RPF0121-Last_Minute_Tax

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00:00:30.000 | We're coming up on the end of the year.

00:00:32.400 | So, let's see if I can save you some money on your tax bill this year.

00:00:36.000 | [laughs]

00:00:37.000 | If you haven't been thinking about it this year, you might be caught saying, "What am I gonna do?"

00:00:40.800 | And today, I'm gonna try to help you solve that problem.

00:00:43.000 | Good morning. My name is Joshua Sheets, and this is the Radical Personal Finance podcast for today,

00:00:47.600 | Wednesday, December 17, 2014.

00:00:51.000 | And today, let's dig into some tax planning ideas.

00:00:55.000 | As I mentioned on a previous show, this is the time of year that if you pay any attention to the financial websites,

00:01:01.400 | or if you pay attention to your financial section in your newspaper,

00:01:05.400 | or if you look at your Facebook newsfeed, or whatever,

00:01:08.400 | you're likely to get some articles showing up that are gonna be essentially end-of-the-year tax planning ideas.

00:01:13.400 | And that's good. They're useful. And that's what this show today that I'm creating for you is about.

00:01:20.000 | But the challenge with doing this kind of planning at the end of the year is that it's way too late.

00:01:26.000 | It's way too late to start talking about what you're gonna actually do for 2014.

00:01:30.600 | Good tax planning, frankly, you should be working on good tax planning for 2015 right now,

00:01:35.600 | and getting started with that.

00:01:37.000 | Now, I know that's nice to say in theory, and in practice, it's a completely different world.

00:01:44.000 | But that is really important that you do it in advance.

00:01:47.800 | Good planning in advance is always gonna be more effective than last-minute planning.

00:01:51.800 | But, it doesn't mean that last-minute planning isn't helpful.

00:01:56.800 | I do want to keep this in context, and that's why I started with the previous show,

00:02:00.800 | where I didn't focus on how to save taxes, but rather I just focused on end-of-the-year goal planning.

00:02:09.200 | And so that previous show, if you haven't listened to it, go back and listen to episode 116,

00:02:14.200 | which was the show on how to plan your financial goals for 2015.

00:02:17.800 | You can find that at radicalpersonalfinance.com/116, if you're interested in that show.

00:02:24.800 | And the reason that I did that is because, really more than anything,

00:02:28.800 | the end-of-the-year tax planning articles and things like that are essentially clickbait.

00:02:32.800 | Where it's, "How can I get you to click on a tax, or click on a button?"

00:02:36.800 | And most people read them and don't do anything with them.

00:02:39.800 | So, what I described in episode 116 is something that you can actually do something with.

00:02:45.800 | Put this in context. When you see these articles, remember that 43.3% of Americans pay zero federal income taxes.

00:02:58.800 | Zero. So, almost half of our society pays zero federal income taxes.

00:03:05.800 | And many of those who do pay some federal income taxes, don't pay all that much.

00:03:10.800 | Now, that's not a number that accounts for the total tax burden.

00:03:14.800 | So, it's certainly less than 43.3% who pay zero employment taxes.

00:03:22.800 | But, it does count for federal income taxes.

00:03:25.800 | And that's really the only thing that the end-of-the-year counts for, is for your federal income taxes.

00:03:30.800 | So, the other problem with these end-of-the-year articles and end-of-the-year planning is,

00:03:36.800 | end-of-the-year planning is really tough because essentially, you have to have money.

00:03:40.800 | And the way an income tax system works is you're penalized for productivity.

00:03:47.800 | So, the only way to essentially avoid the taxes is to be less productive.

00:03:54.800 | And the end-of-the-year is too late for that.

00:03:57.800 | You should have chosen in advance to be less productive or to get rid of your money.

00:04:02.800 | And with the way that most Americans conduct their financial lives,

00:04:07.800 | there's not a lot of money left at the end-of-the-year to get rid of.

00:04:10.800 | So, again, that's why I started with the other show.

00:04:14.800 | But, for those of you who listen to this show, hopefully, you're not in that situation.

00:04:18.800 | Hopefully, you are in a situation of overflowing with excess money and excess savings.

00:04:23.800 | And now you're trying to figure out, "What do I do? What do I do?"

00:04:28.800 | So, that's what today's show is about.

00:04:30.800 | Here's the basic rule of tax planning.

00:04:32.800 | You've got to get rid of your income.

00:04:35.800 | So, remember, income taxes, you're penalized for making money.

00:04:38.800 | As one of my favorite quotes, William Feather, once said,

00:04:41.800 | "The reward of energy, enterprise, and thrift is taxes."

00:04:45.800 | So, you've got to get rid of the money.

00:04:47.800 | You've got to get rid of the money through one of the three fundamental tax planning strategies.

00:04:51.800 | A timing strategy, a conversion strategy, or a shifting strategy.

00:04:56.800 | So, with a timing strategy, that's most popular at this time of year,

00:04:59.800 | where you're going to try to defer paying the tax towards the future.

00:05:03.800 | However, you might also bring it forward.

00:05:05.800 | And that's why this is pretty tough, is you've got to figure out what you should do with it.

00:05:10.800 | Most end-of-the-year articles that you read, and including the majority of today's show,

00:05:16.800 | are about deferring income.

00:05:18.800 | But you've got to figure out whether it's better for you to defer it,

00:05:22.800 | or to actually accelerate it and bring it forward.

00:05:26.800 | In general, normally, we like to postpone paying the tax,

00:05:31.800 | because you can pay it later with cheaper dollars.

00:05:35.800 | So, as inflation makes our dollars cheaper, if you have a tax liability of $10,

00:05:41.800 | if you pay it in a later year, you'll be able to pay it with cheaper dollars.

00:05:45.800 | So, we usually want to postpone tax so we can pay it later with cheaper dollars.

00:05:48.800 | Also, we might be able to more productively use the money than using it to pay taxes.

00:05:54.800 | So, remember that any money that you can save on tax is comparable to receiving,

00:06:00.800 | in essence, an interest-free loan that you can use today.

00:06:04.800 | If you can avoid paying $10,000 in tax,

00:06:08.800 | that's $10,000 extra that you can use for your purposes,

00:06:13.800 | and you're not paying any interest on the money.

00:06:16.800 | So, that's really valuable.

00:06:17.800 | However, remember that you might actually want to not defer income.

00:06:22.800 | You might want to actually go ahead and bring it forward,

00:06:25.800 | and pay the taxes today, and there could be many reasons.

00:06:27.800 | Your situation might change.

00:06:29.800 | You might be in a low-income bracket at the moment,

00:06:33.800 | and you expect yourself to be in a higher-income bracket down the road.

00:06:37.800 | Well, in that situation, it's better to go ahead and pay the tax now in the lower bracket.

00:06:41.800 | Generally, tax rates and brackets could change.

00:06:45.800 | So, rates on all taxpayers could change.

00:06:47.800 | They could go up. They could go down.

00:06:49.800 | Also, brackets could change.

00:06:51.800 | The brackets could expand. They can contract.

00:06:53.800 | And so, you've got to kind of figure out what you're concerned with

00:06:57.800 | and what you're actually doing.

00:07:00.800 | So, think through it carefully.

00:07:01.800 | Before you just go about deferring everything, think through it.

00:07:05.800 | But, with that said, with that caveat, because that is very important,

00:07:09.800 | let's get into some ideas and see if I can give you some tips that might be helping you.

00:07:14.800 | And this is going to be very useful.

00:07:15.800 | At least one of you is probably facing a big bill, and you need some last-minute help.

00:07:19.800 | So, I think I'm going to try to give you that help.

00:07:22.800 | As you're going through today's show,

00:07:24.800 | if you hear me talk about something that you don't understand, don't worry about it.

00:07:29.800 | Don't try to grasp every specific detail.

00:07:33.800 | If I say something like, "Make a Section 179 expense election,"

00:07:38.800 | and you don't know what a Section 179 expense election is, don't worry about it.

00:07:41.800 | Just grasp the concept if you can.

00:07:43.800 | If not, come on back later, and it'll start to make sense when we talk about it at another time.

00:07:47.800 | Or if I talk about cash-basis accounting versus accrual-basis accounting in your business,

00:07:52.800 | if you don't understand what that means, don't worry about it.

00:07:55.800 | Spend a little time. Do a quick web search.

00:07:57.800 | And if you can find some information on it, that might help you.

00:08:01.800 | But learning financial information is well done in an iterative process.

00:08:08.800 | So, by constantly exposing yourself to information that's beyond your current understanding,

00:08:13.800 | over time, your understanding will rise.

00:08:16.800 | And there's always going to be something you don't understand.

00:08:19.800 | There are so many things that I read that I don't understand, and it's always been that way.

00:08:25.800 | But over time, when I look back now, I can see that over the past years,

00:08:29.800 | my understanding has increased.

00:08:31.800 | And so, what confused me five years ago to now is just old hat.

00:08:34.800 | I don't even have to think about it.

00:08:36.800 | So, listen to today's show, but don't worry if I throw you off on a detail or two.

00:08:41.800 | Let's start with the easiest, most well-known ways to do some last-minute planning.

00:08:48.800 | And then we'll move to some of the more esoteric.

00:08:50.800 | Let's start with retirement accounts.

00:08:52.800 | Now, we're all familiar with the concept of deferring income through a retirement account.

00:08:58.800 | And the challenge is, however, that most of the retirement accounts that most of us participate in,

00:09:04.800 | meaning 401(k)s and 403(b)s, these don't really help you at the end of the year

00:09:10.800 | because you have to actually make your contributions as you go.

00:09:14.800 | So, if you arrive here in December and you've been putting 3% of your income aside into a 401(k) plan,

00:09:21.800 | and you recognize that all of a sudden you have a higher bonus payment

00:09:26.800 | and you want to put an extra $10,000 aside, generally you can't do that

00:09:31.800 | because those accounts have to be funded throughout the year.

00:09:35.800 | So, unless you can talk to your HR department, and this is my tip for you,

00:09:39.800 | I'm probably a little late in giving this to you. It's December 17th as I record this.

00:09:43.800 | So, unless you can talk to your HR department and can defer your entire last income

00:09:48.800 | and change your election really quickly, defer your entire last paycheck into the account,

00:09:55.800 | you're probably not going to be able to get much excess money into the 401(k) or into your 403(b).

