4 Seasons Podcast

Tax-Savvy Wealth Building: Hidden Opportunities After Filing Season

• Jeff Bingham • Episode 9

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Now That April 15th Has Passed, How Do I Get Ahead Of The Tax Game For 2025?

Ready to keep more of your hard-earned money in 2025? Tax planning shouldn't wait until next April.

Jeff Bingham, President of B&H Wealth Strategies, shares his father's timeless wisdom: "It's not about how much you make, it's how much you get to keep." This philosophy underpins a practical approach to tax planning that works within our complex system—a tax code spanning 2,672 pages with roughly 70,000 additional pages of supplements and addendums.

Discover actionable strategies starting with maximizing contributions to employer-sponsored retirement plans. Every dollar contributed directly reduces your taxable income while building retirement security. Jeff explains how someone earning $50,000 who contributes just 10% to their 401(k) can save $1,000 in taxes annually. For additional tax advantages, Individual Retirement Accounts offer another powerful vehicle with contribution limits of $7,000 for those under 50 and $8,000 for those over 50.

Challenging conventional wisdom, Jeff explores when aggressively paying down mortgage debt might not be the most tax-efficient approach. With mortgage interest being tax-deductible, those with low rates secured before 2022 might benefit more from strategic leverage than early payoff. The math becomes clear: if you can earn more on your investments than your after-tax mortgage cost, keeping that "good debt" could work in your favor.

Take control of your financial future and develop a personalized tax strategy by visiting BHRetire.com. Remember, the best time to plan for next year's taxes is now.

To learn more about B&H Wealth Strategies visit:
https://www.BHRetire.com
B&H Wealth Strategies
423- 247-1152

Speaker 1:

Welcome to the Four Seasons Podcast brought to you by B&H Wealth Strategies, serving Northeast Tennessee and Southwest Virginia since 1966. Here we guide you through the ever-changing seasons of your financial journey, offering insights to help you grow, protect and enjoy your wealth. Ready to turn your financial dreams into reality, dare to dream. And now here's your host. President of B&H Wealth Strategies, jeff Bingham.

Speaker 2:

Season might be over, but smart financial strategy isn't a once-a-year event. The best time to plan for next year's taxes is now. So how can you get ahead and keep more of your hard-earned money in 2025? Welcome back everybody. Skip Monty here, co-host slash producer, back in the studio with B&H Wealth Strategies president, Mr Jeff Bingham. Jeff, how you doing today? I'm good. Skip, how about yourself? I'm doing great. I'm doing great. Now that we're past April the 15th, I'm doing a little bit better, although it was a little painful for me, but now that we're-.

Speaker 3:

Everybody's favorite time. Sorry, oh yeah.

Speaker 2:

That's all right. Well, now that we're past that, how do we get ahead of the tax game in 2025?

Speaker 3:

Well, that's one of my favorite topics to talk about, you know, is taxes, and it's obviously something that is right now top of mind and, as my dad used to always say, it's not about how much you make, it's how much you get to keep. So what do we do? And you know, and people always want to have great tax reduction strategies and my dad used to always tell people he said, well, one way to do it is make less income. That's surely not something that people are interested in. So we try to find alternatives to that, as we try to find the solutions that are there and there aren't as many things out there today as there used to be.

Speaker 3:

When I talk about the history of the firm and when we go back from 1966 forward, and so there was a period of time when tax rates were very, very high and there were a lot of alternative limited partnerships and purely tax strategies in the 80s and whatnot that were out there. So we've evolved from that, you know, coming forward. But that was part of what this firm was about even back in those days was when tax rates were, you know, as high as you know go back in the 80s probably as high as 70%, something like that, you know. And then Dan Rostenkowski and Ron Radin struck a deal and you know, cut tax rates to ever take. You know kind of where they are today. I mean there's been some changes but it's not a lot, not a lot of differences. I mean you know there's some but people might want to, you know, pick at what I just said right there. But we've kind of stayed in this, in this rate, a range rate from where we are from. You know again, when president Kennedy in the sixties, tax rates were as high as 90%, you know, in the upper income tiers.

