RPF0121-Last_Minute_Tax_Planning-re-release-12-08-17

00:00:00.000 | We're coming up on the end of the year,

00:00:02.200 | so let's see if I can save you some money

00:00:04.300 | on your tax bill this year.

00:00:05.960 | If you haven't been thinking about it this year,

00:00:08.620 | you might be caught saying, what am I gonna do?

00:00:10.660 | And today I'm gonna try to help you solve that problem.

00:00:12.880 | Good morning, my name is Joshua Sheets

00:00:14.260 | and this is the Radical Personal Finance podcast

00:00:16.500 | for today, Wednesday, December 17, 2014.

00:00:20.620 | And today, let's dig into some tax planning ideas.

00:00:24.980 | As I mentioned on a previous show,

00:00:26.560 | this is the time of year that if you pay any attention

00:00:29.060 | to the financial websites or if you pay attention

00:00:32.500 | to your financial section in your newspaper

00:00:35.400 | or if you look at your Facebook newsfeed or whatever,

00:00:38.440 | you're likely to get some articles showing up

00:00:40.260 | that are gonna be essentially

00:00:41.340 | end of the year tax planning ideas.

00:00:43.420 | And that's good, they're useful,

00:00:45.900 | and that's what this show today

00:00:47.080 | that I'm creating for you is about.

00:00:49.980 | But the challenge with doing this kind of planning

00:00:52.760 | at the end of the year is that it's way too late.

00:00:56.100 | It's way too late to start talking about

00:00:58.660 | what you're gonna actually do for 2014.

00:01:00.460 | Good tax planning, frankly, you should be working

00:01:02.620 | on good tax planning for 2015 right now

00:01:05.700 | and getting started with that.

00:01:06.820 | Now I know that's nice to say in theory

00:01:09.700 | and in practice it's a completely different world,

00:01:14.060 | but that is really important that you do it in advance.

00:01:17.640 | Good planning in advance is always gonna be more effective

00:01:20.600 | than last minute planning,

00:01:21.860 | but doesn't mean that last minute planning isn't helpful.

00:01:26.700 | I do wanna keep this in context

00:01:28.080 | and that's why I started with the previous show

00:01:30.820 | where I didn't focus on how to save taxes,

00:01:34.060 | but rather I just focused on end of the year goal planning.

00:01:39.060 | And so that previous show that if you haven't listened to,

00:01:41.500 | go back and listen to episode 116,

00:01:44.180 | which was the show on how to plan

00:01:45.820 | your financial goals for 2015.

00:01:47.820 | You can find that at radicalpersonalfinance.com/116

00:01:52.820 | if you're interested in that show.

00:01:54.700 | And the reason that I did that is because

00:01:57.420 | really more than anything,

00:01:58.620 | the end of the year tax planning articles

00:02:00.300 | and things like that are essentially click bait.

00:02:02.660 | Where it's how can I get you to click on a tax

00:02:05.100 | or click on a button and most people read them

00:02:07.360 | and don't do anything with them.

00:02:09.220 | But what I described in episode 116

00:02:12.820 | is something that you can actually do something with.

00:02:15.900 | Put this in context.

00:02:17.640 | When you see these articles,

00:02:19.580 | remember that 43 point,

00:02:21.460 | and here's why I started with 116.

00:02:23.220 | Remember 43 point three percent of Americans

00:02:25.820 | pay zero federal income taxes.

00:02:28.380 | Zero.

00:02:30.100 | So almost half of our society

00:02:32.620 | pays zero federal income taxes.

00:02:35.480 | And many of those who do pay some federal income taxes

00:02:39.780 | don't pay all that much.

00:02:41.020 | Now that's not a number that accounts

00:02:42.880 | for the total tax burden.

00:02:45.620 | So it's certainly more than 43, excuse me,

00:02:48.380 | certainly less than 43 point three percent

00:02:50.620 | who pay zero employment taxes.

00:02:53.620 | But it does count for federal income taxes

00:02:55.580 | and that's really the only thing

00:02:56.500 | that the end of the year counts for

00:02:58.300 | is for your federal income taxes.

00:03:01.380 | So the other problem with these end of the year articles

00:03:04.820 | and end of the year planning is

00:03:06.740 | end of the year planning is really tough

00:03:08.180 | because essentially you have to have money.

00:03:11.300 | And the way an income tax system works

00:03:14.500 | is you're penalized for productivity.

00:03:17.760 | So the only way to essentially avoid the taxes

00:03:22.720 | is to be less productive,

00:03:24.260 | and the end of the year is too late for that.

00:03:27.520 | You should have chosen in advance to be less productive.

00:03:30.560 | Or to get rid of your money.

00:03:32.640 | And with the way that most Americans

00:03:34.920 | conduct their financial lives,

00:03:37.520 | there's not a lot of money left

00:03:38.680 | at the end of the year to get rid of.

00:03:40.460 | So again, that's why I started with the other show.

00:03:44.640 | But for those of you who listen to this show,

00:03:47.200 | hopefully you're not in that situation.

00:03:48.680 | Hopefully you are in a situation

00:03:50.520 | of overflowing with excess money and excess savings.

00:03:53.660 | And now you're trying to figure out what do I do?

00:03:57.760 | What do I do?

00:03:58.600 | So that's what today's show is about.

00:04:00.320 | Here's the basic rule of tax planning.

00:04:03.080 | You gotta get rid of your income.

00:04:04.720 | So remember, income taxes,

00:04:07.300 | you're penalized for making money.

00:04:09.060 | As one of my favorite quotes, William Feather once said,

00:04:11.560 | "The reward of energy, enterprise, and thrift is taxes."

00:04:15.980 | So you gotta get rid of the money.

00:04:17.200 | You gotta get rid of the money

00:04:18.240 | through one of the three fundamental tax planning strategies.

00:04:22.220 | A timing strategy, a conversion strategy,

00:04:25.280 | or a shifting strategy.

00:04:26.840 | So with a timing strategy,

00:04:28.080 | that's most popular at this time of year

00:04:30.080 | where you're gonna try to defer

00:04:32.040 | paying the tax towards the future.

00:04:34.360 | However, you might also bring it forward.

00:04:36.440 | And that's why this is pretty tough

00:04:38.300 | is you've gotta figure out what you should do with it.

00:04:41.720 | Most end of the year articles that you read,

00:04:44.560 | and including the majority of today's show,

00:04:46.920 | are about deferring income.

00:04:49.280 | But you've gotta figure out

00:04:50.760 | whether it's better for you to defer it

00:04:52.760 | or to actually accelerate it and bring it forward.

00:04:56.360 | In general, normally we like to postpone paying the tax

00:05:02.200 | because you can pay it later with cheaper dollars.

00:05:06.080 | So as inflation makes our dollars cheaper,

00:05:08.460 | if you have a tax liability of $10,

00:05:12.360 | if you pay it in a later year,

00:05:13.700 | you'll be able to pay it with cheaper dollars.

00:05:15.800 | So we usually wanna postpone tax

00:05:17.340 | so we can pay it later with cheaper dollars.

00:05:19.440 | Also, we might be able to more productively use the money

00:05:23.400 | than using it to pay taxes.

00:05:25.200 | So remember that any money that you can save on tax

00:05:27.920 | is comparable to receiving, in essence,

00:05:31.720 | an interest-free loan that you can use today.

00:05:35.400 | If you can avoid paying $10,000 in tax,

00:05:39.320 | that's 10,000 extra dollars that you can use

00:05:41.920 | for your purposes

00:05:44.080 | and you're not paying any interest on the money.

00:05:47.220 | So that's really valuable.

00:05:48.220 | However, remember that you might actually

00:05:51.100 | want to not defer income.

00:05:53.280 | You might wanna actually go ahead and bring it forward

00:05:55.620 | and pay the taxes today, and there could be many reasons.

00:05:58.480 | Your situation might change.

00:06:00.680 | You might be in a low-income bracket at the moment

00:06:04.520 | and you expect yourself to be

00:06:06.480 | in a higher-income bracket down the road.

00:06:08.660 | Well, in that situation, it's better to go ahead

00:06:10.380 | and pay the tax now in the lower bracket.

00:06:13.060 | Generally, tax rates and brackets could change.

00:06:15.860 | So rates on all taxpayers could change.

00:06:18.640 | They could go up, they could go down.

00:06:20.560 | Also, brackets could change.

00:06:22.060 | The brackets could expand, they can contract.

00:06:24.620 | And so you've gotta kind of figure out

00:06:27.100 | what you're concerned with and what you're actually doing.

00:06:30.860 | So think through it carefully.

00:06:32.040 | Before you just go about deferring everything,

00:06:35.100 | think through it.

00:06:36.340 | But with that said, with that caveat,

00:06:38.500 | 'cause that is very important,

00:06:40.020 | let's get into some ideas and see if I can give you

00:06:42.820 | some tips that might be helping you.

00:06:44.780 | And this is gonna be very useful.

00:06:46.260 | At least one of you is probably facing a big bill

00:06:48.780 | and you need some last-minute help.

00:06:50.140 | So I think I'm gonna try to give you that help.

00:06:52.800 | As you're going through today's show,

00:06:54.700 | if you hear something, if you hear me talk about something

00:06:57.900 | that you don't understand, don't worry about it.

00:07:00.340 | Don't try to grasp every specific detail.

00:07:03.540 | If I say something like,

00:07:05.860 | make a Section 179 expense election,

00:07:08.580 | and you don't know what a Section 179 expense election is,

00:07:11.220 | don't worry about it.

00:07:12.060 | Just grasp the concept if you can.

00:07:13.860 | If not, come on back later and it'll start to make sense

00:07:16.540 | when we talk about it at another time.

00:07:18.380 | Or if I talk about cash-basis accounting

00:07:20.580 | versus accrual-basis accounting in your business,

00:07:23.160 | if you don't understand what that means,

00:07:24.500 | don't worry about it.

00:07:25.980 | Spend a little time, do a quick web search,

00:07:27.960 | and if you can find some information on it,

00:07:30.980 | that might help you.

00:07:31.980 | But learning financial information

00:07:36.260 | is well done in an iterative process.

00:07:39.020 | So by constantly exposing yourself to information

00:07:42.380 | that's beyond your current understanding,

00:07:44.180 | over time, your understanding will rise.

00:07:46.940 | And there's always going to be something

00:07:48.980 | you don't understand.

00:07:50.400 | There are so many things that I read

00:07:52.220 | that I don't understand, and it's always been that way.

00:07:55.700 | But over time, when I look back now,

00:07:57.340 | I can see that over the past years,

00:07:59.780 | my understanding has increased.

00:08:01.300 | And so what confused me five years ago

00:08:03.700 | to now is just old hat, I don't even have to think about it.

00:08:05.980 | So listen to today's show,

00:08:07.860 | but don't worry if I throw you off on a detail or two.

00:08:10.620 | Let's start with the easiest, most well-known ways

00:08:15.380 | to do some last-minute planning,

00:08:18.540 | and then we'll move to some of the more esoteric.

00:08:20.340 | Let's start with retirement accounts.

00:08:22.220 | Now, we're all familiar with the concept

00:08:24.140 | of deferring income through a retirement account.

00:08:27.100 | And the challenge is, however,

00:08:31.860 | that most of the retirement accounts

00:08:33.500 | that most of us participate in,

00:08:35.140 | meaning 401(k)s and 403(b)s,

00:08:37.620 | these don't really help you at the end of the year,

00:08:40.560 | because you have to actually make your contributions

00:08:43.140 | as you go.

00:08:44.700 | So if you arrive here in December,

00:08:46.380 | and you've been putting 3% of your income aside

00:08:49.660 | into a 401(k) plan, and you recognize

00:08:52.380 | that all of a sudden you have a higher bonus payment,

00:08:56.220 | and you wanna put an extra $10,000 aside,

00:08:59.980 | generally you can't do that,

00:09:01.740 | because those accounts have to be funded

00:09:04.060 | throughout the year.

00:09:05.500 | So unless you can talk to your HR department,

00:09:07.700 | and this is my tip for you,

00:09:09.540 | I'm probably a little late in giving this to you,

00:09:11.540 | it's December 17th as I record this,

00:09:13.980 | so unless you can talk to your HR department

00:09:16.420 | and can defer your entire last income

00:09:18.380 | and change your election really quickly,

00:09:21.040 | defer your entire last paycheck, excuse me,

00:09:24.260 | into the account, you're probably not gonna be able

00:09:26.780 | to get much excess money into the 401(k)

00:09:28.940 | or into your 403(b).

00:09:31.360 | So those aren't really useful.

00:09:33.380 | But you can use some other accounts.

