22.000 | So now we're at a point where we're doing $55,000

01:02:25.000 | into your 401(k) plan.

01:02:27.000 | So he's a little bit happier with me.

01:02:29.000 | He's got the fruit.

01:02:31.000 | All we need is just simply to strike the documents appropriately.

01:02:34.000 | This is easy, easy to do.

01:02:36.000 | Now he's deferring--you know, he's basically taking 10% of his income.

01:02:40.000 | But he says, "Look, I'm 55 years old. I still can't afford it."

01:02:43.000 | Well, now we move over into the world of non-qualified deferred comp.

01:02:46.000 | And so what this means is saying,

01:02:48.000 | "How can we set up a plan to allow you to defer--

01:02:51.000 | can we do a couple hundred thousand dollars a year?"

01:02:53.000 | Well, the answer is yes, and we are not going to go into it today,

01:02:57.000 | but we can set up a plan so he can defer $250,000 of income into this plan.

01:03:02.000 | We've got to set it up with him and his employees.

01:03:05.000 | We've got to make sure that we're very careful in how we do it.

01:03:08.000 | But we need to make sure that he does not have constructive receipt of the money.

01:03:14.000 | The money is not available to him.

01:03:16.000 | Because if he has constructive receipt of the money,

01:03:19.000 | then he's going to be taxed on it.

01:03:21.000 | So we have to make sure that this is still an asset of the business

01:03:23.000 | and not his personal asset.

01:03:25.000 | This is still--that we have to make sure that this is available to his creditors.

01:03:30.000 | So if his business were to be sued,

01:03:32.000 | then we need to make sure that this retirement plan is available to his creditors.

01:03:35.000 | And this brings in--if you're a financial planning student,

01:03:37.000 | this would be why you can only do non-qualified deferred comp

01:03:40.000 | with a corporation, with a C corporation.

01:03:42.000 | You can't do it with an S corporation.

01:03:44.000 | So if you're taking a CFP exam, if you ever see S corp

01:03:47.000 | and non-qualified deferred comp, you know that's wrong.

01:03:49.000 | Non-qualified deferred comp must--is only useful in C corporations.

01:03:54.000 | And the reason is because it has to remain an asset of the business

01:03:57.000 | under the doctrine of constructive receipt.

01:03:59.000 | Or you could--we'd have to make--so then you would--so you say,

01:04:04.000 | "Well, can we get some other protection in place?"

01:04:08.000 | You know, "Could we set up a rabbi trust?" is what it's called.

01:04:10.000 | If you're a financial planning student, you need to understand what a rabbi trust is.

01:04:13.000 | So can we pull this money out into a trust?

01:04:15.000 | Yes and no. That's a show for another day.

01:04:18.000 | I went too deep. I didn't mean to go into that.

01:04:20.000 | My point was to say this.

01:04:23.000 | In tax planning, you only need to understand the doctrine of constructive receipt.

01:04:27.000 | And if you understand the doctrine of constructive receipt,

01:04:30.000 | you now understand why it's important when you receive the income

01:04:35.000 | and you can--and you receive the income when it is available to you as a person.

01:04:42.000 | So that is income timing strategies.

01:04:46.000 | Man, I'm done.

01:04:47.000 | I hope that that was useful.

01:04:50.000 | Again, I would crave your feedback on these shows.

01:04:52.000 | If you're enjoying them, let me know.

01:04:54.000 | If you're not enjoying them, let me know.

01:04:56.000 | And I don't promise to change anything because you let me know,

01:04:58.000 | but I do want to know because what I want to do is I want to strike the balance.

01:05:02.000 | I want to kind of provide something for everybody,

01:05:04.000 | but I don't want you to listen to this and get my show and get the same old, same old--

01:05:08.000 | I want you to listen and have 18 tips for couponing every day

01:05:11.000 | because the reality is there's more that you can do with that.

01:05:13.000 | And hopefully you feel--hopefully you are smarter today.

01:05:16.000 | Hopefully you are more educated about taxes and about income timing strategies.

01:05:20.000 | Ah, sorry, last thing I wanted to say.

01:05:22.000 | Income timing, you can do some wizardry with income timing strategies

01:05:27.000 | if you are off the mainstream, or even if--you could do some amazing stuff with income timing.

01:05:32.000 | If you haven't checked out what the Madfientist is doing over on his site,

01:05:36.000 | Brandon is the Madfientist.

01:05:38.000 | His site is madfientist, F-I-E-N-T-I-S-T dot com.

01:05:41.000 | All of his strategies are--most of his strategies are income timing strategies.

01:05:47.000 | And he interviewed--there's another blog you should check out.

01:05:51.000 | Let me make a note to make sure I get it in the show notes called Go Curry Cracker,

01:05:56.000 | a crazy blog name, but these guys are writing a lot about taxes

01:06:00.000 | from an early retirement financial independence--Go Curry Cracker--and Madfientist.