00:10:00.800 | So, those aren't really useful. But, you can use some other accounts.

00:10:07.800 | If you're an individual, you can use an IRA.

00:10:10.800 | And the useful thing about the IRA is that you don't have to make your contributions before the end of the year.

00:10:18.800 | You can actually make your contributions at any time up until you file your tax return.

00:10:23.800 | So, here it is December 2014. If you file your return in April 2015,

00:10:29.800 | you have all the way up until the time that you file your return to make that IRA contribution.

00:10:35.800 | So, that can be a very useful last-minute planning tool for you.

00:10:38.800 | Now, for those of you who are newbies to the world of finance,

00:10:41.800 | let me give you a quick brush-up on the difference between your two different types of IRAs.

00:10:46.800 | There is a traditional IRA and there's a Roth IRA.

00:10:50.800 | The traditional IRA permits you to go ahead and deduct the income now and then later pay the tax.

00:10:59.800 | The Roth IRA allows you to pay the tax now and deduct the income later.

00:11:06.800 | Now, it's important for you to recognize that if everything is equal,

00:11:11.800 | if your income is net now is equal to your income at retirement,

00:11:16.800 | if you're in the same tax bracket and the tax rates are the same now and in retirement,

00:11:21.800 | then those two options are mathematically identical.

00:11:25.800 | This is a commonly held misconception that people say, "Well, one is better than another."

00:11:30.800 | No, they're actually identical if your tax rates and tax brackets are the same.

00:11:35.800 | Many people, if not most, will be in a lower income tax bracket

00:11:39.800 | and thus paying tax at a lower rate in retirement.

00:11:43.800 | That's why in general we would usually choose to prefer a traditional IRA instead of a Roth IRA.

00:11:50.800 | But that's not always true and you have to look at an individual situation.

00:11:54.800 | There are other advantages and disadvantages and I won't go into all of those details right now.

00:12:00.800 | In the year 2014, your maximum contribution to those two accounts is you can contribute up to $5,500.

00:12:07.800 | And you can do that if you're married for each, both you and your spouse.

00:12:12.800 | Also, if you're older than the age of 50, don't forget that you have an additional $1,000 catch-up contribution that's available to you.

00:12:20.800 | So you can contribute to that account as much as $6,500 for you.

00:12:25.800 | And if you have a spouse who is also over 50, you can contribute up to $6,500.

00:12:31.800 | Age 50 is the magic date for that catch-up contribution.

00:12:35.800 | So don't forget about those catch-up contributions.

00:12:37.800 | Many people when they're making that transition, they're not accustomed to making that extra $1,000 contribution and they forget about that.

00:12:45.800 | Now, I want to spend just a moment going over the contribution limits.

00:12:49.800 | Almost every single person that I've ever met with or worked with is confused by the limits.

00:12:55.800 | And even when I was a new financial advisor, I was confused for the first couple of years of practicing and I was the blind leading the blind.

00:13:02.800 | And so I was confused myself.

00:13:04.800 | So let me explain to you the contribution limits and I'll try to do it in a way that makes sense.

00:13:08.800 | There are two entirely different sets of contribution limits.

00:13:12.800 | And we'll start with the simpler one.

00:13:13.800 | We'll start with the Roth IRA contribution limits.

00:13:16.800 | The Roth IRA is simple because it's purely based upon your income.

00:13:21.800 | Your ability to contribute to a Roth IRA is exclusively focused on how much your adjusted gross income is.

00:13:31.800 | How much is your AGI?

00:13:33.800 | And then it governs whether or not you can contribute to a Roth IRA.

00:13:37.800 | And those numbers for the year 2014, if you are married filing jointly or a qualified widow or widower, if your income is below $181,000, your AGI is below $181,000, then you can contribute a full contribution to a Roth IRA.

00:13:57.800 | There's a phase out for the next $10,000 of income and then if you make more than $191,000, you're not permitted to contribute to a Roth IRA.

00:14:05.800 | I'm going to ignore primarily the phase outs.

00:14:08.800 | If you're on the bracket, if you're on the margin, so if I say $181,000, go and look up the chart and see if you're in the phase out amount because it's not a -- all of these income limits have a certain range and it will get very tedious if I go through each of them.

00:14:24.800 | If you are single, head of household or married filing separately and you didn't live with your spouse at any time during the year, then the limit for you is $114,000 of income.

00:14:35.800 | So if your AGI is less than $114,000 and you're single, you can contribute to the Roth IRA.

00:14:43.800 | The gotcha is if you are married filing separately and you live with your spouse at any time during the year, the limit is $10,000.

00:14:50.800 | So you can't make more than $10,000 of income.

00:14:53.800 | That's the most penalized filing status of all is if you're married filing separately.

00:15:00.800 | There are a bunch of gotchas in the code about that and this is one of them.

00:15:03.800 | So with the Roth IRA, you need to simply remember what your income is.

00:15:07.800 | Single, less than $114,000.

00:15:09.800 | Married, $181,000.

00:15:12.800 | That's all. That's all you need to know.

00:15:14.800 | Now, a traditional IRA has a different set of scenarios.

00:15:20.800 | And this different set of scenarios is driven by whether or not you are covered by a retirement plan at work.

00:15:29.800 | That's one of the key distinctions.

00:15:32.800 | Your ability to contribute to the Roth is based upon your income.

00:15:37.800 | However, your ability to contribute to an IRA does not have to do with your income.

00:15:44.800 | Anybody can contribute to a traditional IRA.

00:15:48.800 | But your ability to deduct your contribution is governed by how much money you made

00:15:54.800 | and whether or not you are covered by an employer plan.

00:16:00.800 | If you are not covered by a retirement plan at work,

00:16:04.800 | so if you are just an individual and you only have an IRA,

00:16:08.800 | no matter how much money you make, it does not matter.

00:16:11.800 | You can take a full deduction of your contribution up to the contribution limit,

00:16:22.800 | up to the $5,500 and then the extra $1,000 of catch-up.

00:16:26.800 | This is why people get confused on it because it's hard for me to explain my way through.

00:16:33.800 | It's much better in a visual presentation, I think.

00:16:38.800 | Let me just forge on though and see if I can do it.

00:16:41.800 | If you are covered by a retirement plan at work,

00:16:44.800 | then if your income as single is less than $61,000

00:16:49.800 | or if your income as married filing jointly is less than $98,000,

00:16:54.800 | then you can go ahead and deduct your contributions to a traditional IRA.

00:16:58.800 | There's also a separate question where if you have a spouse that is covered by a retirement plan.

00:17:05.800 | For example, if you're not covered by a retirement plan but you have a spouse who is,

00:17:12.800 | then you have to work through those numbers as well.

00:17:17.800 | The best resource for this is go to the IRS website and just look at their charts

00:17:22.800 | and work your way through the charts and figure out the scenario that applies to you.

00:17:25.800 | It's too difficult for me to convey on the show here at the moment.

00:17:30.800 | However, remember that the traditional IRA and the Roth IRA,

00:17:34.800 | those limits are based upon the – so one is based upon income.

00:17:37.800 | The other is based partly upon income but also partly upon employment status and marital status.

00:17:42.800 | So that is a key distinction for you.

00:17:45.800 | When you get into IRAs, there is one – there are a few little tricks that you can use.

00:17:51.800 | So the simplest one is you might want to contribute to both types of accounts.

00:17:57.800 | The limit on them is the same.

00:18:00.800 | So your limit of $5,500, that's the same whether you do a traditional IRA and a Roth IRA.

00:18:07.800 | You can't contribute more than $5,500.

00:18:09.800 | But you may, depending on your individual tax return,

00:18:13.800 | you may find that you are well served by making a $2,500 contribution to a traditional IRA

00:18:21.800 | and a $3,000 contribution to a Roth IRA.

00:18:24.800 | So consider that and consider calculating that.

00:18:27.800 | That might serve you.

00:18:29.800 | If you are over the income limits, then there is something that you should be aware of.

00:18:34.800 | That's commonly called the backdoor Roth IRA.

00:18:37.800 | And simplistically, let's say that you make a half a million bucks a year.

00:18:41.800 | You can contribute $5,000 into a traditional IRA.

00:18:45.800 | You're not permitted to deduct the contributions but – assuming that you're covered by an employer plan.

00:18:52.800 | But you can go ahead and convert that to a Roth IRA in the following year.

00:18:58.800 | And now you are able to have the equivalent of a Roth IRA.

00:19:03.800 | That's useful.

00:19:04.800 | I think it's much less useful than it's often talked about simply because when you are making $500,000 a year,

00:19:10.800 | the ability to get $5,000 into a tax-sheltered account is much lower on your priority scale.

00:19:15.800 | You're much more concerned about the $500,000.

00:19:18.800 | But that is one little trick for those of you who can do it.

00:19:21.800 | A couple of other little tricks on IRAs.

00:19:23.800 | It is possible if you have expenses within the IRA, and this would be useful.

00:19:29.800 | Many of you will have never thought about this.

00:19:31.800 | But for those of you who are using something like a self-directed IRA,

00:19:35.800 | and you're paying your fees for custodianship or commissions or fees in a more transparent manner,

00:19:41.800 | then it is possible for you to make a separate payment to the account for the payment of those expenses.

00:19:48.800 | So to pay your custodian fees or your brokerage commissions or any fees,

00:19:53.800 | you can make a special payment to the account for those fees,

00:19:56.800 | and you will not be deemed as going over the contribution limits.

00:19:59.800 | That may be important to some of you,

00:20:02.800 | especially if you're pursuing a strategy of some kind that does involve brokerage commissions or fees

00:20:08.800 | or higher than normal custodian fees.

00:20:11.800 | Consider that. That can be useful.

00:20:13.800 | And so if you have $300 of fees, you can go ahead and make your $5,500 contribution

00:20:19.800 | and write a $300 check for the payment of those fees,

00:20:22.800 | and that will maximize your usage of the account.

00:20:25.800 | I hope that helps you.

00:20:27.800 | There are two other types of retirement accounts that are also useful.

00:20:32.800 | And the reason why I'm going through these accounts here is because these are the ones that you can use

00:20:36.800 | at the end of the year or the following year.

00:20:38.800 | You might consider, if you are self-employed or if you run a business,

00:20:42.800 | you might consider establishing what is known either as an HR 10 or a KEO plan,

00:20:49.800 | or separately you might consider establishing a SEP IRA.