00:09:37.500 | If you're an individual, you can use an IRA.

00:09:40.640 | And the useful thing about the IRA

00:09:43.380 | is that you don't have to make your contributions

00:09:46.860 | before the end of the year.

00:09:48.360 | You can actually make your contributions

00:09:50.340 | at any time up until you file your tax return.

00:09:54.060 | So here it is, December 2014.

00:09:55.820 | If you file your return in April 2015,

00:09:59.660 | you have all the way up until the time

00:10:01.440 | that you file your return to make that IRA contribution.

00:10:04.540 | So that can be a very useful

00:10:07.240 | last minute planning tool for you.

00:10:09.120 | Now for those of you who are newbies

00:10:11.060 | to the world of finance, let me give you a quick brush up

00:10:13.420 | on the difference between your two different types of IRAs.

00:10:16.600 | There is a traditional IRA, and there's a Roth IRA.

00:10:21.060 | The traditional IRA permits you to go ahead

00:10:24.980 | and deduct the income now, and then later pay the tax.

00:10:29.980 | The Roth IRA allows you to pay the tax now

00:10:34.540 | and deduct the income later.

00:10:36.220 | Now, it's important for you to recognize

00:10:40.020 | that if everything is equal,

00:10:42.520 | if your income is net now,

00:10:45.600 | is equal to your income at retirement,

00:10:47.460 | if you're in the same tax bracket

00:10:49.020 | and the tax rates are the same now and in retirement,

00:10:52.200 | then those two options are mathematically identical.

00:10:56.620 | This is a commonly held misconception

00:10:58.660 | that people say, well, one is better than another.

00:11:01.240 | No, they're actually identical

00:11:02.920 | if your tax rates and tax brackets are the same.

00:11:06.300 | Many people, if not most,

00:11:08.160 | will be in a lower income tax bracket

00:11:10.560 | and thus paying tax at a lower rate in retirement.

00:11:14.060 | That's why, in general, we would usually choose

00:11:17.120 | to prefer a traditional IRA instead of a Roth IRA.

00:11:21.860 | But that's not always true

00:11:23.100 | and you have to look at an individual situation.

00:11:25.440 | There are other advantages and disadvantages

00:11:27.460 | and I won't go into all of those details right now.

00:11:31.740 | In the year 2014, your maximum contribution

00:11:34.340 | to those two accounts is you can contribute up to $5,500.

00:11:39.080 | And you can do that if you're married

00:11:40.600 | for each, both you and your spouse.

00:11:43.460 | Also, if you're older than the age of 50,

00:11:45.200 | don't forget that you have an additional $1,000 catch-up

00:11:48.840 | contribution that's available to you.

00:11:50.900 | So you can contribute to that account

00:11:52.760 | as much as $6,500 for you.

00:11:55.880 | And if you have a spouse who is also over 50,

00:11:58.920 | you can contribute up to $6,500.

00:12:01.840 | Age 50 is the magic date for that catch-up contribution.

00:12:05.580 | So don't forget about those catch-up contributions.

00:12:07.800 | Many people, when they're making that transition,

00:12:09.840 | they're not accustomed to making

00:12:11.760 | that extra $1,000 contribution and they forget about that.

00:12:14.900 | Now, I wanna spend just a moment

00:12:17.720 | going over the contribution limits.

00:12:19.760 | Almost every single person that I've ever met with

00:12:23.540 | or worked with is confused by the limits.

00:12:25.640 | And even when I was a new financial advisor,

00:12:27.600 | I was confused for the first couple of years of practicing

00:12:30.360 | and I was the blind leading the blind.

00:12:32.360 | And so I was confused myself.

00:12:34.440 | So let me explain to you the contribution limits.

00:12:36.840 | And I'll try to do it in a way that makes sense.

00:12:38.880 | There are two entirely different sets

00:12:40.960 | of contribution limits.

00:12:42.200 | And we'll start with the simpler one.

00:12:43.600 | We'll start with the Roth IRA contribution limits.

00:12:46.920 | The Roth IRA is simple

00:12:48.360 | because it's purely based upon your income.

00:12:52.120 | Your ability to contribute to a Roth IRA

00:12:54.400 | is exclusively focused on how much

00:12:58.200 | your adjusted gross income is.

00:13:00.900 | How much is your AGI?

00:13:03.200 | That's what governs whether or not

00:13:04.380 | you can contribute to a Roth IRA.

00:13:07.440 | And those numbers for the year 2014,

00:13:09.920 | if you are married filing jointly

00:13:12.120 | or a qualified widow or widower,

00:13:15.000 | if your income is below $181,000,

00:13:20.000 | your AGI is below $181,000,

00:13:23.000 | then you can contribute a full contribution to a Roth IRA.

00:13:27.560 | There's a phase out for the next $10,000 of income.

00:13:30.480 | And then if you make more than $191,000,

00:13:32.760 | you are not permitted to contribute to a Roth IRA.

00:13:35.260 | I'm going to ignore primarily the phase outs.

00:13:39.040 | If you're on the bracket, if you're on the margin,

00:13:41.080 | so if I say $181,000,

00:13:43.200 | go and look up the chart

00:13:44.080 | and see if you're in the phase out amount,

00:13:46.440 | because it's not a, all of these income limits

00:13:50.280 | have a certain range and it will get very tedious

00:13:53.280 | if I go through each of them.

00:13:55.000 | If you are single, head of household,

00:13:57.480 | or married filing separately,

00:13:59.320 | and you didn't live with your spouse

00:14:00.800 | at any time during the year,

00:14:02.480 | then the limit for you is $114,000 of income.

00:14:06.500 | So if your AGI is less than $114,000 and you're single,

00:14:10.560 | you can contribute to the Roth IRA.

00:14:14.160 | The gotcha is if you are married filing separately

00:14:16.680 | and you lived with your spouse at any time during the year,

00:14:19.500 | the limit is $10,000.

00:14:21.040 | So you can't make more than $10,000 of income.

00:14:23.920 | That's the most penalized filing status of all,

00:14:28.920 | is if you're married filing separately.

00:14:30.440 | There are a bunch of gotchas in the code about that,

00:14:33.200 | and this is one of them.

00:14:34.040 | So with the Roth IRA,

00:14:35.520 | you need to simply remember what your income is.

00:14:38.040 | Single, less than $114,000.

00:14:40.520 | Married, $181,000.

00:14:42.760 | That's all, that's all you need to know.

00:14:44.560 | Now, a traditional IRA has a different set of scenarios,

00:14:49.560 | and this different set of scenarios is driven by

00:14:53.720 | whether or not you are covered

00:14:55.460 | by a retirement plan at work.

00:14:57.580 | That's one of the key distinctions.

00:15:01.520 | Your ability to contribute to the Roth

00:15:04.880 | is based upon your income.

00:15:07.540 | However, your ability to contribute to an IRA

00:15:11.640 | does not have to do with your income.

00:15:13.900 | Anybody can contribute to a traditional IRA,

00:15:18.760 | but your ability to deduct your contribution

00:15:22.280 | is governed by how much money you made

00:15:24.840 | and whether or not you are covered by an employer plan.

00:15:29.840 | If you are not covered by a retirement plan at work,

00:15:34.520 | so if you are just an individual

00:15:37.040 | and you only have an IRA,

00:15:38.480 | no matter how much money you make, does not matter,

00:15:42.040 | you can take a full deduction of your,

00:15:45.640 | you can take a full deduction of your contribution

00:15:50.640 | up to the contribution limit, up to the $5,500

00:15:54.160 | and then the extra $1,000 of catch up.

00:15:56.120 | If you,

00:15:58.820 | this is why people get confused on it

00:16:02.240 | because it's hard for me to explain my way through.

00:16:04.120 | It's much better in a visual presentation, I think.

00:16:08.180 | Let me just forge on though and see if I can do it.

00:16:11.840 | If you are covered by a retirement plan at work,

00:16:15.480 | then if your income as single is less than $61,000

00:16:19.880 | or if your income as married filing jointly

00:16:22.280 | is less than $98,000,

00:16:24.720 | then you can go ahead and deduct your contributions

00:16:27.520 | to a traditional IRA.

00:16:29.440 | There's also a separate question

00:16:31.440 | where if you have a spouse that is covered

00:16:34.160 | by a retirement plan.

00:16:35.720 | So for example, if you do not have a,

00:16:38.620 | if you're not covered by a retirement plan

00:16:41.280 | but you have a spouse who is,

00:16:43.360 | then you have to work through those numbers as well.

00:16:46.380 | The best resource for this is go to the IRS website

00:16:51.080 | and just look at their charts

00:16:52.600 | and work your way through the charts

00:16:53.800 | and figure out the scenario that applies to you.

00:16:56.000 | It's too difficult for me to convey

00:16:58.260 | on the show here at the moment.

00:17:00.680 | However, remember that the traditional IRA

00:17:03.680 | and the Roth IRA, those limits are based upon the,

00:17:06.280 | so one is based upon income,

00:17:07.520 | the other is based partly upon income

00:17:09.040 | but also partly upon employment status and marital status.

00:17:12.440 | So that is a key distinction for you.

00:17:16.080 | When you get into IRAs, there is one,

00:17:19.000 | there are a few little tricks that you can use.

00:17:21.960 | And so the simplest one is you might want to contribute

00:17:25.680 | to both types of accounts.

00:17:27.720 | The limit on them is the same.

00:17:30.480 | So your limit of $5,500, that's the same

00:17:34.080 | whether you do a traditional IRA and a Roth IRA.

00:17:37.320 | You can't contribute more than $5,500.

00:17:39.880 | But you may, depending on your individual tax return,

00:17:43.360 | you may find that you are well-served

00:17:46.160 | by making a $2,500 contribution to a traditional IRA

00:17:51.160 | and a $3,000 contribution to a Roth IRA.

00:17:54.840 | So consider that and consider calculating

00:17:56.800 | that that might serve you.

00:17:59.960 | If you are over the income limits,

00:18:02.200 | then there is something that you should be aware of

00:18:04.960 | that's commonly called the backdoor Roth IRA.

00:18:08.360 | And simplistically, let's say that you make

00:18:10.280 | a half a million bucks a year.

00:18:11.800 | You can contribute $5,000 into a traditional IRA.

00:18:16.360 | You're not permitted to deduct the contributions,

00:18:19.420 | but assuming that you're covered by an employer plan,

00:18:23.200 | but you can go ahead and convert that to a Roth IRA

00:18:27.760 | in the following year, and now you are able

00:18:30.400 | to have the equivalent of a Roth IRA.

00:18:33.840 | That's useful.

00:18:34.760 | I think it's much less useful than it's often talked about

00:18:37.400 | simply because when you are making $500,000 a year,

00:18:40.960 | the ability to get $5,000 into a tax-sheltered account

00:18:43.760 | is much lower on your priority scale.

00:18:46.080 | You're much more concerned about the $500,000.

00:18:49.120 | But that is one little trick for those of you who can do it.

00:18:52.080 | Couple of the little tricks on IRAs.

00:18:54.400 | It is possible if you have expenses within the IRA,

00:18:58.400 | and this would be useful, many of you will have never

00:19:01.200 | thought about this, but for those of you who are using

00:19:03.720 | something like a self-directed IRA,

00:19:05.720 | and you're paying your fees for custodianship

00:19:08.580 | or commissions or fees in a more transparent manner,

00:19:12.320 | then it is possible for you to make a separate payment

00:19:15.640 | to the account for the payment of those expenses.

00:19:19.240 | So to pay your custodian fees or your brokerage commissions

00:19:22.080 | or any fees, you can make a special payment

00:19:25.200 | to the account for those fees, and you will not be deemed

00:19:27.920 | as going over the contribution limits.

00:19:30.620 | That may be important to some of you,

00:19:32.320 | especially if you're pursuing a strategy of some kind

00:19:36.220 | that does involve brokerage commissions or fees

00:19:39.200 | or higher than normal custodian fees.

00:19:41.720 | Consider that, that can be useful.

00:19:44.220 | And so if you have $300 of fees, you can go ahead

00:19:47.720 | and make your $5,500 contribution and write a $300 check

00:19:51.620 | to pay for the payment of those fees,

00:19:53.480 | and that will maximize your usage of the account.

00:19:56.720 | I hope that helps you.

00:19:57.820 | There are two other types of retirement accounts

00:20:01.720 | that are also useful, and the reason why I'm going

00:20:04.360 | through these accounts here is because these are the ones

00:20:06.280 | that you can use at the end of the year

00:20:07.520 | or the following year.

00:20:09.280 | You might consider, if you are self-employed

00:20:11.880 | or if you run a business, you might consider establishing

00:20:15.080 | what is known either as an HR 10 or a KEO plan,

00:20:20.160 | or separately, you might consider establishing a SEP IRA.