Speaker 3:

I mean, think about that Now again. There were so many loopholes and there were so many things you know that were there. So the tax code itself is 2,672 pages in volume. That's how many pages there are in the IRS tax code, with a corresponding maybe 70,000 pages of supplements and addendums and resources that go along with that. I mean, I think if you look at that, that's like 35 million. I heard this today. It was like 35 million words, I think, and that'd be like reading the Bible like 50 times or something crazy like that. So anyway, that's our tax code.

Speaker 3:

It's ridiculously complex and it's almost it's just one of these things where we just stack things on top of it, right, we don't ever get rid of anything, we just kind of stack on top of it. Most people just kind of throw their hands up in the air out there and just like I don't know, and what do you do about it, right? Anyway, with all that being said, what can we do? And, like I said, I'm not a tax, I don't prepare taxes, I'm not a CPA, nor do I want to be.

Speaker 3:

So what I try to do with my clients and now with the listening audience out there is to try to have them do all the things that they can do, right within their legal limits, to reduce their taxes, before they take it to their CPA or before they plug it into their TurboTax to do it.

Speaker 3:

Because, basically, when you start doing your income tax or you take it to your CPA, they're just scorekeepers, right?

Speaker 3:

You're going to give them the docs, they're going to plug it in, and then they're going to spit it back out. And they're going to say you're going to give them the docs, they're going to plug it in and then they're going to spit it back out, and then we're going to say you're either going to get this much back or you owe this much. Here's your total tax liability for the year and here's your bill. So that's kind of how the world that most people operate in. So what we look at is how can we reduce that. So, when you do take it to light the scoreboard up, that you can have less tax and more of your own money kept right, because I think it's fair to say that, most people out there will believe that you can do better with your own money than the government can do with your money. I think that's a fair statement to make and I think most people would agree with that Amen brother, but we also want to be very you got to be careful.

Speaker 3:

I mean, the difference between tax avoidance and tax evasion is about 20 years. So again, what are you doing currently? What might you do otherwise? I mean simple things like if you're working and you've got an employer-sponsored retirement plan, are you putting as much money into that employer-sponsored retirement plan that you can? Right, because the money that you put in there is a deductible contribution, right? So if you make $50,000 or whatever number it is, whatever the number is, doesn't matter, if you put, you know, whatever dollar you put into that you reduce that taxable income, that salary that you have, that wage that you have. Every dollar that goes in there reduces that. You still have to pay social security tax on it, but you take that out of the income tax calculation, so you have a deductible contribution that goes in there.

Speaker 3:

So first, that's what you wanna do, that's a way to reduce tax. So if you've got $50,000, you put $5,000, 10% of your income into that 401k plan, your taxable income now is $45,000. If you're in a 20% again, just use an easy math If your effective tax rate is 20%, you just reduce your taxable or your tax liability by $1,000 by doing that. So that's one simple way to do it. It's also an effective way to do it because you get the money into the retirement plan. It's going to grow on a tax deferred or tax free basis. Now, on the flip side of that, when it comes out of that retirement plan, every dollar that comes out of it is taxable. So you got to be sensitive to the drawdown on those monies as well. But that's one way to do it. So let me stop there and see if you want to kind of dig in around that a little bit.

Speaker 2:

Well, I was actually going to ask you mentioned 401k, but what other tax advantage accounts should individuals or families prioritize contributing to before year end?