00:20:53.800 | Now, a KEO plan is a qualified plan that allows you to set up a formula for your business

00:21:00.800 | and you can either do it for your contributions,

00:21:02.800 | and you can either do this as a defined benefit plan or as a defined contribution plan.

00:21:07.800 | The benefit to a KEO plan is that it permits you to contribute a much higher dollar amount to the account

00:21:15.800 | than an IRA does.

00:21:19.800 | So your maximum contributions are limited to 20% of your earned income or $52,000.

00:21:27.800 | It basically comes out to 20% of your earned income minus your deduction for half of your self-employment payroll tax.

00:21:34.800 | So it basically comes out to 25% of your net earned income after you take that deduction.

00:21:39.800 | So you can get 25% of your net earned income or $52,000 into this account.

00:21:46.800 | The KEO plans were very popular for people in the past, for self-employed people,

00:21:51.800 | because there was a distinction in the tax law between corporate plans that were established

00:21:57.800 | and plans that could be established by self-employed people.

00:22:00.800 | There was a tax law change in 2001, and so now the KEO plans have largely been replaced by the SEP IRA.

00:22:08.800 | And I have, in the years of doing planning, I've never seen a KEO plan.

00:22:12.800 | I've always seen a SEP IRA.

00:22:14.800 | And the reason is that they have the same contribution limits, but the SEP IRA paperwork is much simpler.

00:22:24.800 | The KEO plan requires a full plan document to be written and created.

00:22:29.800 | There might be reasons still to do it, but it is more complicated.

00:22:34.800 | A KEO plan, if you're going to establish one, it has to be established by December 31.

00:22:40.800 | It doesn't have to be funded by December 31, but it has to be established.

00:22:43.800 | So the plan has to be actually put into place by the end of the year.

00:22:48.800 | By the way, one of the advantages, and I've never seen one actually do it because of this,

00:22:52.800 | but the KEO plan, you could set it up so that you could borrow against it,

00:22:55.800 | where you can't borrow against a SEP IRA.

00:22:58.800 | SEP IRA stands for Simplified Employee Pension Account, Simplified Employee Pension Plan.

00:23:03.800 | And these were established with a goal of being simplified.

00:23:06.800 | So these accounts, I think of them as an accountant's best friend.

00:23:09.800 | I've never met a CPA or an accountant who wasn't an expert on SEP IRAs.

00:23:13.800 | And the reason is they can be established after the end of the tax year,

00:23:17.800 | and they can be funded after the end of the tax year.

00:23:20.800 | So you can go in and sit down with your accountant to prepare your taxes on April 1 or on April 14,

00:23:26.800 | and you can download the standard form from the IRS website,

00:23:30.800 | and you can establish your plan.

00:23:32.800 | Or almost all brokerage companies that you will be working with will have the form available,

00:23:37.800 | their standard form that's based on the IRS website.

00:23:41.800 | It's 40, 50 pages. You print it out. You sign it. You write the check.

00:23:44.800 | And now you've gone ahead and created up to a $52,000 deduction for the year that you need it.

00:23:49.800 | So that can be very, very useful.

00:23:52.800 | What I encourage you to remember is remember that you can have one of these plans in addition to your 401(k)

00:24:00.800 | or in addition to your IRA.

00:24:02.800 | So if you, for example, are covered by a 401(k) at work,

00:24:07.800 | but you have some outside self-employment income,

00:24:10.800 | you can go ahead and you can establish one of these types of plans,

00:24:13.800 | and that might help you to avoid some taxes.

00:24:17.800 | You have to be aware if you have employees that you need to cover your employees as well,

00:24:22.800 | depending on how it's structured.

00:24:23.800 | There's all kinds of detailed rules, but that's the simple thing that you need to know at the end of the year.

00:24:27.800 | Those might be your outs.

00:24:29.800 | So talk with your advisor. Talk with your accountant.

00:24:31.800 | Finally of the accounts here is --

00:24:35.800 | actually, one other little trick on IRAs and retirement plans.

00:24:39.800 | Look to see if you might be eligible for a saver's credit.

00:24:43.800 | So the saver's credit is an interesting tax credit that you can get if you're eligible for.

00:24:50.800 | In order to stimulate low-income earners to save,

00:24:55.800 | then you can get a tax credit of 50% of the first $2,000 that you save in a traditional IRA, a Roth IRA, or a 401(k),

00:25:07.800 | and that's a direct tax credit.

00:25:08.800 | So remember, credits are always better than deductions.

00:25:10.800 | This is a nice tax credit.

00:25:12.800 | And that's in addition to the deductions that you save on the taxes by making the contribution.

00:25:17.800 | Unfortunately, this is really only available if you have a very low adjusted gross income.

00:25:23.800 | To get the full 50% credit, your AGI has to be less than $18,000.

00:25:29.800 | So that's not a huge amount.

00:25:32.800 | It's also not available for people who are under the age of 18 or who are full-time students

00:25:38.800 | or who are dependents that can be claimed on another person's tax return.

00:25:42.800 | But you might be able to get some benefit from that.

00:25:48.800 | Check the chart.

00:25:50.800 | The phase-outs of this change, the 50% contribution changes,

00:25:54.800 | depending on whether married, filing jointly, head of household, or single or otherwise.

00:25:58.800 | Then there's a 20% credit and a 10% credit.

00:26:01.800 | Essentially, if you make over $60,000 married, filing jointly, or over $30,000 for single,

00:26:08.800 | then that credit is not available to you.

00:26:11.800 | But if you are down at the lower end of the earned income,

00:26:14.800 | check out the saver's credit and see if you can qualify for it.

00:26:17.800 | If you can qualify for it, even if you can't afford to actually save in a retirement account,

00:26:22.800 | you may be able, if you're willing to be aggressive,

00:26:25.800 | you may be able to actually use it just purely for the tax credit.

00:26:31.800 | You can make a contribution, for example, on December 31 of this year into a Roth IRA

00:26:37.800 | and then take the distribution out of the Roth IRA in January of next year.

00:26:42.800 | Because you're doing that in a Roth IRA,

00:26:45.800 | there's no tax that would be due unless you had a gain in the account,

00:26:49.800 | and then you would owe tax on the gain.

00:26:51.800 | But you could just take that basis right out and you could spend that yourself.

00:26:54.800 | So only the income and the gain would be taxed.

00:26:57.800 | And you could get a tax credit, again, for as much as $2,000.

00:27:00.800 | So it's a one-time deal, but that might be worth it for you if you find yourself down in that scenario.

00:27:06.800 | You can't afford to necessarily save the money for the long term,

00:27:10.800 | but that might help you to get a last-minute tax credit.

00:27:12.800 | So consider that.

00:27:14.800 | The last retirement account--it's not actually a retirement account,

00:27:17.800 | but it fits well into my outline here--is don't forget about the health savings account, the HSA.

00:27:23.800 | If you're covered by a high deductible health plan for your medical insurance at work or in your business,

00:27:29.800 | you can make an HSA contribution into your health savings account any time up until you file your return.

00:27:36.800 | Your contribution limits for 2014 are $3,300 for an individual and $6,550 for family coverage.

00:27:46.800 | And then there's an additional $1,000 catch-up contribution for 55 and over.

00:27:52.800 | So if you're over 55, that will be useful to you.

00:27:56.800 | If you're doing the account in this way, it's not going to save you on your employment taxes,

00:28:02.800 | but it will save you on your income taxes.

00:28:04.800 | The way to save the employment tax is that your HSA has to be funded out of your paycheck

00:28:09.800 | so that your employer can actually deduct it so that you're not charged those employment taxes each month.

00:28:18.800 | So this won't save you on the 7.65% Medicare and Social Security taxes, but it will save you on your income taxes.

00:28:25.800 | So consider the HSA. That can also be a useful way of taking an above-the-line deduction that will be helpful for you.

00:28:31.800 | Let's get out of the accounts because those are a little bit dry to work through,

00:28:35.800 | but those are the simplest, easiest, and in some ways, most straightforward ways to do it.

00:28:40.800 | But look for a way to defer income without using a tax account.

00:28:44.800 | So here are some ideas for you.

00:28:46.800 | First, just simply consider deferring income.

00:28:49.800 | This one's a little bit tricky if you are an employee.

00:28:53.800 | Let's say that you're an employee of a corporation and your employer is going to pay you a Christmas bonus,

00:29:03.800 | but you take the last two weeks of the year off and you do this knowing that the check is going to be sitting in your mailbox at work,

00:29:09.800 | and so you just don't go into work and pick it up.

00:29:12.800 | Well, that doesn't do it for you.

00:29:14.800 | You actually have what's called constructive receipt of the income,

00:29:20.800 | and so you're going to be taxed on the income in the year 2014,

00:29:23.800 | even though you didn't pick up the check until you went back to work on January 5th, 4th, something like that.

00:29:28.800 | So that's not going to help you.

00:29:31.800 | Constructive receipt, let me explain real quick.

00:29:34.800 | Anytime you're dealing with federal income taxes,

00:29:37.800 | then the doctrine of constructive receipt is used to determine when a cash basis taxpayer has received gross income,

00:29:46.800 | and you as an individual are always a cash basis taxpayer.

00:29:49.800 | A taxpayer is subject to tax in the current year if he or she has unrestricted control in determining when items of income will or should be paid.

00:30:00.800 | So unlike actual receipt where you actually have to get the check,

00:30:05.800 | constructive receipt does not require physical possession of the item to have income,

00:30:12.800 | or physical possession of the income to actually count it.

00:30:15.800 | The fact that you could have gone to the office and picked it up means that you received it,

00:30:19.800 | you constructively received it even though you didn't actually receive it.

00:30:22.800 | So that's not super helpful to defer a Christmas bonus,

00:30:26.800 | but you actually can do this technically if you plan ahead.

00:30:30.800 | So let's say that you are aware of a large bonus that you're going to be receiving.

00:30:34.800 | You could enter into a binding agreement with your employer to defer the bonus that you would receive in December until January.

00:30:44.800 | Now you have to actually enter into the agreement before the bonus is constructively received.

00:30:49.800 | So that could work.

00:30:52.800 | I've actually never seen it done.

00:30:53.800 | I've read about it in tax books.

00:30:54.800 | I've never seen it done myself, but I can see how it could be done.