00:20:23.860 | Now, a KEO plan is a qualified plan that allows you

00:20:28.500 | to set up a formula for your business,

00:20:30.460 | and you can either do it for your contributions,

00:20:32.220 | and you can either do this as a defined benefit plan

00:20:34.780 | or as a defined contribution plan.

00:20:37.340 | The benefit to a KEO plan is that it permits you

00:20:40.260 | to contribute a much higher dollar amount to the account

00:20:45.260 | than an IRA does.

00:20:49.300 | So your maximum contributions are limited to 20%

00:20:54.000 | of your earned income or $52,000.

00:20:57.480 | Basically comes out to, it's 20% of your earned income

00:21:01.020 | minus your deduction for half

00:21:02.540 | of your self-employment payroll tax.

00:21:04.500 | So it basically comes out to 25% of your net earned income

00:21:08.480 | after you take that deduction.

00:21:10.240 | So you can get 25% of your net earned income

00:21:14.180 | or $52,000 into this account.

00:21:16.720 | The KEO plans were very popular for people in the past,

00:21:20.180 | for self-employed people, because there was a distinction

00:21:23.820 | in the tax law between corporate plans that were established

00:21:27.820 | and plans that could be established by self-employed people.

00:21:30.480 | There was a tax law change in 2001,

00:21:33.380 | and so now the KEO plans have largely been replaced

00:21:36.260 | by the SEP IRA.

00:21:38.720 | And I have, in the years of doing planning,

00:21:41.460 | I've never seen a KEO plan, I've always seen a SEP IRA.

00:21:44.220 | And the reason is that they have

00:21:48.320 | the same contribution limits,

00:21:50.000 | but the SEP IRA paperwork is much simpler.

00:21:52.840 | The KEO plan requires a full plan document

00:21:57.520 | to be written and created.

00:22:00.000 | There might be reasons still to do it,

00:22:02.600 | but it is more complicated.

00:22:04.900 | A KEO plan, if you're going to establish one,

00:22:07.680 | it has to be established by December 31.

00:22:10.520 | Doesn't have to be funded by December 31,

00:22:12.480 | but it has to be established.

00:22:13.520 | So the plan has to be actually put into place

00:22:16.920 | by the end of the year.

00:22:18.320 | By the way, one of the advantages,

00:22:20.680 | and I've never seen one actually do it because of this,

00:22:22.460 | but the KEO plan, you could set it up

00:22:24.600 | so that you could borrow against it,

00:22:26.100 | where you can't borrow against a SEP IRA.

00:22:28.800 | SEP IRA stands for Simplified Employee Pension Account,

00:22:32.140 | Simplified Employee Pension Plan.

00:22:33.820 | And these were established with a goal of being simplified.

00:22:36.720 | So these accounts, I think of them

00:22:38.780 | as an accountant's best friend.

00:22:40.040 | I've never met a CPA or an accountant

00:22:41.480 | who wasn't an expert on SEP IRAs.

00:22:43.520 | And the reason is they can be established

00:22:46.180 | after the end of the tax year,

00:22:47.800 | and they can be funded after the end of the tax year.

00:22:51.120 | So you can go in and sit down with your accountant

00:22:53.240 | to prepare your taxes on April 1st or on April 14th,

00:22:57.040 | and you can download the standard form

00:22:58.840 | from the IRS website, and you can establish your plan,

00:23:02.280 | or almost all brokerage companies

00:23:05.200 | that you will be working with

00:23:06.520 | will have the form available,

00:23:08.160 | their standard form that's based on the IRS website.

00:23:11.600 | It's 40, 50 pages, you print it out, you sign it,

00:23:13.520 | you write the check, and now you've gone ahead

00:23:15.520 | and created up to a $52,000 deduction

00:23:17.900 | for the year that you need it.

00:23:19.320 | So that can be very, very useful.

00:23:22.200 | What I would encourage you to remember

00:23:24.680 | is remember that you can have one of these plans

00:23:27.620 | in addition to your 401(k) or in addition to your IRA.

00:23:32.360 | So if you, for example, are covered by a 401(k) at work,

00:23:37.160 | but you have some outside self-employment income,

00:23:40.060 | you can go ahead and you can establish

00:23:41.880 | one of these types of plans,

00:23:43.160 | and that might help you to avoid some taxes.

00:23:46.120 | You'll have to be aware if you have employees

00:23:50.840 | that you need to cover your employees as well,

00:23:52.480 | depending on how it's structured.

00:23:53.720 | There's all kinds of detailed rules,

00:23:55.160 | but that's the simple thing that you need to know

00:23:56.840 | at the end of the year.

00:23:57.680 | Those might be your outs.

00:23:59.160 | So talk with your advisor, talk with your accountant.

00:24:02.000 | Finally of the accounts here is,

00:24:05.440 | actually one other little trick

00:24:07.200 | on IRAs and retirement plans.

00:24:09.440 | Look to see if you might be eligible for a saver's credit.

00:24:13.640 | So the saver's credit is an interesting tax credit

00:24:17.140 | that you can get if you're eligible for.

00:24:20.320 | In order to stimulate low-income earners to save,

00:24:25.700 | then you can get a tax credit of 50%

00:24:30.120 | of the first $2,000 that you save in a traditional IRA,

00:24:34.760 | a Roth IRA, or a 401(k), and that's a direct tax credit.

00:24:39.080 | So remember, credits are always better than deductions.

00:24:41.040 | This is a nice tax credit.

00:24:42.880 | And that's in addition to the deductions

00:24:45.180 | that you save on the taxes by making the contribution.

00:24:48.400 | Unfortunately, this is really only available

00:24:50.920 | if you have a very low adjusted gross income.

00:24:54.360 | To get the full 50% credit,

00:24:56.300 | your AGI has to be less than $18,000.

00:25:00.120 | So that's not a huge amount.

00:25:03.480 | It's also not available for people

00:25:05.720 | who are under the age of 18 or who are full-time students

00:25:08.960 | or who are dependents that can be claimed

00:25:10.880 | on another person's tax return.

00:25:12.800 | But you might be able to get some benefit from that.

00:25:17.800 | Check the chart.

00:25:20.380 | The phase-outs of this change,

00:25:22.840 | the 50% contribution changes depending

00:25:25.560 | whether married, filing jointly,

00:25:26.920 | head of household, or single or otherwise.

00:25:29.320 | Then there's a 20% credit and a 10% credit.

00:25:31.760 | Essentially, if you make over $60,000 married,

00:25:34.840 | filing jointly, or over $30,000 for single,

00:25:38.520 | then that credit is not available to you.

00:25:41.400 | But if you are down at the lower end of the earned income,

00:25:44.320 | check out the Saver's Credit

00:25:45.480 | and see if you can qualify for it.

00:25:47.280 | If you can qualify for it,

00:25:48.800 | even if you can't afford to actually save

00:25:51.160 | in a retirement account,

00:25:52.620 | you may be able, if you're willing to be aggressive,

00:25:55.720 | you may be able to actually use it

00:25:58.920 | just purely for the tax credit.

00:26:01.360 | So you can make a contribution, for example,

00:26:04.280 | on December 31 of this year into a Roth IRA

00:26:08.240 | and then take the distribution out of the Roth IRA

00:26:10.920 | in January of next year.

00:26:12.740 | And because you're doing that in a Roth IRA,

00:26:15.720 | there's no tax that would be due

00:26:17.640 | unless you had a gain in the account

00:26:19.440 | and then you would owe tax on the gain.

00:26:21.440 | But you could just take that basis right out

00:26:23.720 | and you could spend that yourself.

00:26:25.200 | So only the income and the gain would be taxed.

00:26:27.480 | And you could get a tax credit, again,

00:26:28.880 | for as much as 2,000 bucks.

00:26:30.580 | So it's a one-time deal,

00:26:32.520 | but that might be worth it for you

00:26:34.400 | if you find yourself down in that scenario.

00:26:36.500 | You can't afford to necessarily save the money

00:26:39.480 | for the long term,

00:26:40.360 | but that might help you to get a last-minute tax credit.

00:26:42.720 | So consider that.

00:26:44.440 | The last retirement account,

00:26:46.320 | it's not actually a retirement account,

00:26:47.920 | but it fits well into my outline here,

00:26:49.680 | is don't forget about the health savings account, the HSA.

00:26:53.800 | If you're covered by a high-deductible health plan

00:26:56.680 | for your medical insurance at work or in your business,

00:27:00.080 | you can make an HSA contribution

00:27:02.260 | into your health savings account

00:27:04.540 | any time up until you file your return.

00:27:07.100 | Your contribution limits for 2014 are $3,300

00:27:11.000 | for an individual and $6,550 for family coverage.

00:27:16.000 | And then there's an additional $1,000 catch-up contribution

00:27:20.660 | for 55 and over.

00:27:22.940 | So if you're over 55, that will be useful to you.

00:27:26.700 | If you were doing the account in this way,

00:27:30.020 | it's not gonna save you on your employment taxes,

00:27:32.680 | but it will save you on your income taxes.

00:27:35.240 | The way to save the employment tax

00:27:36.840 | is that your HSA has to be funded out of your paycheck

00:27:40.140 | so that your employer can actually deduct it

00:27:43.580 | so that you're not charged

00:27:45.380 | those employment taxes each month.

00:27:48.980 | So this won't save you on the 7.65%

00:27:52.500 | Medicare and Social Security taxes,

00:27:54.140 | but it will save you on your income taxes.

00:27:56.100 | So consider the HSA.

00:27:57.600 | That can also be a useful way

00:27:58.900 | of taking an above-the-line deduction

00:28:00.740 | that will be helpful for you.

00:28:02.500 | Let's get out of the accounts

00:28:03.500 | 'cause those are a little bit dry to work through,

00:28:05.580 | but those are the simplest, easiest,

00:28:08.580 | in some ways, most straightforward ways to do it.

00:28:11.020 | But look for a way to defer income

00:28:13.920 | without using a tax account.

00:28:15.260 | So here are some ideas for you.

00:28:17.160 | First, just simply consider deferring income.

00:28:19.660 | And this one's a little bit tricky if you are an employee.

00:28:24.500 | So you can't do this.

00:28:26.820 | Let's say that you have,

00:28:28.820 | you know you're an employee of a corporation

00:28:31.180 | and your employer is gonna pay you a Christmas bonus,

00:28:33.580 | but you take the last two weeks of the year off

00:28:35.600 | and you do this knowing that the check's gonna be sitting

00:28:39.020 | in your mailbox at work

00:28:40.540 | and so you just don't go into work and pick it up.

00:28:42.820 | Well, that doesn't do it for you.

00:28:44.220 | So you actually have,

00:28:45.960 | you have what's called constructive receipt of the income.

00:28:50.960 | And so you're gonna be taxed on the income in the year 2014,

00:28:53.880 | even though you didn't pick up the check

00:28:55.060 | until you went back to work on January,

00:28:56.560 | what's it this year, fifth, fourth, something like that.

00:28:58.940 | So that's not gonna help you.

00:29:02.340 | Constructive receipt, let me explain real quick.

00:29:05.460 | Anytime you're dealing with federal income taxes,

00:29:07.800 | then the doctrine of constructive receipt is used

00:29:11.840 | to determine when a cash basis taxpayer

00:29:15.320 | has received gross income.

00:29:16.980 | And you as an individual are always

00:29:18.620 | at a cash basis taxpayer.

00:29:20.480 | A taxpayer is subject to tax in the current year

00:29:24.420 | if he or she has unrestricted control

00:29:27.480 | in determining when items of income will or should be paid.

00:29:31.360 | So unlike actual receipt,

00:29:33.640 | where you actually have to get the check,

00:29:36.440 | constructive receipt does not require

00:29:38.240 | physical possession of the item to have income

00:29:43.000 | or physical possession of the income to actually count it.

00:29:46.040 | The fact that you could have gone to the office

00:29:47.780 | and picked it up means that you received it,

00:29:49.680 | you constructively received it

00:29:51.120 | even though you didn't actually receive it.

00:29:53.320 | So that's not super helpful to defer a Christmas bonus.

00:29:56.740 | But you actually can do this technically if you plan ahead.

00:30:01.020 | So let's say that you are aware of a large bonus

00:30:03.420 | that you're gonna be receiving.

00:30:04.800 | You could enter into a binding agreement with your employer

00:30:09.420 | and to defer the bonus that you would receive

00:30:13.060 | in December until January.

00:30:14.820 | Now you have to actually enter into the agreement

00:30:17.360 | before the bonus is constructively received.