Speaker 3:

Well, I think so. You got your 401k plan. If you've got an employer sponsored plan, there's some income limits and some various things that I'll go through. But you could also compliment that with an IRA right. You could have your own individual retirement account, which you can. If you're under age 50, you can put in $7,000. If you're over age 50, you can put in $8,000. You have what's known as a catch-up provision, so you can do that and that's both husband and wife can do that. So you have if you're over 50, that's $16,000 a year you can contribute into an individual retirement account. Those are deductible dollars. If you're over 50, that's $16,000 a year you can contribute into an individual retirement account. Those are deductible dollars if you're using it and you fall within the right income ranges. There's, like I said, there's don't, don't. That's not a blanket statement. That is absolutely true. Because you've got an employer sponsor plan, you make X number of dollars. There can be some limits on what I just said right there. So don't, that's not. You know, those are the caveats to that statement right there.

Speaker 3:

A lot of times people want to, you know and I'm not saying that you shouldn't, so do not misunderstand this at all so a lot of people want to pay off you know, mortgages really quickly and get them over and done with, and a lot of times that's a really good idea. But if you have an extremely low rate, like idea. But if you have an extremely low rate, like a lot of people that you know, before 2022, you know, when you think about people that got mortgage rates at 3%. So my question would be why would you ever pay that off early, right now, you might be able to, but in that lane, right there, when you think about it like that, using other people's money, using the bank's money at 3%, like we just use it at 3% or 4% and that's deductible, right, and that's deductible. So if you're in a 20% tax bracket and you're in a 3.5%, you just reduced your taxable in. I mean, that's like 2.7% because of the deductible interest on that. So can you earn more than that on your money in today's world, in the bank and interest rates? We'll call it 4%, right, the leverage is on your side.

Speaker 3:

So why would you pay that off? Like you might be able to, but it's you know, sometimes it's more effective to use other people's money, even though you might be able to pay it off or pay it down and do those kinds of things. So, you know, I want to be careful when I say those kind of things, because I'm not suggesting that debt is good and we always say, well, debt is bad, and most of the time, that's a blanket statement that should be held to. Like debt is, you know, debt is borrowing. When you have debt, you're that. Just on risk free money, right, I mean, that's a risk free money. I'm talking about, you know, borrowing from your house and going out and investing in Bitcoin, like we've talked about in other episodes. That's not what I'm saying. So don't nobody out there think that that's what I'm suggesting at all, because I don't think that that's a good idea in most or maybe all cases. But if you can earn 4% on your money and the cost of that money is 3% and you can deduct that interest, yeah, that's pretty good leverage. That's leveraging your favor. That's using other people's money for your benefit, not because you have to. Right, that's a smart, prudent financial decision, right there, and so that's one way to do it.

Speaker 3:

The other thing is, what about the earnings that you've got? Like when you're investing your after-tax monies that are out there, money that you're not using for income but that you're paying income tax on right. For a long time people had money in the bank and interest rates were so low they didn't have to worry about earning any interest. It wasn't creating tax liability. You could have a considerable amount of money in the bank and interest rates were so low you didn't even have to file a 1099 on it. Well, now the interest rate's at 4% or so. Just using that as an easy number, what you're seeing with money in the bank that it's coming over onto that tax return. It's creating more tax liability for you.

Speaker 3:

So that 4% rate of return where we're talking about it in a mortgage, where it's deductible, well, in an earnings perspective of money you're not spending, you're paying tax on that. So it's diluting the rate of return and inflation. So we think again. What I always say out there is that people see it at 4% on an earnings rate. Well, they think, well, safe money, I'm making money. What they don't realize there may not be any market risk in that kind of earnings, but there is purchasing power risk. So 4%, if you will take a 20% tax, effective tax rate takes that down to 3.2. And if you think inflation is 3.2% or around 3%. Basically, at best you're breaking even with your purchasing power. Does that make sense?

Speaker 3:

So that's where the purchasing power, that dollar, maybe it's kept pace for on a year over year basis, on an after-tax basis, but in most cases I would say it's not, because I think inflation, the real rate of inflation, is not in that three-ish percent number that the headline number is. That's out there, because, again, we exclude energy, we exclude food and we exclude healthcare. Now how many of you all out there listening don't spend money on those things? Everybody spends money on those things. As a matter of fact, a lot of people spend more money on those things than they do any other things that are out there, and yet we exclude those from the CPI number as it's reported out there. So it's an interesting thing that we do, because it's too volatile. They say to include it in there. Okay, that's a do, I'll go into that rabbit hole.