00:30:58.800 | So if you're in some scenario where you know there's a good bonus that you're likely to get,

00:31:03.800 | and you would prefer because of your own personal plans to receive it in a later year,

00:31:07.800 | then that might be a useful technique for you.

00:31:09.800 | Probably too late for this year, but file it away for future years.

00:31:13.800 | The more useful way to defer income is for those of you who are business owners

00:31:17.800 | or running a business of your own of some kind.

00:31:20.800 | It's very simple if you are a cash basis taxpayer.

00:31:25.800 | It's very simple to just simply delay billing your clients until late December.

00:31:30.800 | If you don't send out your invoices until late December,

00:31:34.800 | your clients are certainly not going to get them and spin them around unless they're trying to do their own tax planning.

00:31:39.800 | They're certainly not going to get them and spin them around and send them back to you before the end of the year.

00:31:43.800 | So in that situation, you won't actually receive payment until the following year,

00:31:48.800 | and because of that, you're not going to pay any taxes.

00:31:51.800 | Now, remember – I said it a moment ago, but remember it only works if you're a cash basis taxpayer.

00:31:57.800 | If you're an accrual basis taxpayer in your business, you have to report the income when it is earned,

00:32:02.800 | not when it is actually received.

00:32:04.800 | So that's the same, by the way, for most of these business deductions, so be careful there.

00:32:10.800 | But many of you who are listening who are running small businesses or self-employed,

00:32:14.800 | then you'll be running – who are trying to figure these tax things out for yourself,

00:32:18.800 | you're likely to be a cash basis taxpayer.

00:32:21.800 | If you have income from the sale of properties, let's say you're selling something large here at the end of the year,

00:32:27.800 | then consider doing an installment sale, and that will allow you to defer some of the income to a different tax year.

00:32:34.800 | That might be useful for you if you're selling something in which you have a profit that you're going to be paying tax on.

00:32:40.800 | Consider an installment sale.

00:32:42.800 | Also, the big one, however, is consider bringing forward expenses.

00:32:46.800 | So consider accelerating your expenses to lower your net income upon which you will be taxed.

00:32:52.800 | In business, think through any end-of-the-year transactions that you need to pay.

00:32:56.800 | So you might clear out your accounts payable.

00:32:58.800 | You might make any – for example, this one for me is I've been planning out my 2015 conference schedule,

00:33:08.800 | so what conferences am I going to go to, and so I could go ahead and make the payments to those conferences,

00:33:15.800 | and then that would allow me to go ahead and recognize the expense in this year for the conference that I go to in March or in June,

00:33:21.800 | something like that.

00:33:22.800 | I can go ahead and recognize that expense.

00:33:24.800 | You might be able to do this with something like your insurance payments, so go ahead and make your insurance payments.

00:33:29.800 | One of the most useful ones is things like marketing and advertising expenses.

00:33:36.800 | If you're in a business where you know that if you do a certain marketing campaign

00:33:41.800 | and you purchase a certain amount of advertising that it will result in an inflow of orders,

00:33:49.800 | then that can be super compelling for you to say, "Let me go ahead and buy up a bunch of marketing or advertising costs,

00:33:55.800 | whether that's mailings or ads or whatever it is.

00:33:58.800 | Let me go ahead and do that.

00:33:59.800 | Pay for it in December, and then you'll reap the rewards with the increased sales next year."

00:34:05.800 | You can do that, especially when you're building a business.

00:34:07.800 | You can do that year after year after year.

00:34:09.800 | At some point in time, you probably need to get the income out of the business,

00:34:11.800 | but that depends on the nature of your own business.

00:34:15.800 | Do remember, however, that when you are making expenses and accelerating expenses,

00:34:19.800 | that you do need to follow the 12-month rule.

00:34:23.800 | There is, for these types of expenses, there are two aspects to the 12-month rule.

00:34:28.800 | In general, you can't deduct the full amount of any advance payments that covers more than 12 months out.

00:34:35.800 | Let's say, for example, you can't say, "I'm going to pay up my insurance premiums for the next three years

00:34:42.800 | and go ahead and make that check today and have that be deductible."

00:34:46.800 | Rather, you can only deduct--if you do that and it's more than 12 months,

00:34:49.800 | you can only deduct the benefits that are going to be received within that tax year.

00:34:56.800 | You would have to figure it out on a per-rata basis.

00:34:58.800 | However, there is also another exception.

00:35:01.800 | There's a more specific scenario to that rule.

00:35:04.800 | It's not necessarily 12 months from the expense, but whatever expense that you make has to be done.

00:35:14.800 | The benefit can't go for longer than 12 months after the right or benefit that you purchased begins

00:35:22.800 | or the end of the next tax year.

00:35:25.800 | So, end of the tax year after the tax year in which the payment is paid.

00:35:28.800 | Let's say, for example, that could be a way that I could do it.

00:35:33.800 | Here I'm on December 15, and if I go ahead and purchase an insurance policy that starts on January 1

00:35:39.800 | and goes to December 31, as long as it's not more than 12 months from today when I go ahead and pay for it,

00:35:46.800 | and as long as it doesn't go into the tax year for 2016, then I can go ahead and deduct it.

00:35:52.800 | Be careful with your 12-month expenses.

00:35:54.800 | But as long as you follow that, you should be fine as far as making some of those payments

00:35:58.800 | and just splitting the tax year.

00:36:00.800 | Remember also that we just want to make sure that you're going based upon your business's tax year,

00:36:05.800 | which may or may not be December 31.

00:36:08.800 | That's super useful.

00:36:10.800 | And another thought on the business tax expenses is consider also that you can purchase equipment.

00:36:17.800 | So, in general, equipment purchases aren't usually going to help you

00:36:22.800 | because when you make purchases of durable equipment, then you have to depreciate that expense,

00:36:27.800 | and you can't just simply take an expense payment now.

00:36:31.800 | Now, remember, however, that you can make an election to expense a certain amount of it.

00:36:37.800 | So that's called a Section 179 election, and it was pretty good in the years past when it was super high.

00:36:43.800 | This year in 2014, it's only $25,000.

00:36:46.800 | But remember that you can actually purchase equipment, expense $25,000 worth of it this year,

00:36:53.800 | and then go ahead and take your depreciation after that.

00:36:56.800 | So then you go ahead and depreciate it as you are accustomed to doing.

00:36:59.800 | And so that may be useful for you with any equipment that you need for business use,

00:37:04.800 | any tangible personal property that you're going to use in business more than 50% of the time,

00:37:08.800 | any business vehicles, especially large business vehicles in excess of 6,000 pounds

00:37:15.800 | that you can actually do vehicle--that you actually can use the Section 179 expense allowances for.

00:37:21.800 | Research that carefully because that depends on the type of vehicle.

00:37:24.800 | Computers, maybe off-the-shelf software, office furniture, office equipment,

00:37:29.800 | those types of things are eligible for that Section 179 expense.

00:37:34.800 | So if you have an extra $25,000 of profit that you need to wipe out,

00:37:39.800 | then if you need to buy some sort of equipment, then you can go ahead and buy it,

00:37:43.800 | and it gives you--and if you can expense the $25,000, you can wipe out the profit.

00:37:47.800 | So that might be a useful thing for you.

00:37:50.800 | When you're making expenses, remember that it's probably foolhardy to--

00:37:56.800 | there's no 100% tax bracket, so you have to spend money in order to take a deduction.

00:38:03.800 | It may or may not be good.

00:38:05.800 | The only rational reason to do it would be if the money that you're spending,

00:38:07.800 | you expect to make more in the future that you'll be able to use.

00:38:10.800 | So don't just spend money for the sake of spending money,

00:38:12.800 | but if it improves your business, then that would be a wise course of action.

00:38:19.800 | Now, for individuals, in yourself, as an individual taxpayer,

00:38:23.800 | you may still be able to use the idea of accelerating some of your expenses.

00:38:28.800 | So a couple ideas for you.

00:38:30.800 | Consider bunching certain expenses together here at the end of the year

00:38:35.800 | if you might be able to take a deduction.

00:38:37.800 | The one that is most-- is probably the most prevalent

00:38:41.800 | would be something like medical expenses.

00:38:43.800 | If you had a lot of medical expenses this year--

00:38:46.800 | so for example, last year, my wife and I, we had a lot of medical expenses

00:38:48.800 | when we had a baby.

00:38:50.800 | If you had a lot of medical expenses, consider going ahead

00:38:53.800 | and adding other medical expenses now and getting them done.

00:38:56.800 | So if you were in a year where you had a baby

00:38:58.800 | and you had a large out-of-pocket medical expense,

00:39:01.800 | then go ahead at the end of the year, if you have the money,

00:39:03.800 | go ahead and get your dental expenses, your eye expenses,

00:39:06.800 | dental care, eye care, whatever you need taken care of.

00:39:10.800 | You might pay--go ahead and lump in and pay the annual premium

00:39:15.800 | on your long-term care insurance.

00:39:17.800 | And so that might allow you to bunch enough medical expenses together

00:39:21.800 | to allow you to exceed the 10% of AGI limit on medical expenses

00:39:28.800 | to where you can actually deduct some of your medical expenses.

00:39:31.800 | And these would be things that you're going to have to get done anyway--

00:39:33.800 | your dental cleanings, your eye care, your insurance payments.

00:39:37.800 | But just by bunching them, instead of having, let's say,

00:39:40.800 | $5,000 of expenses in 2014 and $5,000 of expenses in 2015,

00:39:45.800 | whereby none of that is deductible, perhaps if you can bunch

00:39:49.800 | all $10,000 here in 2014, then all of it will be deduct--excuse me,

00:39:54.800 | then the portion that's over the 10% of AGI limit will actually be deductible,

00:39:59.800 | so you can get the itemized deduction for that.

00:40:01.800 | That might be useful for you.

00:40:03.800 | Also consider accelerating any tax payments that you owe.

00:40:07.800 | So real estate taxes, personal property taxes, state and local income taxes--

00:40:12.800 | pay them now in order to make sure that you can deduct them now.

00:40:17.800 | And so if you pay them next year, then you get to deduct them next year,

00:40:20.800 | but since these are going to be due anyway, go ahead and bunch them together

00:40:23.800 | and pay them now.

00:40:25.800 | This can also be useful whether or not you often itemize your deductions

00:40:28.800 | or take the standard deduction.