00:30:19.820 | So that could work.

00:30:22.380 | I've actually never seen it done.

00:30:23.800 | I've read about it in textbooks.

00:30:25.240 | I've never seen it done myself.

00:30:26.920 | But I can see how it could be done.

00:30:28.720 | So if you're in some scenario

00:30:30.320 | where you know there's a good bonus

00:30:31.760 | that you're likely to get

00:30:33.720 | and you would prefer because of your own personal plans

00:30:36.480 | to receive it in a later year,

00:30:38.080 | then that might be a useful technique for you.

00:30:40.120 | Probably too late for this year,

00:30:41.320 | but file it away for future years.

00:30:43.040 | The more useful way to defer income

00:30:46.040 | is for those of you who are business owners

00:30:48.240 | or running a business of your own of some kind.

00:30:50.780 | And it's very simple if you are a cash basis taxpayer.

00:30:55.780 | It's very simple to just simply delay

00:30:57.960 | billing your clients until late December.

00:31:00.840 | If you don't send out your invoices until late December,

00:31:05.160 | your clients are certainly not gonna get them

00:31:07.040 | and spin them around

00:31:07.920 | unless they're trying to do their own tax planning.

00:31:10.100 | They're certainly not gonna get them and spin them around

00:31:11.960 | and send them back to you before the end of the year.

00:31:14.320 | So in that situation,

00:31:16.040 | you won't actually receive payment until the following year.

00:31:19.180 | And because of that, you're not gonna pay any taxes.

00:31:22.440 | Now, remember, I said it a moment ago,

00:31:25.160 | but remember, it only works if you're a cash basis taxpayer.

00:31:28.520 | If you're an accrual basis taxpayer in your business,

00:31:30.720 | you have to report the income when it is earned,

00:31:33.120 | not when it is actually received.

00:31:35.280 | So that's the same, by the way,

00:31:37.320 | for most of these business deductions.

00:31:39.720 | So be careful there.

00:31:40.840 | But many of you who are listening,

00:31:42.920 | who are running small businesses or self-employed,

00:31:45.280 | then you'll be running,

00:31:46.520 | who are trying to figure these tax things out for yourself,

00:31:49.220 | you're likely to be a cash basis taxpayer.

00:31:51.420 | If you have income from the sale of properties,

00:31:55.140 | let's say you're selling something large here

00:31:56.780 | at the end of the year,

00:31:58.000 | then consider doing an installment sale.

00:32:01.380 | And that will allow you to defer some of the income

00:32:04.180 | to a different tax year that might be useful for you.

00:32:06.820 | If you're selling something in which you have a profit

00:32:09.460 | that you're gonna be paying tax on,

00:32:10.600 | consider an installment sale.

00:32:12.380 | Also, the big one, however,

00:32:14.300 | is consider bringing forward expenses.

00:32:16.960 | So consider accelerating your expenses

00:32:19.280 | to lower your net income upon which you will be taxed.

00:32:22.880 | In business, think through any end of the year transactions

00:32:26.000 | that you need to pay.

00:32:27.120 | So you might clear out your accounts payable.

00:32:29.320 | You might make any, for example, this one for me,

00:32:34.080 | is I've been planning out my 2015 conference schedule.

00:32:38.440 | And so what conferences am I gonna go to?

00:32:41.320 | And so I could go ahead and make the payments

00:32:44.040 | to those conferences,

00:32:45.500 | and then that would allow me to go ahead

00:32:47.360 | and recognize the expense in this year

00:32:49.360 | for the conference that I go to in March or in June,

00:32:51.960 | something like that,

00:32:53.000 | I can go ahead and recognize that expense.

00:32:55.240 | You might be able to do this

00:32:56.520 | with something like your insurance payments.

00:32:58.080 | So go ahead and make your insurance payments.

00:33:00.020 | One of the most useful ones

00:33:03.200 | is things like marketing and advertising expenses.

00:33:06.880 | If you're in a business where you know

00:33:09.080 | that if you do a certain marketing campaign

00:33:12.280 | and you purchase a certain amount of advertising,

00:33:14.540 | that it will result in an inflow of orders,

00:33:19.540 | then that can be super compelling for you to say,

00:33:22.440 | let me go ahead and buy up a bunch of marketing

00:33:24.400 | or advertising costs,

00:33:26.000 | whether that's mailings or ads or whatever it is,

00:33:28.580 | let me go ahead and do that, pay for it in December,

00:33:31.480 | and then you'll reap the rewards

00:33:33.120 | with the increased sales next year.

00:33:35.320 | And you can do that,

00:33:36.200 | especially when you're building a business,

00:33:37.560 | you can do that year after year after year.

00:33:39.480 | At some point in time,

00:33:40.320 | you probably need to get the income out of the business,

00:33:42.040 | but that depends on the nature of your own business.

00:33:45.520 | Do remember, however,

00:33:46.600 | that when you are making expenses and accelerating expenses,

00:33:49.800 | that you do need to follow the 12-month rule.

00:33:52.700 | And so there is, for these types of expenses,

00:33:55.600 | there are two aspects to the 12-month rule.

00:33:58.780 | In general, you can't deduct the full amount

00:34:01.660 | of any advance payments

00:34:02.920 | that covers more than 12 months out.

00:34:05.360 | So let's say, for example,

00:34:07.160 | you can't say I'm gonna pay up my insurance premiums

00:34:10.880 | for the next three years,

00:34:12.600 | and go ahead and make that check today

00:34:14.600 | and have that be deductible.

00:34:16.440 | Rather, you can only deduct,

00:34:18.000 | if you do that and it's more than 12 months,

00:34:20.200 | you can only deduct the benefits

00:34:21.920 | that are gonna be received within that tax year.

00:34:26.480 | And so you would have to figure it out on a per-rata basis.

00:34:29.120 | However, there is also another exception

00:34:31.440 | is that the kind of the more specific scenario to that rule,

00:34:34.880 | it's not necessarily 12 months from the expense,

00:34:37.280 | but whatever expense that you make

00:34:39.280 | has to be, it has to be done.

00:34:44.280 | The benefit can't go for longer than 12 months

00:34:50.240 | after the right or benefit that you purchased begins,

00:34:53.720 | or the end of the next tax year.

00:34:56.000 | So end of the tax year,

00:34:56.880 | after the tax year in which the payment is paid.

00:34:59.020 | So let's say, for example,

00:35:00.840 | that could be a way that I could do it.

00:35:03.480 | If I, here I'm on December 15,

00:35:06.440 | and if I go ahead and purchase an insurance policy

00:35:08.440 | that starts on January 1 and goes to December 31,

00:35:13.320 | as long as it's not more than 12 months from today

00:35:15.920 | when I go ahead and pay for it,

00:35:17.240 | and as long as it doesn't go into the tax year for 2016,

00:35:21.360 | then I can go ahead and deduct it.

00:35:22.460 | So be careful with your 12 month expenses.

00:35:24.880 | But as long as you follow that,

00:35:26.200 | you should be fine as far as making some of those payments

00:35:28.920 | and just splitting the tax year.

00:35:31.080 | Remember also that we just wanna make sure

00:35:32.920 | that you're going based upon your business's tax year,

00:35:35.440 | which may or may not be December 31.

00:35:38.120 | That's super useful.

00:35:40.360 | And another thought on the business tax expenses

00:35:44.800 | is consider also that you can purchase equipment.

00:35:48.040 | So in general, equipment purchases

00:35:51.220 | aren't usually gonna help you

00:35:52.540 | because when you make purchases of durable equipment,

00:35:55.600 | then you have to depreciate that expense

00:35:57.960 | and you can't just simply take an expense payment now.

00:36:01.920 | Now, remember, however,

00:36:03.560 | that you can make an election to expense

00:36:06.640 | a certain amount of it.

00:36:07.800 | So that's called a section 179 election,

00:36:10.480 | and it was pretty good in the years past

00:36:12.560 | when it was super high.

00:36:13.840 | This year in 2014, it's only $25,000.

00:36:17.240 | But remember that you can actually purchase equipment,

00:36:20.220 | expense $25,000 worth of it this year,

00:36:23.560 | and then go ahead and take your depreciation after that.

00:36:26.700 | So then you go ahead and depreciate it

00:36:28.140 | as you are accustomed to doing.

00:36:29.960 | And so that may be useful for you

00:36:32.280 | with any equipment that you need for business use,

00:36:34.800 | any tangible personal property

00:36:36.460 | that you're gonna use in business more than 50% of the time,

00:36:39.280 | any business vehicles,

00:36:41.540 | especially large business vehicles

00:36:44.720 | in excess of 6,000 pounds that you can actually do,

00:36:47.520 | vehicle that you actually can use

00:36:49.480 | the section 179 expense allowances for,

00:36:51.800 | research that carefully

00:36:52.800 | 'cause that depends on the type of vehicle.

00:36:54.980 | Computers, maybe off-the-shelf software,

00:36:57.280 | office furniture, office equipment,

00:36:59.920 | those types of things are eligible

00:37:02.800 | for that section 179 expense.

00:37:05.040 | So if you have an extra $25,000 of profit

00:37:08.420 | that you need to wipe out,

00:37:09.660 | then if you need to buy some sort of equipment,

00:37:12.280 | then you can go ahead and buy it,

00:37:13.340 | and that gives you,

00:37:14.180 | and if you can expense the $25,000,

00:37:15.980 | you can wipe out the profit.

00:37:17.520 | So that might be a useful thing for you.

00:37:20.840 | When you're making expenses,

00:37:22.040 | remember that it's probably foolhardy to,

00:37:25.380 | there's no 100% tax bracket.

00:37:28.940 | So you have to spend money in order to take a deduction.

00:37:34.300 | It may or may not be good.

00:37:35.260 | The only rational reason to do it

00:37:36.660 | would be if the money that you're spending,

00:37:37.980 | you expect to make more in the future

00:37:39.460 | that you'll be able to use.

00:37:41.020 | So don't just spend money for the sake of spending money,

00:37:43.100 | but if it improves your business,

00:37:45.580 | then that would be a wise course of action.

00:37:48.500 | Now, for individuals,

00:37:50.860 | and yourself as an individual taxpayer,

00:37:54.340 | you may still be able to use the idea

00:37:56.380 | of accelerating some of your expenses.

00:37:58.940 | So a couple ideas for you.

00:38:01.180 | Consider bunching certain expenses together

00:38:04.340 | here at the end of the year

00:38:05.700 | if you might be able to take a deduction.

00:38:07.900 | The one that is most,

00:38:10.220 | is probably the most prevalent,

00:38:12.140 | would be something like medical expenses.

00:38:14.380 | If you had a lot of medical expenses this year,

00:38:16.780 | so for example, last year,

00:38:17.860 | my wife and I, we had a lot of medical expenses

00:38:19.540 | when we had a baby.

00:38:20.900 | If you had a lot of medical expenses,

00:38:22.580 | consider going ahead and adding other medical expenses now

00:38:26.500 | and getting them done.

00:38:27.340 | So if you were in a year where you had a baby

00:38:29.540 | and you had a large out-of-pocket medical expense,

00:38:32.020 | then go ahead at the end of the year,

00:38:33.140 | if you have the money,

00:38:33.980 | go ahead and get your dental expenses,

00:38:35.740 | your eye expenses, you know, dental care,

00:38:38.580 | eye care, whatever it need, taken care of.

00:38:41.380 | You might pay, go ahead and lump in

00:38:44.340 | and pay the annual premium on your long-term care insurance.

00:38:47.460 | And so that might allow you

00:38:49.220 | to bunch enough medical expenses together

00:38:52.540 | to allow you to exceed the 10% of AGI limit

00:38:58.580 | on medical expenses to where you can actually deduct

00:39:00.540 | some of your medical expenses.

00:39:02.060 | And these would be things

00:39:03.080 | that you're gonna have to get done anyway,

00:39:04.380 | your dental cleanings, your eye care,

00:39:06.740 | your insurance payments.

00:39:07.940 | But just by bunching them,

00:39:09.540 | instead of having, let's say, $5,000 of expenses in 2014

00:39:13.820 | and $5,000 of expenses in 2015,

00:39:16.620 | whereby none of that is deductible,

00:39:18.900 | perhaps if you can bunch all $10,000 here in 2014,

00:39:22.660 | then all of it will be deducted, excuse me,

00:39:25.420 | then the portion that's over the 10% of AGI limit

00:39:28.660 | will actually be deductible.

00:39:29.780 | So you can get the itemized deduction for that.

00:39:32.260 | That might be useful for you.

00:39:33.820 | Also consider accelerating any tax payments that you owe.