Speaker 3:

But so inflation? So, in other words, you're purchasing power with that type of money, it's creating tax liability and you're actually even though we feel better about higher rates of return in the bank. Right now it's like, oh, we finally earned some money in the bank, which is true, but is it really? Is it really more? Are you making any more money on it from a, from a true purchasing power perspective, than it was when interest rates were low and inflation was running less than 2%? Again, taking all the facts that I talked about around that, so you know it may be closer to kind of the same effect right of what the purchasing power of the earnings on that money is, if you will. But what we look for is can we defer right no-transcript risk that people are taking with their money? Is that purchasing power risk?

Speaker 2:

Interesting, and so I guess the inverse of if you've got a high interest rate on your mortgage, it would be beneficial to pay it off early.

Speaker 3:

Absolutely no. When, and again using my dad's, without question. Right? I mean, you think about if you've got your six or 7%, and you've got now again, this is you got to think of liquidity issues and all that. But let's say you owe a hundred thousand dollars on your mortgage. Right, you're getting your down to that, you've whittled it down. So it's a hundred thousand dollars and it's a six percent. You know it's at six percent and you have a hundred thousand dollars earning four percent of the bank, right, right, what should you do? Right? Well, at least, without taking anything else into account, you'd pay that debt off. Right, I'm earning four. It's costing me six, like that's a two percent swing, right, I mean that's.

Speaker 3:

You know, without all the tax calculations, you know you lose your liquidity. There's some things that need to be taken into account. So don't everybody, nobody run out there and, do you know, act on what I just said right here. You know from from watching the pod, but that's certainly where you want to begin to have that conversation. You know that's leverage. That's not leveraging your favor at all. You know that's the kind of debt you want to get rid of.

Speaker 2:

Well, I feel very fortunate to be on the opposite end of that spectrum. So thank you for because I've always heard that if you could make an extra house payment once a year, twice a year, it would be beneficial to pay it off. But apparently not in my case.

Speaker 3:

Well, you know, and again, I'm very careful around these topics like this, so it's not like oh, you told me, you know, I saw the financial advisor guy on the podcast Ashley, don't pay the mortgages, I don't do that. That's not what I'm saying. Everybody's situation is different, Everybody's comfort zone is different, you know. So you really have to take that. That is a that's a measurement of a lot of things. But if you just are looking at it from a financial perspective, right, Just math, just the pure math of that says if I can earn four on my money and the debt is costing me three, why would I pay it off? Right? So from that, from a mathematical perspective, absolutely. Then, as that number goes up, you start having other conversations about it.

Speaker 2:

Every situation is different, so that's why people need to call B&H Wealth Strategies, so that you can help them out there.

Speaker 3:

Yeah, would love to have conversations about this and any other things that folks want to talk about. We're always available to be a sounding board and, hopefully, to give you sound advice as well.

Speaker 2:

Awesome. Well, jeff, it's been a great episode. I have learned a tremendous amount, and maybe we could talk more about. Tax is a deep subject, so maybe we can touch on that again in another episode. Absolutely All right Anytime. All right, jeff, have a great rest of the day. Thanks so much, you too, skip.

Speaker 3:

Talk to you soon. God bless you too. You too Skip Talk bhretirecom.

Speaker 1:

Take the first step toward making your financial dreams come true. Until next time, remember every season is the right season to plan for your future. Securities and registered investment advisory services offered through Silver Oak Securities Inc. Member FINRA, sipc, b&h Wealth Strategies and Silver Oak Securities Inc. Member FINRA, sipc, b&h Wealth Strategies and Silver Oak Securities Inc are not affiliated.