00:40:31.800 | In some years, you can, by doing this bunching strategy,

00:40:35.800 | in some years you can bring together enough deductions to where it's

00:40:38.800 | in your benefit to itemize.

00:40:40.800 | And then the following year, which is a low year,

00:40:42.800 | then you go ahead and take the standard deduction.

00:40:44.800 | The next year you go ahead and itemize.

00:40:46.800 | And so you might be near that limit, so consider that as well.

00:40:52.800 | If you're going to accelerate your tax payments, be careful.

00:40:55.800 | If you are concerned with the alternative minimum tax,

00:40:58.800 | be careful with your AMT there and run your calculations carefully.

00:41:03.800 | Consider--we all know this one because this is the time of year

00:41:06.800 | that we receive plenty of charitable solicitations,

00:41:09.800 | but consider making your charitable contributions and bunch them

00:41:12.800 | in the years that you can fully use them based upon the deduction limits

00:41:15.800 | for charitable contributions.

00:41:17.800 | So sometimes that might be as simple as going ahead and writing your check

00:41:22.800 | before the end of the year.

00:41:24.800 | But then also if you've made a large charitable commitment maybe,

00:41:27.800 | then go ahead and try to use those deductions in years

00:41:30.800 | when you're going to be able to use them fully.

00:41:33.800 | So if you've made a certain total amount and you're fulfilling your commitment

00:41:36.800 | to a charitable organization over a five-year period,

00:41:39.800 | use those deductions in the years where they're most useful for you.

00:41:43.800 | If you are making charitable contributions, be intelligent about how you do it,

00:41:47.800 | especially with regard to good tax planning.

00:41:49.800 | Don't think only in terms of cash.

00:41:52.800 | This is one--depending on the size of the--

00:41:56.800 | depending on the nature of your finances,

00:41:59.800 | just don't always give something always in cash.

00:42:01.800 | If you have appreciated property that you've held for over 12 months,

00:42:05.800 | then you can go ahead and donate if the charity will accept it.

00:42:08.800 | You can donate the appreciated property.

00:42:10.800 | And so if you have $10,000 worth of stock that has appreciated from $5,000

00:42:17.800 | and you want to give $10,000 to the charity,

00:42:20.800 | it's probably better for you to give the $10,000 of stock.

00:42:24.800 | You'll get your full deduction for the fair market value of the stock, the $10,000,

00:42:28.800 | and that will allow you to avoid paying tax on the gain of the $5,000.

00:42:33.800 | The charity receives the stock, they sell it at the fair market value,

00:42:36.800 | and then they get their cash.

00:42:38.800 | But that gives you a more advantageous charitable contribution

00:42:41.800 | than if you were just simply to give the $10,000 of cash

00:42:44.800 | upon which you've already paid income tax.

00:42:47.800 | So that could be useful for you. Consider that.

00:42:50.800 | If you have lost property, then the rule is reversed.

00:42:54.800 | With the rule with lost property,

00:42:56.800 | let's say that you purchased stock for $10,000 and it's worth $5,000

00:43:01.800 | and you sell it or you decided that you're going to sell it

00:43:05.800 | and you don't want to keep it any longer.

00:43:07.800 | Well, in that situation, what you always want to do there

00:43:10.800 | is you want to sell it for $5,000,

00:43:13.800 | take the $5,000 loss against your tax,

00:43:17.800 | and then go ahead and donate the cash to the charity.

00:43:20.800 | So make it up and give them the $5,000 out of your savings account.

00:43:24.800 | So just be smart about that.

00:43:26.800 | Oftentimes, giving property, if the charity will accept it,

00:43:29.800 | might be more helpful to you, especially if it's appreciated property,

00:43:33.800 | might be more helpful to you than giving cash,

00:43:36.800 | and you can basically get a double use out of it.

00:43:40.800 | With regard to timing of these expenses and deductions,

00:43:43.800 | remember that you can take deductions for items that you pay by check

00:43:47.800 | in the current year, even if you mail the check on New Year's Eve.

00:43:50.800 | As long as there's no reason why when the business or person,

00:43:54.800 | charity receives it on January the 3rd, that they can't cash the check,

00:44:00.800 | then you can go ahead and take the deduction this year.

00:44:02.800 | If you're doing that and if it's a sizable amount that you need,

00:44:06.800 | make sure I would get it--

00:44:08.800 | what's it called with the post office, with a registered mail or whatever,

00:44:11.800 | where they give you the receipt for it.

00:44:13.800 | I would do that to make sure you have that date stamp

00:44:15.800 | and keep it with your records.

00:44:16.800 | Credit card charges can also be taken this year.

00:44:19.800 | So let's say that you go out and you purchase some items

00:44:23.800 | in order that you're going to be deducting,

00:44:25.800 | and you purchase those items in December.

00:44:27.800 | Well, you probably won't receive the credit card bill due until January.

00:44:30.800 | So that will allow you to go ahead and take the deduction in this year

00:44:34.800 | and then pay it next year.

00:44:36.800 | So that can be useful in some situations.

00:44:39.800 | The two final sections, that concludes the timing of income and expenses.

00:44:47.800 | The other couple of ideas for you are with regard to relationships.

00:44:53.800 | And so there are various relationships that are going to affect your tax planning.

00:44:59.800 | First is--and probably the most not useful--is the marital relationship.

00:45:04.800 | So if you're planning a wedding at the end of the year or New Year's Day--

00:45:08.800 | my wife and I actually, we got married on New Year's Day.

00:45:10.800 | And so if you're planning something like that,

00:45:13.800 | calculate your taxes and see when you should actually have the marriage done.

00:45:18.800 | It doesn't have to be the same day necessarily as the wedding itself.

00:45:22.800 | So we certainly could have legally gotten married on December 31

00:45:25.800 | and then had our wedding celebration on January 1.

00:45:29.800 | And if we were married on December 31,

00:45:31.800 | then that would allow us to file as married filing jointly

00:45:34.800 | for that year that we got married.

00:45:36.800 | In general, marriage is only going to diminish your taxes

00:45:40.800 | if one spouse works or earns almost all the income.

00:45:44.800 | If both spouses work and earn relatively good incomes,

00:45:49.800 | then marriage is actually going to boost your taxes.

00:45:51.800 | So it would be a good idea to just calculate it

00:45:54.800 | and see which is more in your interest to do.

00:45:58.800 | The big one, though, however, is with regard to dependency

00:46:03.800 | and the number of dependents that you can claim for your dependency exemptions.

00:46:07.800 | Most people when they think about dependents actually think purely about kids.

00:46:12.800 | And that may be helpful.

00:46:14.800 | So most of the time, children are not something that you do last-minute tax planning with.

00:46:20.800 | Generally, they arrive over a period of many months

00:46:24.800 | and you don't have a lot of control over when they come.

00:46:27.800 | If you do have something where, for example, you might have a plan C section,

00:46:32.800 | this happened to a family member of mine,

00:46:34.800 | you have a plan C section and the safe zone for safe delivery covers

00:46:38.800 | the end of last week of December and the first week of January,

00:46:40.800 | you might go ahead and schedule it on December 31

00:46:42.800 | so that you can go ahead and take your child credits and your dependency exemptions.

00:46:47.800 | But that will apply to maybe-- to not many people.

00:46:52.800 | The major benefit, though, that I've thought of for some of you

00:46:55.800 | might be if you're caring for other dependents who aren't your kids.

00:46:58.800 | And I'm thinking of parents or grandparents that you might be caring for.

00:47:02.800 | Now, when you get to dependency exemptions,

00:47:04.800 | there are a bunch of detailed rules and some different tests that you need to pass.

00:47:10.800 | So, for example, to claim a dependency exemption for a qualifying relative who's not a child,

00:47:16.800 | then there's the dependent taxpayer test, the joint return test, the citizenship test,

00:47:21.800 | the not a qualifying child test, the member of a household or relationship test,

00:47:24.800 | the gross income test, and the support test.

00:47:27.800 | So there's some tests and there's some detailed rules that you should focus on

00:47:30.800 | and read through and talk through with your advisor.

00:47:32.800 | But the one I want to focus on is if you're providing support for your dependent--

00:47:39.800 | and support can mean different things, and this might be for kids

00:47:43.800 | or this might be for other relatives as well or even other non-relatives--

00:47:48.800 | but support would include amounts that are spent for food, shelter, clothing,

00:47:54.800 | medical and dental care, education, church contributions, child care expenses,

00:48:01.800 | wedding apparel and receptions, capital items, and similar items.

00:48:07.800 | So the key here is that support is measured by what is spent,

00:48:15.800 | not what is available.

00:48:19.800 | So if you are wanting to claim your child as a dependent,

00:48:23.800 | it doesn't really matter if your child earns $10,000 and then saves half of it.

00:48:31.800 | As long as you spend $5,001 on them in support,

00:48:37.800 | then you've actually contributed more than one half of their support,

00:48:40.800 | and that will allow you to take the dependency exemption.

00:48:44.800 | So there are a number of different strategies that can happen here

00:48:48.800 | because you might, for example, make some payments for things that your child needs

00:48:53.800 | or you might support them with a purchase at the year end of a car,

00:48:56.800 | a capital item like that, perhaps paying for, again, wedding apparel and receptions,

00:49:00.800 | education costs, things like that, going ahead and making those payments.

00:49:04.800 | And however, if you are caring for a parent,

00:49:08.800 | then if you're contributing more than half of their support,

00:49:11.800 | that might allow you to claim them as a dependent.

00:49:13.800 | So, for example, let's say that you've been planning to give your mother or your father--

00:49:17.800 | if my father or mother were in a nursing home and I knew they needed something

00:49:23.800 | and I was going to go ahead and contribute to the cost of that,

00:49:26.800 | but then at the end of the year I want to go ahead and give her or him

00:49:31.800 | some kind of item for their needs, so a large television for their room, for example.

00:49:36.800 | Well, as long as I track that, if I provide more than 50% of their support,

00:49:41.800 | then I can go ahead and possibly, as long as I fit the other qualifications,

00:49:46.800 | claim them as a dependent.

00:49:49.800 | And the key would be actually calculating this for yourself

00:49:53.800 | and seeing if your ability to claim them as a dependent

00:49:57.800 | is in your best interest and in their best interest.

00:50:01.800 | And so there are a number of different ways that you could do this,

00:50:03.800 | but it might even be for some people it can be worth it to compensate

00:50:08.800 | if, for example, you are going to claim somebody as a dependent

00:50:11.800 | and you're in a higher bracket.