00:39:38.180 | So real estate taxes, personal property taxes,

00:39:41.300 | state and local income taxes, pay them now

00:39:45.180 | in order to make sure that you can deduct them now.

00:39:47.940 | And so if you pay them next year,

00:39:49.340 | then you get to deduct them next year.

00:39:50.700 | But since these are gonna be due anyway,

00:39:52.380 | go ahead and bunch them together and pay them now.

00:39:55.400 | This can also be useful whether or not

00:39:57.160 | you often itemize your deductions

00:39:59.380 | or take the standard deduction.

00:40:02.060 | In some years, you can, by doing this bunching strategy,

00:40:06.180 | in some years, you can bring together enough deductions

00:40:08.600 | to where it's in your benefit to itemize.

00:40:10.780 | And then the following year, which is a low year,

00:40:12.700 | then you go ahead and take the standard deduction.

00:40:14.780 | The next year, you go ahead and itemize.

00:40:16.700 | And so you might be near that limit.

00:40:20.900 | So consider that as well.

00:40:23.060 | If you're gonna do, accelerate your tax payments,

00:40:25.080 | be careful if you are concerned

00:40:27.060 | with the alternative minimum tax,

00:40:29.300 | be careful with your AMT there

00:40:31.100 | and run your calculations carefully.

00:40:33.860 | Consider, we all know this one,

00:40:36.060 | 'cause this is the time of year

00:40:37.200 | that we receive plenty of charitable solicitations.

00:40:39.900 | But consider making your charitable contributions

00:40:42.140 | and bunch them in the years that you can fully use them

00:40:44.640 | based upon the deduction limits

00:40:46.340 | for charitable contributions.

00:40:48.020 | So sometimes that might be,

00:40:50.220 | it's gonna be as simple as going ahead,

00:40:52.580 | writing your check before the end of the year.

00:40:54.620 | But then also, if you've made

00:40:55.780 | a large charitable commitment maybe,

00:40:58.060 | then go ahead and try to use those deductions in years

00:41:00.900 | when you're gonna be able to use them fully.

00:41:03.720 | So if you've made a certain total amount

00:41:05.540 | and you're fulfilling your commitment

00:41:07.420 | to a charitable organization over a five-year period,

00:41:09.820 | use those deductions in the years

00:41:11.860 | where they're most useful for you.

00:41:14.360 | If you are making charitable contributions,

00:41:16.380 | be intelligent about how you do it,

00:41:17.820 | especially with regard to good tax planning.

00:41:20.100 | Don't think only in terms of cash.

00:41:23.100 | This is one, depending on the size of the,

00:41:26.900 | depending on the nature of your finances,

00:41:29.860 | just don't always give something always in cash.

00:41:32.420 | If you have appreciated property

00:41:34.380 | that you've held for over 12 months,

00:41:36.420 | then you can go ahead and donate,

00:41:37.900 | if the charity will accept it,

00:41:38.980 | you can donate the appreciated property.

00:41:41.260 | And so if you have $10,000 worth of stock

00:41:44.880 | that has appreciated from $5,000

00:41:47.820 | and you wanna give $10,000 to the charity,

00:41:51.200 | it's probably better for you to give the $10,000 of stock.

00:41:55.060 | You'll get your full deduction

00:41:56.340 | for the fair market value of the stock, the $10,000,

00:41:59.140 | and that will allow you to avoid paying tax

00:42:01.800 | on the gain of the $5,000.

00:42:03.820 | The charity receives the stock,

00:42:05.300 | they sell it at the fair market value,

00:42:06.860 | and then they get their cash,

00:42:08.440 | but that gives you a more advantageous

00:42:10.260 | charitable contribution than if you were just simply

00:42:12.940 | to give the $10,000 of cash

00:42:14.980 | upon which you've already paid income tax.

00:42:17.400 | So that could be useful for you, consider that.

00:42:21.100 | If you have lost property, then the rule is reversed.

00:42:25.120 | With the rule with lost property,

00:42:26.620 | let's say that you've purchased stock for $10,000

00:42:29.920 | and it's worth $5,000 and you sell it,

00:42:32.980 | or you decided that you're gonna sell it

00:42:35.540 | and you don't wanna keep it any longer.

00:42:37.940 | Well, in that situation, what you always wanna do there

00:42:40.340 | is you wanna sell it for $5,000,

00:42:43.740 | take the $5,000 loss against your tax,

00:42:47.620 | and then go ahead and donate the cash to the charity.

00:42:50.900 | So make it up and give them the $5,000

00:42:53.900 | out of your savings account.

00:42:55.260 | So just be smart about that.

00:42:56.380 | Oftentimes, giving property, if the charity will accept it,

00:43:00.140 | might be more helpful to you,

00:43:02.140 | especially if it's appreciated property,

00:43:03.980 | might be more helpful to you than giving cash,

00:43:06.420 | and you can basically get a double use out of it.

00:43:10.460 | With regard to timing of these expenses and deductions,

00:43:14.740 | remember that you can take deductions

00:43:16.140 | for items that you pay by check in the current year,

00:43:19.420 | even if you mail the check on New Year's Eve.

00:43:21.580 | As long as there's no reason why,

00:43:23.300 | when the business or person or charity receives it

00:43:27.000 | on January the 3rd, that they can't cash the check,

00:43:30.840 | then you can go ahead and take the deduction this year.

00:43:32.940 | If you're doing that, and if it's a sizable amount

00:43:36.220 | that you need, make sure, I would get it,

00:43:39.060 | what's it called with the post office,

00:43:40.300 | where they registered mail or whatever,

00:43:41.700 | where they give you the receipt for it,

00:43:43.860 | I would do that to make sure you have that date stamp

00:43:45.900 | and keep it with your records.

00:43:47.240 | Credit card charges can also be taken this year.

00:43:50.120 | So let's say that you go out and you purchase some items

00:43:54.100 | in order that you're going to be deducting,

00:43:56.080 | and you purchase those items in December.

00:43:58.060 | Well, you probably won't receive the credit card bill

00:43:59.940 | due until January.

00:44:01.380 | So that'll allow you to go ahead

00:44:02.860 | and take the deduction in this year,

00:44:05.460 | and then pay it next year.

00:44:06.700 | So that can be useful in some situations.

00:44:09.840 | The two final sections, that concludes kind of the timing

00:44:14.840 | of income and expenses.

00:44:17.620 | The other couple of ideas for you

00:44:20.940 | are with regard to relationships.

00:44:24.100 | And so there are various relationships

00:44:25.980 | that are going to affect your tax planning.

00:44:29.820 | First is, probably the most not useful,

00:44:33.660 | is the marital relationship.

00:44:35.280 | So if you're planning a wedding at the end of the year,

00:44:37.700 | or like New Year's Day, my wife and I actually,

00:44:39.500 | we got married on New Year's Day.

00:44:41.180 | And so if you're planning something like that,

00:44:43.760 | calculate your taxes and see when you should actually

00:44:46.980 | have the marriage done.

00:44:48.860 | Doesn't have to be the same day necessarily

00:44:51.460 | as the wedding itself.

00:44:52.700 | So we certainly could have legally gotten married

00:44:55.080 | on December 31, and then had our wedding celebration

00:44:58.580 | on January 1.

00:44:59.700 | And if we were married on December 31,

00:45:01.940 | then that would allow us to file as married filing jointly,

00:45:05.260 | for that year that we got married.

00:45:07.460 | In general, marriage is only gonna diminish your taxes

00:45:11.280 | if one spouse works, or earns almost all the income.

00:45:15.840 | If both spouses work and earn relatively good incomes,

00:45:20.180 | then marriage is actually gonna boost your taxes.

00:45:22.420 | So be a good idea, just calculate it,

00:45:24.780 | and see which is more in your interest to do.

00:45:29.780 | With regard, the big one though however,

00:45:31.980 | is with regard to dependency.

00:45:34.540 | And the number of dependents that you can claim

00:45:36.780 | for your dependency exemptions.

00:45:38.860 | Most people when they think about dependents

00:45:40.460 | actually think purely about kids.

00:45:43.060 | And that may be helpful.

00:45:44.760 | So most of the time, children are not something

00:45:49.420 | that you do last minute tax planning with.

00:45:51.700 | Generally they arrive over a period of many months,

00:45:55.000 | and you don't have a lot of control over when they come.

00:45:57.980 | If you do have something where for example,

00:46:00.360 | you might have a plan C section,

00:46:02.980 | this happened to a family member of mine,

00:46:04.460 | you have a plan C section,

00:46:05.580 | and the safe zone for safe delivery covers

00:46:08.340 | the end of last week of December,

00:46:10.100 | and the first week of January.

00:46:11.220 | You might go ahead and schedule them December 31,

00:46:13.100 | so that you can go ahead and take your child credits,

00:46:15.940 | and your dependency exemptions.

00:46:17.540 | But that'll apply to maybe, to not many people.

00:46:22.540 | The major benefit though that I've thought of

00:46:24.220 | for some of you might be if you're caring

00:46:26.980 | for other dependents who aren't your kids.

00:46:29.060 | And I'm thinking of parents or grandparents

00:46:31.320 | that you might be caring for.

00:46:32.900 | Now when you get to dependency exemptions,

00:46:35.100 | there are a bunch of detailed rules,

00:46:36.800 | and some different tests that you need to pass.

00:46:41.420 | So for example, to claim a dependency exemption

00:46:44.820 | for a qualifying relative who's not a child,

00:46:47.580 | then there's the dependent taxpayer test,

00:46:49.740 | the joint return test, the citizenship test,

00:46:51.880 | the not a qualifying child test,

00:46:53.560 | the member of a household or relationship test,

00:46:55.640 | the gross income test, and the support test.

00:46:57.740 | So some tests, and there's some detailed rules

00:46:59.460 | that you should focus on, and read through,

00:47:01.020 | and talk through with your advisor.

00:47:02.520 | But the one I wanna focus on is if you're providing support

00:47:06.660 | for your dependent.

00:47:10.060 | And support can mean different things.

00:47:12.180 | And this might be for kids,

00:47:13.980 | or this might be for other relatives as well,

00:47:16.660 | or even other non-relatives.

00:47:18.660 | But support would include amounts that are spent

00:47:21.620 | for food, shelter, clothing, medical and dental care,

00:47:26.620 | education, church contributions, childcare expenses,

00:47:31.660 | wedding apparel and receptions,

00:47:34.640 | capital items, and similar items.

00:47:38.060 | So the key here is that support is measured

00:47:43.060 | by what is spent, not what is available.

00:47:48.660 | So if you are wanting to claim your child as a dependent,

00:47:53.700 | it doesn't really matter if your child earns $10,000,

00:47:58.980 | and then saves half of it.

00:48:01.540 | As long as you spend $5,001 on them in support,

00:48:06.540 | then you've actually contributed more than one half

00:48:10.420 | of their support, and that will allow you

00:48:12.020 | to take the dependency exemption.

00:48:14.460 | So there are a number of different strategies

00:48:16.700 | that can happen here.

00:48:18.620 | Because you might, for example,

00:48:20.700 | you might make some payments for things

00:48:22.780 | that your child needs, or you might support them

00:48:24.600 | with a purchase at the year end of a car,

00:48:26.740 | a capital item like that, perhaps paying for, again,

00:48:29.660 | wedding apparel and receptions, education costs,

00:48:32.220 | things like that, going ahead and making those payments.

00:48:34.940 | And however, if you were caring for a parent,

00:48:38.420 | then if you're contributing more than half of their support,

00:48:41.220 | that might allow you to claim them as a dependent.

00:48:44.100 | So for example, let's say that you've been planning

00:48:46.020 | to give your mother or your father,

00:48:47.780 | if my father or mother were in a nursing home,

00:48:51.900 | and I knew they needed something,

00:48:53.820 | and I was gonna go ahead and contribute

00:48:55.780 | to the cost of that, but then at the end of the year,

00:48:58.080 | I wanna go ahead and give her or him

00:49:01.900 | some kind of item for their needs,

00:49:03.420 | so a large television for their room, for example.

00:49:06.780 | Well, as long as I track that, if I provide more

00:49:09.260 | than 50% of their support, then I can go ahead

00:49:12.760 | and possibly, as long as I fit the other qualifications,

00:49:16.640 | claim them as a dependent.

00:49:19.140 | And the key would be actually calculating this

00:49:23.260 | for yourself and seeing if your ability

00:49:26.060 | to claim them as a dependent is going to be

00:49:28.140 | in their best, is in your best interest

00:49:30.020 | and in their best interest.

00:49:31.260 | And so there are a number of different ways

00:49:32.980 | that you could do this, but it might even be,

00:49:34.780 | for some people, it can be worth it to compensate.