01:06:08.000 | And check out their writing.

01:06:09.000 | But all that they're doing is income timing strategies.

01:06:12.000 | So what I mean is that Brandon, for example, he is writing this--

01:06:17.000 | he has this awesome case study on his site which is really accessible to you,

01:06:20.000 | and he goes through and shows how if you can earn a reasonable wage

01:06:24.000 | and if you can live on a very small amount of it,

01:06:26.000 | you can use some very straightforward 401(k) deductions, HSA deductions, IRA deductions.

01:06:33.000 | You can use some very straightforward tax planning techniques

01:06:36.000 | to push off the timing of the income to a future date.

01:06:40.000 | Then you can retire at an early age.

01:06:42.000 | You can use the transition from a 401(k) or from an IRA into a Roth IRA,

01:06:47.000 | stay underneath the tax brackets,

01:06:48.000 | and you can basically get the income with zero taxes associated with it.

01:06:52.000 | So he's doing a really great job of showing how this type of strategy can work in that scenario.

01:06:57.000 | That's not going to work if you're earning $5 million a year

01:07:00.000 | and you're listening to my show and saying, "How can I do this?

01:07:02.000 | We need to use something else, but we're still going to be using an income timing strategy."

01:07:06.000 | So hopefully by understanding this strategy a little bit more and having some good examples,

01:07:10.000 | then you can start thinking to yourself, "Should I bring my income forward or should I defer it?

01:07:15.000 | What's my rates going to be? Are my rates going to be constant?

01:07:18.000 | And if my rates are constant, then I'm going to defer income

01:07:21.000 | and I'm going to bring deductions forward.

01:07:22.000 | If my rates are increasing, then I'm going to do the math.

01:07:25.000 | If my rates are decreasing, do the math.

01:07:27.000 | Excuse me, if my rates are decreasing, then I'm going to bring deductions forward

01:07:31.000 | and move income off."

01:07:32.000 | And hopefully you can start to think this way.

01:07:34.000 | Hopefully that's a good place to end on today's show.

01:07:41.000 | I want to know if you've heard this anywhere else in any of the podcasts, let me know.

01:07:47.000 | If you've headed to luxury automobile depreciation, non-qualified deferred comp,

01:07:52.000 | and Roth IRA early retirement strategies, I hope I didn't lose you.

01:07:58.000 | I hope I didn't lose you. My disease is trying to pack too much.

01:08:01.000 | I'm trying to make these shorter and make them more doable.

01:08:05.000 | Hey, an hour and seven minutes right now for the recording.

01:08:07.000 | That's pretty good. I'm pretty proud of that.

01:08:09.000 | Going to have some more shows lined up for you this week,

01:08:12.000 | and I'm going to continue these tax planning shows little by little as time goes on.

01:08:17.000 | We're going to do some insurance stuff. We're going to do some investment stuff.

01:08:20.000 | We're going to do some college stuff. I've got a bunch of these shows planned.

01:08:24.000 | I thank you for listening.

01:08:26.000 | Two action steps for you, three action steps for you.

01:08:29.000 | If you've enjoyed the show or if you hated the show, let me know.

01:08:32.000 | RadicalPF is me on Twitter, so shoot me a tweet @radicalpf or shoot me an email at Joshua@radicalpersonalfinance.com.

01:08:43.000 | Let me know what you thought of the show.

01:08:44.000 | Thing two, I would request, please go and rate the show on iTunes.

01:08:49.000 | If you hated it, say, "I hated this show."

01:08:52.000 | If you loved it, say, "I loved this show," and that rating would be so, so helpful to help people find the show.

01:08:57.000 | One of the things that when people are looking at shows, they look a lot at the ratings,

01:09:01.000 | and the ratings and the number of reviews makes a huge difference.

01:09:04.000 | So please, I would just ask you, if you want to support the show, go and leave a rating on iTunes.

01:09:09.000 | And finally, sign up for the email list.

01:09:12.000 | I'm going to be, as soon as I'm able to, little by little, I'm going to be adjusting the email list a little bit

01:09:18.000 | to try to bring more content and make it look nicer as I'm able to.

01:09:21.000 | But for now, go and sign up for the email list, and you'll get the full, complete show notes every day,

01:09:26.000 | both for your files with the resources, recommendations, and also so you can hear about the show

01:09:31.000 | and see if it's a subject that you're interested in that you want to listen to

01:09:34.000 | or if it's a subject that you want to skip for the day.

01:09:37.000 | Thank you so much for listening.

01:09:39.000 | Go kick some butt and figure out your own income timing strategy.

01:09:43.000 | Have a great Wednesday, everybody.

01:09:46.000 | [music]

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RPF-0036-Tax_Planning_-_Income_Timing_Strategies