00:50:14.800 | This is one of those income shifting strategies, kind of partly,

00:50:18.800 | is this might allow you--you might reimburse them for some of the tax costs to them

00:50:23.800 | and just go ahead and allow them so that you can actually claim the expense.

00:50:31.800 | So you want to calculate it out depending on who's got what bracket

00:50:36.800 | and see.

00:50:38.800 | And that might--again, for many of you who are caring for parents or grandparents,

00:50:43.800 | then that can be a really valuable scenario.

00:50:46.800 | And considering that you need to provide that care regardless,

00:50:50.800 | then make sure that you do it in a way where you're going to allow the tax code

00:50:55.800 | to subsidize your expense.

00:50:57.800 | Oh, and I forgot.

00:50:59.800 | One of the things when you're figuring out your dependent's income,

00:51:03.800 | remember that you can exclude any type of exempt income.

00:51:07.800 | And exempt income would be things like including Social Security benefits,

00:51:12.800 | tax-exempt interest, et cetera.

00:51:15.800 | So the key there is your dependent can still--

00:51:19.800 | so if my mother or father were in a nursing home,

00:51:22.800 | it doesn't matter how much Social Security income they receive.

00:51:25.800 | That's exempt for the purpose of calculating the dependency.

00:51:29.800 | The key is how much actually gets paid for their support.

00:51:33.800 | And it's based upon the money spent, not the money received.

00:51:38.800 | So that's how we pass the support test.

00:51:41.800 | So do some research if you think that might apply to you

00:51:44.800 | and see if you can work a way into that.

00:51:47.800 | Very briefly on investment tax planning,

00:51:49.800 | I don't want to go into details on investment tax planning.

00:51:52.800 | I just want to mention one concept.

00:51:55.800 | I've seen over the last year, I would say, two years,

00:51:58.800 | a lot more interest in the concept of tax loss harvesting for investment planning.

00:52:03.800 | And I think this has been primarily due to some of the robo-advisors

00:52:08.800 | have made it very easy and efficient to actually harvest your tax losses.

00:52:16.800 | It's not always easy to go through and figure out,

00:52:18.800 | "Well, what can I sell to defer my gains?"

00:52:21.800 | I just want to emphasize that that's really great,

00:52:24.800 | and that's valuable, and that's useful.

00:52:26.800 | I want to emphasize that the flip side to that is

00:52:28.800 | you also want to make sure that your harvest sometimes harvests your gains.

00:52:32.800 | And so the key, if you can establish a bookkeeping system

00:52:35.800 | that's going to allow you to be detail-oriented enough

00:52:40.800 | to actually be able to--

00:52:44.800 | if you can establish a bookkeeping system

00:52:48.800 | that's going to permit you to do these kinds of calculations in advance,

00:52:52.800 | sometimes you might want to go ahead and harvest gains.

00:52:55.800 | And so let's say that you've purchased stock,

00:53:01.800 | and you currently have a tax basis of $5,000 in the stock,

00:53:07.800 | and the market value is $10,000.

00:53:10.800 | Well, if you have some extra money sitting on your tax return

00:53:14.800 | at a relatively low bracket,

00:53:19.800 | you might be in your best interest to go ahead and sell some of the stock

00:53:23.800 | and then buy it back in order to increase your gain--

00:53:26.800 | excuse me, increase your basis.

00:53:28.800 | And so you want to always essentially calculate both sides.

00:53:32.800 | Now, this is easy to say in theory, and it's hard to do in practice.

00:53:36.800 | At least, it's harder to do in practice.

00:53:39.800 | But go and calculate it, and make sure that you're not just focusing

00:53:42.800 | on tax loss harvesting, but that you're actually focusing

00:53:45.800 | on tax gain harvesting, and essentially, over time,

00:53:48.800 | ratcheting up your basis in your investments however you can.

00:53:51.800 | And I hope that's helpful to you.

00:53:54.800 | Those are the primary ideas that I wanted to share with you.

00:53:58.800 | I hope they're helpful.

00:54:00.800 | And the key is good tax planning is going to make a profound difference

00:54:07.800 | in your financial picture.

00:54:09.800 | The biggest expense that most of us face is tax.

00:54:12.800 | And it's a difficult subject to tackle because there's so many aspects of it.

00:54:18.800 | There's so many different kinds of tax.

00:54:21.800 | We're just talking today about federal income tax planning.

00:54:24.800 | There are so many moving variables.

00:54:26.800 | Our tax system is so incredibly complicated that it's very difficult--

00:54:29.800 | so daunting for me to figure out how do I teach through this.

00:54:33.800 | I mean, I get stretched by it.

00:54:35.800 | How do I teach through this in a way that's actually going to be helpful?

00:54:38.800 | So again, I hope this has been helpful.

00:54:41.800 | Always look and just think about your specific situation

00:54:44.800 | because that's the key.

00:54:46.800 | If somebody is going to be doing tax planning for end of the year,

00:54:49.800 | planning for a young single dad or single mom with a moderate income

00:54:56.800 | and a lot of expenses, there are certain ideas or tactics that might help.

00:55:01.800 | But that's very different than if you're doing tax planning for somebody

00:55:05.800 | with a $50 million estate and we're trying to move assets out of the estate.

00:55:08.800 | There are a lot of moving parts.

00:55:10.800 | So keep absorbing the information and just keep looking at your situation.

00:55:15.800 | Anytime there is an anomaly, for example, a market anomaly,

00:55:18.800 | if you have a large major price decline in the value of an asset

00:55:24.800 | or a large increase or absurdly low interest rates

00:55:27.800 | or absurdly high interest rates, then those are the kinds of things--

00:55:31.800 | sometimes you can exploit that.

00:55:33.800 | So for example, if markets are down, then a couple of years ago,

00:55:36.800 | that was when if you were in estate planning,

00:55:38.800 | you were constantly busy getting assets out because you want to get them out

00:55:42.800 | when they're at a low valuation so you can get them out

00:55:45.800 | when they're basically destroyed in value where they can rise

00:55:48.800 | and the money is out of your estate.

00:55:50.800 | So there are a lot of moving parts.

00:55:52.800 | I hope that this has been useful.

00:55:55.800 | I'd love some feedback, but the key is you got to just look at your situation.

00:55:59.800 | Remember, though, that we're coming up on 2015,

00:56:02.800 | and this is the time to start planning for your 2015 plans.

00:56:06.800 | Focus on goals, focus on income, but don't forget about tax plans as well.

00:56:12.800 | You just heard what was actually the original show that I had recorded today.

00:56:17.800 | However, you are privileged to get a little bit of a bonus episode here.

00:56:22.800 | I recorded that show today as I record this now.

00:56:26.800 | It is December 17, 3.20 p.m.

00:56:28.800 | I recorded that show this morning, and I had to leave my house

00:56:32.800 | and just leave my house for an appointment,

00:56:34.800 | and I was planning to get the show uploaded here this afternoon.

00:56:37.800 | Then I find out all of a sudden through one of my news feeds

00:56:40.800 | that the law has changed or is in the process of changing.

00:56:43.800 | Let me clarify what specifically is wrong in the show that I just recorded,

00:56:48.800 | and then I'm going to rant a little bit because this is incredibly frustrating.

00:56:53.800 | I find out through an email from one of the services and things that I subscribe to

00:56:59.800 | that now as of last night, Tuesday, December 16, 2014,

00:57:05.800 | there is a bill that is passed by the Senate,

00:57:08.800 | and the Senate votes to pass the so-called--what's it called?--H.R. 5771,

00:57:13.800 | Tax Increase Prevention Act of 2014.

00:57:17.800 | It was passed by the Senate last night, and as of right now as I record this,

00:57:22.800 | it's on its way to the President's desk, I guess, and theoretically he's going to sign it.

00:57:26.800 | I'm looking at this thing, and the big thing that I got wrong was I made a special note

00:57:30.800 | in the show that you just heard about the Section 179 ability to expense allowance,

00:57:37.800 | where for the last few years that expense allowance had been--

00:57:40.800 | you were able to expense as much as $500,000 of your upfront equipment costs in a single year,

00:57:51.800 | and then it was limited to $25,000 for this year.

00:57:54.800 | So then here we are at December 16 when this bill is passed.

00:57:58.800 | It's not been signed by the President yet that I know.

00:58:00.800 | I'm looking at GovTrack.us, and it doesn't indicate that it's been signed by the President yet.

00:58:05.800 | So here we are sitting here in December, and they're about to pass this bill evidently,

00:58:12.800 | which is, among other things, going to extend the $500,000 Section 179 upfront expensing limits.

00:58:22.800 | The full title here, "To amend the Internal Revenue Code of 1986 to extend certain expiring provisions

00:58:27.800 | and make technical corrections," and it goes on.

00:58:31.800 | So I'm looking at the bill. I'm not going to go through every section in here.

00:58:34.800 | But I'm looking at all of the things that are expiring,

00:58:38.800 | and it covers 100% of the Section 179 stuff, and that extends that out.

00:58:43.800 | So that's what you need to know is basically that right now in December,

00:58:47.800 | if you need to spend a bunch of money now, you can't only just take a $25,000 expense allowance.

00:58:54.800 | You can actually maybe, if the President signs this thing, you can go and take a $500,000 expense allowance.

00:59:01.800 | The first thing you should do is call your accountant, and if you need to purchase some equipment

00:59:05.800 | or something to knock off a bill this year, this might be a time to do it.

00:59:08.800 | So talk to your accountant. I can't give any further advice than that.

00:59:11.800 | But this is just so frustrating.

00:59:16.800 | We have a nation that is run by a bunch of clowns, and two-year-old clowns that can't--

00:59:25.800 | I'm bad at political rants because I've signed off of all the political nonsense.

00:59:29.800 | I'm done. I've quit. Just leave me alone, and I will--

00:59:36.800 | I'm speechless. I can't even do a political rant.

00:59:39.800 | Most of my friends, I'm good at doing political ranting.

00:59:42.800 | It's so frustrating the way that tax policy is done in this country. It's so frustrating.

00:59:47.800 | If you look back at it, it reminds me--if you go back to 2012,

00:59:53.800 | when you had at the end of 2012, we were approaching the fiscal cliff, the tax Armageddon,

01:00:01.800 | and there was going to be the biggest overnight increase in taxes in the history of the country.