00:49:38.540 | If, for example, you are going to claim somebody

00:49:41.420 | as a dependent and that's going to,

00:49:43.680 | and you're in a higher bracket,

00:49:45.440 | this is one of those income shifting strategies,

00:49:47.700 | kind of partly, is this might allow you,

00:49:50.980 | you might reimburse them for some of the tax costs

00:49:53.140 | to them and just go ahead and allow them to,

00:49:56.260 | so that you can actually claim the expense.

00:50:01.260 | So you want to calculate it out,

00:50:05.060 | depending on who's got what bracket and see.

00:50:09.260 | And that might, again, for many of you

00:50:11.420 | who are caring for parents or grandparents,

00:50:14.140 | then that can be a really valuable scenario.

00:50:17.240 | And considering that you need to provide

00:50:19.200 | that care regardless, then make sure

00:50:22.820 | that you do it in a way that's going,

00:50:24.260 | where you're gonna allow the tax code

00:50:25.620 | to subsidize your expense.

00:50:27.060 | Oh, and I forgot, one of the things,

00:50:30.900 | when you're figuring out your dependent's income,

00:50:33.460 | remember that you can exclude any type of exempt income.

00:50:37.420 | And exempt income would be things like

00:50:40.420 | including social security benefits,

00:50:42.820 | tax-exempt interest, et cetera.

00:50:45.260 | So the key there is your dependent can still,

00:50:49.740 | so if my mother or father were in a nursing home,

00:50:52.740 | they can, doesn't matter how much

00:50:53.980 | social security income they receive,

00:50:55.620 | that's a tax, that's exempt for the purpose

00:50:57.700 | of calculating the dependency.

00:50:59.420 | The key is how much actually gets paid for their support.

00:51:03.980 | And it's based upon the money spent,

00:51:06.300 | not the money received.

00:51:08.460 | So that's how we pass the support test.

00:51:11.160 | So do some research if you think that might apply to you

00:51:14.580 | and see if you can work a way into that.

00:51:17.660 | Very briefly on investment tax planning,

00:51:19.860 | I don't want to go into details on investment tax planning.

00:51:22.200 | I just want to mention one concept.

00:51:24.320 | I've seen over the last year, I would say, two years,

00:51:28.540 | a lot more interest in the concept of

00:51:32.060 | tax loss harvesting for investment planning.

00:51:34.300 | And I think this has been primarily due to

00:51:36.500 | some of the robo-advisors have made it very easy

00:51:40.460 | and efficient to actually harvest your tax losses.

00:51:45.460 | It's not always easy to go through and figure out,

00:51:49.220 | well, what can I sell to defer my gains?

00:51:51.580 | I just want to emphasize that that's really great

00:51:54.640 | and that's valuable and that's useful.

00:51:56.640 | I want to emphasize that the flip side to that is

00:51:58.720 | you also want to make sure that your harvest

00:52:00.420 | sometimes harvest your gains.

00:52:02.480 | And so the key, if you can establish a bookkeeping system

00:52:05.640 | that's going to, excuse me, allow you to be

00:52:08.360 | detail-oriented enough to actually be able to,

00:52:13.240 | if you can establish a bookkeeping system

00:52:19.040 | that's going to permit you to do these kinds of

00:52:21.280 | calculations in advance, sometimes you might want to

00:52:23.840 | go ahead and harvest gains.

00:52:25.780 | And so let's say that you've purchased stock

00:52:30.780 | and you currently have a tax basis of $5,000 in the stock

00:52:37.020 | and the market value is $10,000.

00:52:40.860 | Well, if you have some extra money sitting on your

00:52:44.520 | tax return at a relatively low bracket,

00:52:46.620 | or at something at a relatively low bracket,

00:52:49.780 | you might be in your best interest to go ahead

00:52:51.860 | and sell some of the stock and then buy it back

00:52:55.220 | in order to increase your gain, excuse me,

00:52:57.660 | increase your basis.

00:52:58.900 | And so you want to always essentially calculate both sides.

00:53:02.780 | Now, this is easy to say in theory

00:53:05.360 | and it's hard to do in practice,

00:53:07.260 | at least it's harder to do in practice.

00:53:09.480 | But go and calculate it and make sure that you're not

00:53:11.700 | just focusing on tax loss harvesting,

00:53:14.180 | but that you're actually focusing on tax gain harvesting

00:53:17.220 | and essentially over time ratcheting up your basis

00:53:19.900 | in your investments, however you can.

00:53:22.180 | And I hope that's helpful to you.

00:53:24.960 | Those are the primary ideas that I wanted to share with you.

00:53:29.340 | I hope they're helpful.

00:53:30.500 | And the key is good tax planning is gonna make

00:53:36.260 | a profound difference in your financial picture.

00:53:39.740 | The biggest expense that most of us face is tax.

00:53:42.960 | And it's a difficult subject to tackle

00:53:47.960 | because there's so many aspects of it.

00:53:49.520 | There's so many different kinds of tax.

00:53:52.080 | We're just talking today about federal income tax planning.

00:53:54.520 | There are so many moving variables.

00:53:56.440 | Our tax system is so incredibly complicated

00:53:58.900 | that it's very difficult, so daunting for me to figure out

00:54:01.360 | how do I teach through this?

00:54:02.760 | I mean, I get stretched by it.

00:54:05.520 | How do I teach through this in a way

00:54:06.920 | that's actually gonna be helpful?

00:54:08.360 | So I hope, again, I hope this has been helpful.

00:54:11.280 | Always look and just think about your specific situation

00:54:14.640 | because that's the key.

00:54:16.560 | This is gonna be doing tax planning for end of the year,

00:54:19.880 | planning for a young single dad or single mom

00:54:24.880 | with a moderate income and a lot of expenses.

00:54:28.960 | There are certain ideas or tactics that might help,

00:54:31.820 | but that's very different than if you're doing tax planning

00:54:34.040 | for somebody with a $50 million estate

00:54:36.920 | and we're trying to move assets out of the estate.

00:54:38.880 | There are a lot of moving parts.

00:54:40.320 | So keep absorbing the information

00:54:43.240 | and just keep looking at your situation.

00:54:45.600 | Anytime there is an anomaly, for example, a market anomaly,

00:54:48.900 | if you have a large major price decline

00:54:53.160 | in the value of an asset or a large increase

00:54:56.120 | or absurdly low interest rates

00:54:58.440 | or absurdly high interest rates,

00:55:00.160 | then those are the kinds of things

00:55:01.600 | sometimes you can exploit that.

00:55:03.360 | So for example, if markets are down,

00:55:05.320 | then a couple years ago, that was when,

00:55:08.280 | if you were in estate planning,

00:55:09.200 | you were constantly busy getting assets out

00:55:11.600 | 'cause you wanna get them out

00:55:12.680 | when they're at a low valuation

00:55:14.320 | so you can get them out

00:55:15.240 | when they're basically destroyed in value

00:55:18.080 | where they can rise and the money is out of your estate.

00:55:20.920 | So there are a lot of moving parts.

00:55:22.460 | I hope that this has been useful

00:55:25.040 | and I'd love some feedback,

00:55:27.480 | but the key is you gotta just look at your situation.

00:55:30.480 | Remember though that we're coming up on 2015

00:55:33.160 | and this is the time to start planning for your 2015 plans.

00:55:36.940 | Focus on goals, focus on income,

00:55:39.000 | but don't forget about tax plans as well.

00:55:41.480 | You just heard what was actually the original show

00:55:45.700 | that I had recorded today.

00:55:47.880 | However, you are privileged

00:55:49.800 | to get a little bit of a bonus episode here.

00:55:52.000 | (laughs)

00:55:53.680 | I recorded that show today as I record this now,

00:55:57.000 | it is December 17th, 3.20 p.m.

00:55:59.280 | I recorded that show this morning

00:56:01.380 | and I had to leave my house

00:56:02.720 | and just leave my house for an appointment

00:56:05.320 | and I was planning to get the show uploaded here

00:56:06.940 | this afternoon.

00:56:08.120 | Then I find out all of a sudden

00:56:09.600 | through one of my news feeds that the law has changed

00:56:11.960 | or is in the process of changing.

00:56:13.700 | And let me clarify what specifically is wrong

00:56:17.160 | in the show that I just recorded

00:56:19.160 | and then I'm gonna rant a little bit

00:56:21.400 | because this is incredibly frustrating.

00:56:23.720 | So I find out through an email

00:56:26.900 | from one of the services and things that I subscribe to

00:56:30.120 | that now as of last night, Tuesday, December 16, 2014,

00:56:35.880 | there is a bill that is passed by the Senate

00:56:38.600 | and the Senate votes to pass the so-called,

00:56:41.400 | what's this called?

00:56:42.280 | HR 5771, Tax Increase Prevention Act of 2014.

00:56:47.280 | So it was passed by the Senate last night

00:56:50.360 | and as of right now as I record this,

00:56:52.420 | it's on its way to the President's desk, I guess,

00:56:54.460 | and theoretically he's gonna sign it.

00:56:56.360 | So I'm looking at this thing

00:56:57.560 | and the big thing that I got wrong

00:56:59.120 | was I made a special note in the show that you just heard

00:57:02.540 | about the Section 179 ability to expense allowance

00:57:07.540 | where for the last few years,

00:57:09.180 | that expense allowance had been,

00:57:10.760 | you were able to expense as much as $500,000,

00:57:15.760 | $500,000 of your upfront equipment costs in a single year

00:57:21.100 | and then it was limited to $25,000 for this year.

00:57:24.860 | So then here we are at December 16 when this bill is passed.

00:57:28.820 | It's not been signed by the President yet that I know.

00:57:30.500 | I'm looking at govtrack.us and it doesn't indicate

00:57:34.340 | that it's been signed by the President yet.

00:57:36.160 | So here we are sitting here in December

00:57:40.220 | and they're about to pass this bill evidently,

00:57:43.200 | which is among other things,

00:57:44.500 | is going to extend the $500,000 Section 179

00:57:49.500 | upfront expensing limits.

00:57:53.300 | The full title here,

00:57:54.260 | to amend the Internal Revenue Code of 1986

00:57:56.420 | to extend certain expiring provisions

00:57:58.180 | and make technical corrections

00:57:59.940 | and it goes on.

00:58:01.460 | So I'm looking at the bill.

00:58:02.740 | I'm not gonna go through every section in here,

00:58:05.240 | but it goes,

00:58:06.620 | I'm looking at all of the things that are expiring

00:58:09.140 | and it covers 100% of the Section 179 stuff

00:58:13.060 | and that extends that out.

00:58:14.020 | So that's what you need to know

00:58:14.860 | is basically that right now in December,

00:58:17.460 | if you need to spend a bunch of money now,

00:58:21.980 | you can't only just take a $25,000 expense allowance.

00:58:25.100 | You can actually maybe,

00:58:26.020 | if the President signs this thing,

00:58:27.980 | you can go and take a $500,000 expense allowance.

00:58:31.540 | So the first thing you should do is call your accountant

00:58:34.260 | and if you need to purchase some equipment

00:58:35.620 | or something to knock off a bill this year,

00:58:37.460 | this might be a time to do it.

00:58:38.660 | So talk to your accountant.

00:58:39.740 | I can't give any further advice in that.

00:58:41.980 | But this is just,

00:58:42.940 | this is so frustrating.

00:58:46.440 | We have a nation that is run by a bunch of clowns

00:58:49.940 | and two-year-old clowns that can't,

00:58:53.180 | I'm bad at political rants

00:58:56.940 | 'cause I've signed off of all the political nonsense.

00:58:59.260 | I'm done.

00:59:00.780 | I've quit.

00:59:01.980 | Just leave me alone and I will,

00:59:04.780 | I'm speechless.

00:59:08.260 | I can't even do a political rant.

00:59:09.760 | Most of my friends, I'm good at doing political ranting.

00:59:12.260 | It's so frustrating,

00:59:14.100 | the way that tax policy is done in this country.

00:59:16.300 | It's so frustrating.

00:59:17.740 | If you look back at it,

00:59:19.340 | I mean, it reminds me,

00:59:21.340 | if you go back to 2012,

00:59:23.860 | when you had at the end of 2012,

00:59:26.660 | we're approaching the fiscal cliff,

00:59:30.580 | the tax Armageddon,

00:59:32.060 | and there was gonna be the biggest overnight increase

00:59:34.980 | in taxes in the history of the country.

00:59:39.860 | The actual, I mean,

00:59:40.820 | the tax rates would have jumped massively

00:59:44.220 | when this was,

00:59:45.340 | the Bush tax cuts had expired a couple years earlier,

00:59:47.460 | though everything was extended,

00:59:48.520 | everything was gonna be forced through.

00:59:50.300 | And so the maximum tax,

00:59:52.500 | a year ago,

00:59:53.700 | the maximum tax on dividends

00:59:55.060 | was scheduled to jump from 15%

00:59:57.140 | to as much as 43 1/2%.

00:59:59.940 | Four out of five US households

01:00:01.940 | would have faced an average of $3,700 more in taxes.

01:00:06.720 | It was basically gonna be an $8 trillion tax increase.

01:00:10.260 | And what is so frustrating

01:00:12.440 | is everybody knew what needed to be done.

01:00:14.420 | Everybody knew what was going to be done.

01:00:16.660 | Everybody knew,

01:00:17.860 | like, it's all known in advance

01:00:21.360 | exactly what's gonna happen.

01:00:22.740 | Everyone's gonna talk a big talk.

01:00:24.340 | You know, the left and the right,

01:00:25.500 | the Democrats are gonna talk a big talk

01:00:27.060 | about not raising taxes,

01:00:29.900 | and the Republicans are gonna talk a big talk

01:00:31.860 | about not raising taxes.

01:00:33.060 | In the end, they're all liars,

01:00:34.260 | and they do exactly the same thing.

01:00:36.060 | But they have to wait till after the elections.

01:00:37.980 | So instead of anybody being able

01:00:39.340 | to actually plan on anything

01:00:40.900 | and actually run their business

01:00:42.360 | with a bit of confidence,

01:00:43.940 | if I were advising a business owner,

01:00:46.360 | how do you sit here and say,

01:00:47.280 | oh, all of a sudden,

01:00:48.120 | I told you you had a $25,000 limit

01:00:50.980 | on your 179 expense right now,

01:00:53.040 | but now you got a $500,000 limit?

01:00:55.580 | How do you plan in this kind of environment?

01:00:58.780 | It is utterly,

01:00:59.960 | it is,

01:01:02.460 | anyway,

01:01:04.580 | the world we live in is just ridiculous.

01:01:06.700 | You know, when,

01:01:07.780 | here I,

01:01:08.980 | when you can't even expect,

01:01:10.540 | here at December,

01:01:12.020 | and I'm already late on a show like this,

01:01:13.780 | I'd prepared my outline carefully,

01:01:15.340 | I'd researched everything to be very precise,

01:01:17.700 | and here I am,

01:01:21.100 | here I am trying to give a precise show

01:01:23.920 | to help people,

01:01:25.360 | and then you've got the Congress clowns move around

01:01:28.220 | and the end of December change the rules again.

01:01:31.280 | And you look here and,

01:01:32.680 | section 101,

01:01:34.920 | extension of deduction for certain expenses

01:01:36.640 | of elementary and secondary school teachers.

01:01:38.300 | Section 102,

01:01:39.140 | extension of exclusion from gross income

01:01:41.000 | of discharge of qualified principal residents

01:01:42.880 | and debtors.

01:01:43.720 | So we gotta pander to the people

01:01:45.120 | and extend this stupid thing on,

01:01:49.600 | allowing you to go through a short sale.

01:01:51.580 | What does that even do?

01:01:52.420 | If that's what it is,

01:01:53.460 | what does this do for all the people who,

01:01:55.500 | their account advisor,

01:01:58.700 | and they were gonna have to pay the tax.

01:01:59.940 | When you have debt that's forgiven to you,

01:02:01.620 | it's imputed income,

01:02:02.460 | it's phantom income,

01:02:03.660 | and we've gotta protect the people,

01:02:05.460 | and we've gotta give a special deal to everyone

01:02:07.020 | in the housing crisis to avoid the tax.

01:02:09.420 | Section 103,

01:02:10.260 | extension of parity for employer-provided

01:02:11.900 | mass transit and parking benefits.

01:02:13.620 | Section 104,

01:02:14.460 | extension of mortgage insurance premiums

01:02:16.260 | treated as qualified resident's interest.

01:02:18.100 | Section 105,

01:02:18.940 | extension of deduction of state

01:02:20.180 | and local general sales taxes.

01:02:22.220 | I mean, it just goes on and on.

01:02:23.180 | The business tax extenders,

01:02:24.920 | extension of the research credits,

01:02:26.260 | 114,

01:02:27.100 | Indian employment tax credit,

01:02:28.800 | new markets tax credit.

01:02:29.820 | And basically what all these things are

01:02:31.020 | is extensions of things that were scheduled to expire.

01:02:35.860 | I haven't read the whole bill here,

01:02:37.180 | and just looking at the summary.

01:02:38.820 | We live in a nation of incompetence,

01:02:44.820 | incompetent rulers,

01:02:46.020 | and it would be great to get rid

01:02:48.180 | of every single one of 'em.

01:02:50.020 | I mean, maybe there's some that are intelligent,

01:02:51.920 | but it is absurd.

01:02:53.860 | Since I'm, if you want a little fun,

01:02:55.940 | I'll indulge myself.

01:02:57.620 | I usually don't rant on taxes,

01:02:59.420 | but this one has me annoyed,

01:03:01.180 | just because,

01:03:02.020 | I guess it passed last night,

01:03:03.980 | so technically I should have done my research this morning

01:03:06.260 | when my outline was already prepared.

01:03:08.380 | But,

01:03:09.220 | so I'm gonna pull down one,

01:03:11.660 | I've got one of my favorite books here,

01:03:13.140 | and this is,

01:03:13.980 | I'll read a couple of things from Jeff Schnepper's

01:03:16.620 | How to Pay Zero Taxes book.

01:03:19.140 | And he updates this,

01:03:20.340 | I have the 2015 edition,

01:03:22.500 | and he updates this thing every year,

01:03:24.580 | and in the front he talks about what happened in each year.

01:03:27.220 | And,

01:03:28.700 | I'll just read a few of my favorites

01:03:31.060 | from the last few years.

01:03:32.700 | And hopefully you'll get a kick out of this,

01:03:34.540 | and then I'll be done and be out of here.

01:03:36.020 | You would have been impressed.

01:03:36.860 | The original show was under 60 minutes,

01:03:39.140 | so you would have been impressed with that.

01:03:40.660 | But let's pick a couple of fun ones here.

01:03:43.060 | So,

01:03:45.620 | from his section on 2012,

01:03:48.660 | so after that debacle of the fiscal cliff,

01:03:53.420 | according to the Joint Committee on Taxation in March 2012,

01:03:56.780 | the prior cost of kicking the can down the road

01:03:59.000 | for tax cuts, extenders, estate tax, et cetera,

01:04:01.880 | through fiscal year 2012,

01:04:03.600 | was $967.7 billion in wasted dollars.

01:04:08.600 | Add to that decreased stability

01:04:10.740 | and the inability to properly budget into the future,

01:04:13.060 | and you had a framework for economic impotence.

01:04:16.900 | Don't blame the IRS.

01:04:18.380 | Then Commissioner Doug Shulman warned,

01:04:20.780 | if Congress can't act by the end of the year,

01:04:22.940 | and even starts to think about retroactive legislation

01:04:25.700 | of things like the AMT, which have already expired,

01:04:28.380 | you could have a real disaster in the filing season

01:04:30.580 | when there's total confusion

01:04:32.060 | where some people are filing under one law

01:04:34.020 | and others under another.

01:04:35.700 | Congress finally passed

01:04:36.740 | the American Taxpayer Relief Act of 2012

01:04:39.040 | to address these issues,

01:04:39.940 | and they do it on the day after 2012.

01:04:42.260 | It's January 1, 2013.

01:04:43.700 | Here are a couple others from 2011.

01:04:47.320 | Actually, before I go to 2011,

01:04:51.900 | let's look at a couple of the fun ones from 2013.

01:04:55.660 | So the Internal Revenue Service reportedly posted

01:04:58.340 | the Social Security number of tens of thousands of people

01:05:00.560 | on the internet before taking it down,

01:05:02.820 | wherein a whistleblower pointed out the mistakes.

01:05:05.260 | Approximately 1.45 million taxpayers

01:05:09.580 | who qualified for relief from tax penalties

01:05:11.460 | totaling close to $181 million

01:05:13.940 | were never told that they could get penalty abatement

01:05:16.080 | and never got it.

01:05:16.920 | Here's one of my favorites.

01:05:18.100 | The IRS could not provide documentation

01:05:20.300 | for $394,430 paid for labor hours.

01:05:24.620 | Point that out in your next audit.

01:05:26.340 | How about this one?

01:05:28.100 | The American Civil Liberties Union

01:05:29.460 | released documents showing that the IRS criminal division

01:05:31.940 | had been reading taxpayers' emails without a warrant

01:05:34.460 | in violation of the Fourth Amendment.

01:05:35.980 | That makes you feel good, doesn't it?

01:05:37.700 | And then there were the IRS parties.

01:05:39.180 | During one conference, more than $50,000

01:05:41.500 | was spent on receptions,

01:05:42.820 | including 28 bottles of wine for 41 guests.

01:05:46.020 | Then there was the almost $4,000 spent on giveaway items,

01:05:49.540 | including footballs, $418 in kazoos,

01:05:52.980 | bathtub toy boats, and other novelty decorations.

01:05:56.220 | IRS credit cards were used to purchase romance novels,

01:05:58.980 | steaks, diet pills, and unspecified items

01:06:01.860 | from merchants affiliated with online pornography.

01:06:04.700 | Your tax money at work.

01:06:06.300 | The IRS spent about $50 million on 225 conferences

01:06:10.500 | during the three years between fiscal 2010 and 2012.

01:06:14.660 | The small business and self-employed division

01:06:17.220 | spent $4.1 million alone on a single conference

01:06:20.700 | in Anaheim, California.

01:06:22.060 | You should have been there.

01:06:23.220 | Speaker fees for presentations such as, quote,

01:06:25.660 | "How seemingly random combinations of ideas

01:06:28.020 | "can drive radical innovation," close quote,

01:06:30.900 | totaled $135,350.

01:06:34.500 | One speaker was paid $17,000 to create six paintings.

01:06:38.420 | Three were donated to charity,

01:06:40.180 | two were given to conference attendees,

01:06:41.900 | and the sixth was lost.

01:06:43.700 | Then there were the videos that cost $50,107 to produce.

01:06:48.100 | They included a dance video showing IRS employees

01:06:50.960 | learning the Cupid Shuffle and a Star Trek parody

01:06:53.860 | for which the set alone cost $2,400

01:06:57.100 | and 11 hours of staff work,

01:06:58.820 | estimated to cost an additional $3,100.

01:07:02.160 | But they did get a one-minute finished video.

01:07:04.620 | We won't even talk about the IRS video parody

01:07:06.920 | of Gilligan's Island used to train

01:07:08.500 | 1,900 taxpayer-assisted employees

01:07:11.060 | in 400 locations nationwide.

01:07:13.580 | As Maynard G. Krebs would say, "Work?"

01:07:16.380 | In addition to these large expenditures,

01:07:18.220 | the IRS spent $15,669 of your money on brief bags

01:07:23.220 | with free gifts and trinkets,

01:07:25.400 | $6,060 on lanyards and badge holders,

01:07:28.660 | $1,524 on engraved travel mugs and clocks,

01:07:32.900 | and $90 on sleeves for puzzle pieces.

01:07:36.380 | And then there were the political issues.

01:07:38.800 | The supposedly politically independent IRS

01:07:40.840 | was found to have targeted conservative groups

01:07:43.000 | seeking tax exemption for extra scrutiny.

01:07:45.620 | The TIGTA found the, that's a taxpayer,

01:07:48.740 | Treasury Inspector General for Tax Administration.

01:07:53.500 | The TIGTA found the inappropriate conduct, quote,

01:07:56.360 | "inexcusable," and Attorney General Eric Holder,

01:07:59.200 | another liar, announced that criminal penalties

01:08:02.180 | may be sought in a Justice Department

01:08:03.880 | criminal investigation.

01:08:05.400 | Add that to the 24 IRS employees who were indicted

01:08:08.280 | for fraudulently obtaining more than $250,000

01:08:12.560 | in government benefits, and you have what some

01:08:14.600 | would call a rogue agency out of control.

01:08:17.200 | It didn't even go into the Lois Lerned debacle.

01:08:20.300 | Bunch of lies.

01:08:24.880 | Let me pick out two or three of my other favorites,

01:08:26.680 | and then that'll satisfy my desire

01:08:28.320 | to express my emotions today.

01:08:31.380 | There's a David Letterman joke that the question is,

01:08:35.760 | "What's the difference between Obama's cabinet

01:08:37.680 | "and a penitentiary?"