01:00:09.800 | The actual--I mean, the tax rates would have jumped massively when this was--

01:00:14.800 | the Bush tax cuts had expired a couple years earlier. Everything was extended.

01:00:18.800 | Everything was going to be forced through.

01:00:20.800 | And so the maximum tax a year ago, the maximum tax on dividends was scheduled to jump from 15%

01:00:26.800 | to as much as 43.5%.

01:00:29.800 | Four out of five U.S. households would have faced an average of $3,700 more in taxes.

01:00:36.800 | It was basically going to be an $8 trillion tax increase.

01:00:40.800 | And what is so frustrating is everybody knew what needed to be done.

01:00:44.800 | Everybody knew what was going to be done.

01:00:46.800 | Everybody knew--it's all known in advance exactly what's going to happen.

01:00:52.800 | Everyone's going to talk a big talk, the left and the right.

01:00:55.800 | The Democrats are going to talk a big talk about raising taxes,

01:00:59.800 | and the Republicans are going to talk a big talk about not raising taxes.

01:01:02.800 | In the end, they're all liars, and they do exactly the same thing.

01:01:05.800 | But they have to wait until after the elections.

01:01:07.800 | So instead of anybody being able to actually plan on anything

01:01:10.800 | and actually run their business with a bit of confidence--

01:01:13.800 | if I were advising a business owner, how do you sit here and say,

01:01:16.800 | "Oh, all of a sudden I told you you had a $25,000 limit on your $179 expense right now,

01:01:22.800 | but now you've got a $500,000 limit"?

01:01:25.800 | How do you plan in this kind of environment?

01:01:28.800 | It is utterly--it is--anyway.

01:01:34.800 | The world we live in is just ridiculous.

01:01:36.800 | When you can't even expect--here at December,

01:01:41.800 | I'm already late on a show like this.

01:01:43.800 | I had prepared my outline carefully.

01:01:45.800 | I had researched everything to be very precise,

01:01:47.800 | and here I am trying to give a precise show to help people,

01:01:54.800 | and then you've got the Congress clowns move around,

01:01:57.800 | and at the end of December change the rules again.

01:02:00.800 | And you look here, and--here.

01:02:03.800 | Section 101, extension of deduction for certain expenses of elementary and secondary school teachers.

01:02:07.800 | Section 102, extension of exclusion from gross income of discharge of qualified principal residence and debtorness.

01:02:12.800 | So we've got to pander to the people and extend this stupid thing on allowing you to go through a short sale.

01:02:21.800 | What does that even do?

01:02:22.800 | If that's what it is, what does this do for all the people who--their account advisement,

01:02:28.800 | they were going to have to pay the tax.

01:02:29.800 | When you have debt that's forgiven to you, it's imputed income.

01:02:31.800 | It's phantom income.

01:02:33.800 | And we've got to protect the people,

01:02:35.800 | we've got to give a special deal to everyone in the housing crisis to avoid the tax.

01:02:39.800 | Section 103, extension of parity for employer-provided mass transit and parking benefits.

01:02:43.800 | Section 104, extension of mortgage insurance premiums treated as qualified residence interest.

01:02:47.800 | Section 105, extension of deduction of state and local general sales taxes.

01:02:51.800 | And it just goes on and on.

01:02:53.800 | The business tax extenders, extension of the research credits, 114, Indian employment tax credit,

01:02:58.800 | new markets tax credit, and basically what all these things are is extensions of things

01:03:02.800 | that were scheduled to expire.

01:03:05.800 | I haven't read the whole bill here.

01:03:07.800 | I'm just looking at the summary.

01:03:12.800 | We live in a nation of incompetence, incompetent rulers.

01:03:16.800 | And it would be great to get rid of every single one of them.

01:03:20.800 | Maybe there's some that are intelligent, but it is absurd.

01:03:23.800 | Since I'm--if you want a little fun, I'll indulge myself.

01:03:27.800 | I usually don't rant on taxes, but this one has me annoyed.

01:03:31.800 | I guess it passed last night, so technically I should have done my research this morning

01:03:35.800 | when my outline was already prepared.

01:03:38.800 | But--so I'm going to pull down one.

01:03:41.800 | I've got one of my favorite books here, and this is--I'll read a couple of things from Jeff Schnepper's

01:03:45.800 | "How to Pay Zero Taxes" book.

01:03:48.800 | And he updates this.

01:03:50.800 | I have the 2015 edition.

01:03:52.800 | And he updates this thing every year, and in the front he talks about what happened in each year.

01:03:56.800 | And I'll just read a few of my favorites from the last few years.

01:04:01.800 | And hopefully you'll get a kick out of this, and then I'll be done and be out of here.

01:04:05.800 | You would have been impressed.

01:04:06.800 | The original show was under 60 minutes, so you would have been impressed with that.

01:04:09.800 | But let's pick a couple of fun ones here.

01:04:12.800 | So from his section on 2012, so after that debacle of the fiscal cliff,

01:04:22.800 | "According to the Joint Committee on Taxation, in March 2012, the prior cost of kicking the can down the road

01:04:28.800 | for tax cuts, extenders, estate tax, etc. through fiscal year 2012 was $967.7 billion in wasted dollars.

01:04:38.800 | Add to that decreased stability and the inability to properly budget into the future,

01:04:42.800 | and you had a framework for economic impotence."

01:04:46.800 | Don't blame the IRS.

01:04:48.800 | "The then-Commissioner Doug Shulman warned, 'If Congress can't act by the end of the year

01:04:52.800 | and even starts to think about retroactive legislation of things like the AMT,

01:04:56.800 | which have already expired, you could have a real disaster in the filing season

01:05:00.800 | when there is total confusion where some people are filing under one law and others under another.'

01:05:05.800 | Congress finally passed the American Taxpayer Relief Act of 2012 to address these issues."

01:05:09.800 | And they do it on the day after 2012, January 1, 2013.

01:05:14.800 | Here are a couple others from 2011.

01:05:19.800 | Actually, before I go to 2011, let's look at a couple of the fun ones from 2013.

01:05:25.800 | "The Internal Revenue Service reportedly posted the Social Security number of tens of thousands of people

01:05:30.800 | on the Internet before taking it down, wherein a whistleblower pointed out the mistakes.

01:05:36.800 | Approximately 1.45 million taxpayers who qualified for relief from tax penalties,

01:05:41.800 | holding close to $181 million, were never told that they could get penalty abatement and never got it."

01:05:46.800 | Here's one of my favorites.

01:05:48.800 | "The IRS could not provide documentation for $394,430 paid for labor hours."

01:05:54.800 | Point that out in your next audit.

01:05:56.800 | How about this one?

01:05:58.800 | "The American Civil Liberties Union released documents showing that the IRS criminal division

01:06:01.800 | had been reading taxpayers' emails without a warrant in violation of the Fourth Amendment."

01:06:05.800 | That makes you feel good, doesn't it?

01:06:07.800 | And then there were the IRS parties.

01:06:09.800 | "At one conference, more than $50,000 was spent on receptions, including 28 bottles of wine for 41 guests.

01:06:15.800 | Then there was the almost $4,000 spent on giveaway items, including footballs, $418 in kazoos,

01:06:22.800 | bathtub toy boats, and other novelty decorations.

01:06:26.800 | IRS credit cards were used to purchase romance novels, steaks, diet pills,

01:06:30.800 | and unspecified items from merchants affiliated with online pornography."

01:06:34.800 | Your tax money at work.

01:06:36.800 | "The IRS spent about $50 million on 225 conferences during the three years between fiscal 2010 and 2012.

01:06:44.800 | The small business and self-employed division spent $4.1 million alone on a single conference in Anaheim, California."

01:06:51.800 | You should have been there.

01:06:53.800 | "Speaker fees for presentations such as 'how seemingly random combinations of ideas can drive radical innovation'

01:07:00.800 | totaled $135,350.

01:07:04.800 | One speaker was paid $17,000 to create six paintings.

01:07:08.800 | Three were donated to charity, two were given to conference attendees, and the sixth was lost.

01:07:13.800 | Then there were the videos that cost $50,107 to produce.

01:07:17.800 | They included a dance video showing IRS employees learning the Cupid Shuffle

01:07:22.800 | and a Star Trek parody for which the set alone cost $2,400 and 11 hours of staff work,

01:07:28.800 | estimated to cost an additional $3,100.

01:07:31.800 | But they did get a one-minute finished video.

01:07:34.800 | We won't even talk about the IRS video parody of Gilligan's Island

01:07:37.800 | used to train 1,900 taxpayer-assisted employees in 400 locations nationwide.

01:07:43.800 | As Maynard G. Krebs would say, "Work?"

01:07:46.800 | "In addition to these large expenditures, the IRS spent $15,669 of your money on brief bags

01:07:53.800 | with free gifts and trinkets, $6,060 on lanyards and badge holders, $1,524 on engraved travel mugs and clocks,

01:08:02.800 | and $90 on sleeves for puzzle pieces."

01:08:05.800 | And then there were the political issues.

01:08:08.800 | The supposedly politically independent IRS was found to have targeted conservative groups

01:08:12.800 | seeking tax exemption for extra scrutiny.

01:08:15.800 | The TIGTA found the inappropriate conduct "inexcusable,"

01:08:27.800 | and Attorney General Eric Holder, another liar,

01:08:30.800 | announced that criminal penalties may be sought in a Justice Department criminal investigation.

01:08:35.800 | Add that to the 24 IRS employees who were indicted for fraudulently obtaining

01:08:40.800 | more than $250,000 in government benefits,

01:08:43.800 | and you have what some would call a rogue agency out of control.

01:08:46.800 | It didn't even go into the Lois Lerned debacle.

01:08:50.800 | A bunch of lies.

01:08:53.800 | Let me pick out two or three of my other favorites,

01:08:56.800 | and then that'll satisfy my desire to express my emotions today.

01:09:01.800 | There's a David Letterman joke that the question is,

01:09:05.800 | "What's the difference between Obama's cabinet and a penitentiary?"

01:09:08.800 | And the answer, "One is filled with tax evaders, blackmailers, and threats to society.

01:09:12.800 | The other is for housing prisoners."

01:09:14.800 | That was a David Letterman joke.

01:09:16.800 | So a lot of people don't realize why.

01:09:18.800 | I'll read just one of my favorites from 2009.

01:09:20.800 | And this is, again, this is Jeff Schnepper's writing here.

01:09:23.800 | "I'm beginning to understand now.

01:09:25.800 | The tax code is the holy grail, the answer to all our social and economic problems.

01:09:30.800 | If we have a problem, it can be solved through the tax code.

01:09:33.800 | Need to sell more cars? Simple.

01:09:35.800 | Make the sales tax on their purchase deductible,

01:09:37.800 | even for those taking the standard of deduction,

01:09:39.800 | and create a 'clunker's credit.'

01:09:41.800 | But then again, the government does own General Motors, doesn't it?

01:09:45.800 | Still, I stand by my argument.

01:09:47.800 | Your house went down in value?

01:09:48.800 | Stimulate the real estate market by making real estate taxes on a principal residence deductible,

01:09:53.800 | again, even for those taking the standard of deduction.

01:09:56.800 | Oil prices getting too high again?

01:09:58.800 | Stimulate green energy alternatives with credits that reduce your taxes on a dollar-for-dollar basis."

01:10:03.800 | On June 11, 2009, Representative Carolyn Maloney, Democrat from New York,

01:10:08.800 | introduced a bill that would give an employer a 50% tax credit on up to $10,000

01:10:13.800 | for qualified breastfeeding promotion and support expenditures.

01:10:17.800 | Talk about milking the system.

01:10:19.800 | You can't say 2009 was a quiet year tax-wise.

01:10:23.800 | The Internal Revenue Service released a taxpayer attitude survey on February 2, 2009,

01:10:28.800 | which found that 89% of Americans think it unacceptable for people to cheat on their taxes.

01:10:33.800 | The other 11% appear to be headed for the President's Cabinet.

01:10:37.800 | President Obama's pick to lead the Department of Health and Human Services,

01:10:40.800 | former Senate Majority Leader Tom Daschle, apologized for owing $140,000 in back taxes and interest.

01:10:47.800 | In 1998, he was quoted as saying, "Make no mistake. Tax cheaters cheat us all,

01:10:53.800 | and the IRS should enforce our laws to the letter."

01:10:57.800 | The President's selection for the first Chief Performance Officer for the federal government,

01:11:01.800 | Nancy Killefer, failed to pay tax on her household help.

01:11:05.800 | Both had the good graces to withdraw from consideration.

01:11:08.800 | And then there was Ron Kirk, nominated to be the U.S. Trade Representative.

01:11:12.800 | He forgot to report $37,000 in speaking fees assigned to a charity,

01:11:19.800 | but he managed to remember taking a deduction for $7,500 of the donation.

01:11:24.800 | And then there was $7,400 in pro basketball tickets without a business purpose.

01:11:29.800 | Cheating on his taxes didn't defer Timothy Geithner from becoming Treasury Secretary.

01:11:34.800 | His taxes were found to be underpaid in 2001, 2002, 2004, and 2005.

01:11:42.800 | What, nobody looked at 2003?

01:11:44.800 | But then again, who better to put in charge of the IRS than someone who requests a ruling on the law and then ignores it?

01:11:51.800 | But he did pay up when caught.

01:11:54.800 | Talk--anyway, you get the point.

01:11:57.800 | And it's just--it's utterly absurd.

01:12:00.800 | There's actually an important quote in here that he lists.

01:12:05.800 | And the quote is by former Commissioner of the IRS Mark Everson.

01:12:09.800 | He says, "Frequent changes to the tax code and rising complexity are perhaps the greatest obstacles to reducing paperwork burden.

01:12:17.800 | I am concerned that tax law complexity may discourage taxpayers

01:12:21.800 | and adversely impact voluntary self-assessment that is at the heart of our tax system."

01:12:27.800 | And the point is, self-reporting and self-assessment of taxes is indeed the heart of the tax system.

01:12:35.800 | And it's absurd to have things--I mean, to have things changing like this is absolutely absurd.

01:12:42.800 | We've had over 48 major tax law changes in the last 51 years.

01:12:49.800 | A couple of numbers here.

01:12:52.800 | 2013 return numbers directly from the IRS.

01:12:55.800 | The average taxpayer who files a Form 1040 needs 15 hours.

01:12:59.800 | Add a single rental property or a Schedule C for your business, and the hours jump to 24.

01:13:04.800 | And that's with about 91% filing with a computer.

01:13:07.800 | We spend more than 7.7 billion hours and over $350 billion each year complying with the tax code just to figure out what we owe.

01:13:17.800 | That's more hours than are used to build every car, van, truck, and airplane manufactured in America.

01:13:24.800 | And that's just your time.

01:13:27.800 | And our government wants your money as well.

01:13:29.800 | According to the Tax Foundation, the average taxpayer had to work 111 days until April 21, 2014,

01:13:38.800 | in order to earn enough to cover his federal, state, and local tax burden.

01:13:42.800 | They call it Tax Freedom Day.

01:13:44.800 | I call it Get Out of My Pocket Day.

01:13:46.800 | The Group Americans for Tax Reform includes the cost of regulation.

01:13:49.800 | It's Cost of Government Day. Had us working for the government until July 6, 2014.

01:13:58.800 | I don't even know what to say.

01:14:05.800 | I don't know when people are going to wake up.

01:14:07.800 | I do my best to try to stay level-headed and not get too fired up about stuff.

01:14:15.800 | I don't get on a political bandwagon.

01:14:17.800 | But it's absolutely absurd.

01:14:22.800 | The world we live in is absurd.

01:14:24.800 | And remember, all of those numbers--I won't go into it.

01:14:31.800 | Things are going to change as time goes on.

01:14:33.800 | And obviously, the key is for us to look at our own situation and figure out what's right for us.

01:14:42.800 | You have to look at yourself.

01:14:46.800 | This way, I'm way more sympathetic to the tax protesters than I've ever been.

01:14:51.800 | I'm not there yet, but you never know.

01:14:53.800 | One of these days, I may join them.

01:14:55.800 | If I do, I'll go public with it from the beginning, and I'll write my letter to the IRS.

01:14:58.800 | Until then, I will try to comply with their law that they change.

01:15:02.800 | This bill they passed last night, 174 pages.

01:15:06.800 | So how on earth is any--and that's just one thing.

01:15:10.800 | The tax code is over--right now, as it sits right now in 2014, it's over 70,000 pages.

01:15:21.800 | Over 70,000 pages and over 4 million words.

01:15:27.800 | That's the tax code that we have.

01:15:30.800 | It's very hard for me to comprehend how just a tiny little bit of intelligence and applied sense can't see that we can figure out a better way to do it other than the debacle that we have.

01:15:46.800 | That's it for my show.

01:15:48.800 | A little different ending than the previous ending.

01:15:51.800 | I just chopped off the last bit of the other show.

01:15:54.800 | So a little bit different than I had planned, but I hope today was helpful to you.

01:15:59.800 | I guess I should add another tax tip to all the last-minute tax planning and say, well, you could just do what seems like half of--probably, I guess that'd be a little bit silly.

01:16:10.800 | And yes, I'm not indulging.

01:16:12.800 | These aren't careful, logical arguments that I'm giving.

01:16:16.800 | It's just simply a little bit of emotion.

01:16:19.800 | But I guess you could just join some of the officials in government and just simply conveniently forget about half your income for the year.

01:16:27.800 | That would probably be pretty good.

01:16:29.800 | In fact, I encourage it.

01:16:30.800 | So if it works for them, you ought to take it for yourself.

01:16:33.800 | Seems to work well.

01:16:36.800 | Thank you guys so much for listening to today's show.

01:16:38.800 | If you'd like to get in touch with me, Joshua@radicalpersonalfinance.com, Twitter @radicalpf, Facebook.com/radicalpersonalfinance.

01:16:46.800 | Thank you for those of you who have joined the Irregulars program.

01:16:50.800 | Consider joining.

01:16:51.800 | If you've appreciated the information, if I've helped you save you some money, consider joining the Irregulars.

01:16:55.800 | Details are at radicalpersonalfinance.com/membership.

01:16:59.800 | Let's go out with one review here.

01:17:01.800 | Thank you for those of you who have been leaving me iTunes reviews.

01:17:04.800 | One review here from Lane.

01:17:07.800 | He says, "You will learn difficult topics explained with words, examples, guests, and other methods as required.

01:17:13.800 | You will learn from this one.

01:17:15.800 | They're not short or always just a certain number of minutes, but the adjustment is worth the effort."

01:17:19.800 | Another one here from--oh, that one was from me.

01:17:23.800 | I reviewed my own show.

01:17:24.800 | I said, "This show is awesome.

01:17:25.800 | It really helps make financial stuff make sense."

01:17:27.800 | Yes, it is my own show, and that's why it's so good.

01:17:30.800 | That was me reviewing my own show.

01:17:33.800 | Thank you for leaving reviews on iTunes and on Stitcher.

01:17:35.800 | I appreciate it very much.

01:17:37.800 | I wish each and every one of you a lovely day.

01:17:40.800 | Go out, and if you're running a business, call your accountant and go spend an extra $475,000 and keep your money yourself.

01:17:49.800 | Forget about trying to keep up with the government.

01:17:51.800 | Thank you for listening to today's show.

01:18:08.800 | This show is intended to provide entertainment, education, and financial enlightenment.

01:18:16.800 | Your situation is unique, and I cannot deliver any actionable advice without knowing anything about you.

01:18:24.800 | This show is not, and is not intended to be any form of financial advice.

01:18:31.800 | Please, develop a team of professional advisors who you find to be caring, competent, and trustworthy,

01:18:41.800 | and consult them because they are the ones who can understand your specific needs, your specific goals, and provide specific answers to your questions.

01:18:52.800 | Hold them accountable for your results.

01:18:55.800 | I've done my absolute best to be clear and accurate in today's show, but I'm one person, and I make mistakes.

01:19:02.800 | If you spot a mistake in something I've said, please come by the show page and comment so we can all learn together.

01:19:09.800 | Until tomorrow, thanks for being here.

01:19:12.800 | Hey parents, join the LA Kings on Saturday, November 25th for an unforgettable Kids Day presented by Pear Deck.

01:19:18.800 | Family fun, giveaways, and exciting Kings hockey awaits.

01:19:21.800 | Get your tickets now at lakings.com/promotions and create lasting memories with your little ones.

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