01:08:39.300 | And the answer, "One is filled with tax evaders,

01:08:41.320 | "blackmailers, and threats to society.

01:08:43.480 | "The other is for housing prisoners."

01:08:45.480 | It was a David Letterman joke.

01:08:47.000 | So a lot of people don't realize why.

01:08:48.320 | I'll read just one of my favorites from 2009.

01:08:50.640 | And this is, again, this is Jeff Schnepper's writing here.

01:08:54.440 | "I'm beginning to understand now.

01:08:55.800 | "The tax code is the holy grail,

01:08:57.880 | "the answer to all our social and economic problems.

01:09:00.960 | "If we have a problem, it can be solved

01:09:02.640 | "through the tax code.

01:09:03.760 | "Need to sell more cars?

01:09:05.040 | "Simple, make the sales tax on their purchase deductible,

01:09:08.160 | "even for those taking the standard of deduction,

01:09:10.320 | "and create a clunker's credit.

01:09:12.520 | "But then again, the government does own

01:09:14.260 | "General Motors, doesn't it?

01:09:16.020 | "Still, I stand by my argument.

01:09:17.780 | "Your house went down in value?

01:09:19.280 | "Stimulate the real estate market

01:09:20.720 | "by making real estate taxes

01:09:22.020 | "on a principal resident's deductible.

01:09:23.860 | "Again, even for those taking the standard deduction.

01:09:27.040 | "Oil prices getting too high again?

01:09:29.020 | "Stimulate green energy alternatives

01:09:31.020 | "with credits that reduce your taxes

01:09:32.600 | "on a dollar-for-dollar basis.

01:09:34.520 | "On June 11, 2009, Representative Carolyn Maloney,

01:09:37.740 | "Democrat from New York,

01:09:39.020 | "introduced a bill that would give an employer

01:09:40.880 | "a 50% tax credit on up to $10,000

01:09:44.300 | "for qualified breastfeeding promotion

01:09:46.600 | "and support expenditures.

01:09:48.240 | "Talk about milking the system.

01:09:50.200 | "You can't say 2009 was a quiet year tax-wise.

01:09:54.160 | "The Internal Revenue Service

01:09:55.400 | "released a taxpayer attitude survey

01:09:57.120 | "on February 2, 2009,

01:09:59.280 | "which found that 89% of Americans

01:10:01.380 | "think it unacceptable for people to cheat on their taxes.

01:10:04.380 | "The other 11% appear to be headed

01:10:06.200 | "for the President's Cabinet.

01:10:07.840 | "President Obama's pick to lead

01:10:09.260 | "the Department of Health and Human Services,

01:10:11.200 | "former Senate Majority Leader Tom Daschle,

01:10:13.620 | "apologized for owing $140,000

01:10:16.420 | "in back taxes and interest.

01:10:18.300 | "In 1998, he was quoted as saying,

01:10:20.960 | "'Make no mistake, tax cheaters cheat us all,

01:10:24.080 | "'and the IRS should enforce our laws to the letter.'"

01:10:28.420 | The President's selection

01:10:29.460 | for the first Chief Performance Officer

01:10:31.200 | for the federal government, Nancy Killefer,

01:10:33.560 | failed to pay tax on her household help.

01:10:36.000 | Both had the good graces to withdraw from consideration.

01:10:38.840 | And then there was Ron Kirk,

01:10:40.600 | nominated to be the U.S. Trade Representative.

01:10:43.120 | He forgot to report $37,000 in spending

01:10:48.140 | and speaking fees assigned to a charity,

01:10:50.100 | but he managed to remember taking a deduction

01:10:52.500 | for $7,500 of the donation.

01:10:55.580 | And then there was $7,400 in pro basketball tickets

01:10:58.980 | without a business purpose.

01:11:00.700 | Cheating on his taxes didn't defer Timothy Geithner

01:11:03.100 | from becoming Treasury Secretary.

01:11:05.500 | His taxes were found to be underpaid in 2001,

01:11:08.860 | 2002, 2004, and 2005.

01:11:12.900 | What, nobody looked at 2003?

01:11:15.300 | But then again, who better to put in charge

01:11:17.420 | of the IRS than someone who requests a ruling on the law

01:11:21.040 | and then ignores it?

01:11:22.240 | But he did pay up when caught.

01:11:25.380 | Talk, anyway, you get the point.

01:11:27.560 | And it's just, it's utterly absurd.

01:11:30.940 | There's actually an important quote in here that he lists.

01:11:35.260 | And the quote is by former Commissioner

01:11:38.800 | of the IRS, Mark Everson.

01:11:40.480 | He says, "Frequent changes to the tax code

01:11:42.960 | "and rising complexity are perhaps the greatest obstacles

01:11:46.380 | "to reducing paperwork burden.

01:11:48.480 | "I am concerned that tax law complexity

01:11:50.700 | "may discourage taxpayers and adversely impact

01:11:54.000 | "voluntary self-assessment that is at the heart

01:11:56.620 | "of our tax system."

01:11:58.100 | And the point is, self-reporting and self-assessment

01:12:02.740 | of taxes is indeed the heart of the tax system.

01:12:06.420 | And it's absurd to have things, I mean,

01:12:09.700 | to have things changing like this is absolutely absurd.

01:12:13.660 | We've had over 48 major tax law changes

01:12:18.100 | in the last 51 years.

01:12:19.940 | Couple of numbers here.

01:12:22.700 | 2013 return numbers directly from the IRS.

01:12:26.340 | The average taxpayer who files a Form 1040 needs 15 hours.

01:12:30.540 | Add a single rental property or a Schedule C

01:12:32.500 | for your business and the hours jump to 24.

01:12:35.260 | And that's with about 91% filing with a computer.

01:12:38.440 | We spend more than 7.7 billion hours

01:12:42.180 | and over $350 billion each year complying with the tax code

01:12:46.940 | just to figure out what we owe.

01:12:48.700 | That's more hours than are used to build every car,

01:12:52.020 | van, truck, and airplane manufactured in America.

01:12:54.940 | And that's just your time.

01:12:56.260 | And our government wants your money as well.

01:13:00.340 | According to the Tax Foundation,

01:13:01.660 | the average taxpayer had to work 111 days

01:13:05.060 | until April 21, 2014 in order to earn enough

01:13:09.940 | to cover his federal, state, and local tax burden.

01:13:13.500 | They call it Tax Freedom Day.

01:13:15.000 | I call it Get Out of My Pocket Day.

01:13:17.080 | The Group Americans for Tax Reform

01:13:18.720 | includes the cost of regulation.

01:13:20.280 | Its cost of government day had us working

01:13:23.160 | for the government until July 6, 2014.

01:13:27.540 | I don't even know what to say.

01:13:35.500 | I don't know when people are gonna wake up

01:13:37.260 | and I do my best to try to stay level-headed

01:13:42.020 | and not get too fired up about stuff

01:13:46.260 | and I don't get on a political bandwagon.

01:13:48.040 | But it's absolutely absurd.

01:13:50.140 | It's, the world we live in is absurd.

01:13:54.340 | And remember, all of those numbers,

01:13:57.700 | and I won't go into it.

01:14:00.180 | Things are gonna change as time goes on.

01:14:03.620 | And obviously, the key is for us

01:14:06.660 | to look at our own situation

01:14:08.180 | and figure out what's right for us.

01:14:10.120 | You have to look at yourself.

01:14:15.660 | This way, I'm way more sympathetic

01:14:18.580 | to the tax protesters than I've ever been.

01:14:20.680 | I'm not there yet, but you never know.

01:14:23.760 | One of these days, I may join 'em.

01:14:25.460 | If I do, I'll go public with it from the beginning

01:14:27.380 | and I'll write my letter to the IRS.

01:14:28.620 | Until then, I will try to comply

01:14:31.640 | with their law that they changed.

01:14:33.260 | This bill they passed last night, 174 pages.

01:14:36.720 | So how on earth is any, and that's just one thing.

01:14:41.280 | The tax code is over, right now,

01:14:43.920 | as it sits right now in 2014,

01:14:46.080 | it's over 70,000 pages.

01:14:51.860 | Over 70,000 pages and over four million words.

01:14:57.960 | That's the tax code that we have.

01:15:00.920 | It's very hard for me to comprehend

01:15:04.940 | how just a tiny little bit of intelligence

01:15:07.640 | and applied sense can't see that we can figure out

01:15:10.420 | a better way to do it other than the debacle that we have.

01:15:15.420 | That's it for my show.

01:15:18.560 | Little different ending than the previous ending.

01:15:21.840 | I just chopped off the last bit of the other show.

01:15:24.800 | So a little bit different than I had planned,

01:15:26.360 | but I hope today was helpful to you.

01:15:30.280 | I guess I should add another tax tip

01:15:32.980 | to all the last minute tax planning

01:15:35.020 | and say, well, you could just do what seems like half of,

01:15:38.580 | probably, I guess that'd be a little bit silly.

01:15:41.000 | And yes, I'm not indulging.

01:15:43.160 | These aren't careful, logical arguments that I'm giving.

01:15:47.280 | It's just simply a little bit of emotion.

01:15:50.260 | But I guess you could just join

01:15:53.000 | some of the officials in government

01:15:54.560 | and just simply conveniently forget

01:15:56.600 | about half your income for the year.

01:15:57.940 | That would probably be pretty good.

01:15:59.920 | In fact, I encourage it.

01:16:01.060 | So if it works for them,

01:16:02.360 | you ought to take it for yourself.

01:16:04.320 | Seems to work well.

01:16:06.100 | Thank you guys so much for listening to today's show.

01:16:08.960 | If you'd like to get in touch with me,

01:16:09.960 | Joshua@radicalpersonalfinance.com,

01:16:13.280 | Twitter @radicalpf, Facebook.com/radicalpersonalfinance.

01:16:17.520 | Thank you for those of you

01:16:18.400 | who have joined the Irregulars program.

01:16:21.400 | Consider joining if you've appreciated the information,

01:16:23.400 | if I've helped you save you some money,

01:16:25.160 | consider joining the Irregulars.

01:16:26.280 | Details are at radicalpersonalfinance.com/membership.

01:16:29.600 | Let's go out with one review here.

01:16:32.000 | Thank you for those of you who've been leaving me

01:16:34.200 | iTunes reviews.

01:16:36.000 | One review here from Lane.

01:16:38.040 | He says, "You will learn difficult topics

01:16:40.760 | "explained with words, examples, guests,

01:16:42.560 | "and other methods as required.

01:16:44.000 | "You will learn from this one.

01:16:46.080 | "They're not short or always just a certain number

01:16:48.000 | "of minutes, but the adjustment is worth the effort."

01:16:50.400 | So another one here from,

01:16:52.600 | oh, that one was from me.

01:16:54.480 | I reviewed my own show.

01:16:55.320 | I said, "This show is awesome.

01:16:56.400 | "It really helps make financial stuff make sense."

01:16:58.480 | Yes, it is my own show, and that's why it's so good.

01:17:00.680 | (laughing)

01:17:02.520 | So that was me reviewing my own show.

01:17:04.520 | Thank you for leaving reviews on iTunes and on Stitcher.

01:17:06.760 | I appreciate it very much,

01:17:08.200 | and I wish each and every one of you a lovely day.

01:17:11.920 | Go out, and if you're running a business,

01:17:13.440 | call your accountant and go spend an extra $475,000

01:17:17.160 | and keep your money yourself.

01:17:18.960 | Forget about trying to keep up with the government.

01:17:22.280 | (upbeat music)

01:17:24.860 | (upbeat music)

01:17:27.440 | Thank you for listening to today's show.

01:17:39.380 | This show is intended to provide entertainment,

01:17:42.460 | education, and financial enlightenment.

01:17:46.340 | Your situation is unique,

01:17:48.860 | and I cannot deliver any actionable advice

01:17:52.740 | without knowing anything about you.

01:17:55.300 | This show is not and is not intended

01:17:59.200 | to be any form of financial advice.

01:18:02.720 | Please, develop a team of professional advisors

01:18:07.360 | who you find to be caring, competent, and trustworthy,

01:18:12.360 | and consult them because they are the ones

01:18:15.240 | who can understand your specific needs,

01:18:18.260 | your specific goals, and provide specific answers

01:18:22.100 | to your questions.

01:18:23.940 | Hold them accountable for your results.

01:18:26.940 | I've done my absolute best to be clear and accurate

01:18:29.500 | in today's show, but I'm one person, and I make mistakes.

01:18:33.360 | If you spot a mistake in something I've said,

01:18:35.260 | please come by the show page and comment

01:18:37.960 | so we can all learn together.

01:18:40.200 | Until tomorrow, thanks for being here.