A Compendium of Year End Tax Strategies - 12-15-24

As summer turns to fall, the leaves turn and houses start being decorated, the air becomes crisper and the internet fills with year-end tax tip pieces. I call them tip sheets. I just love reading tip sheets, but I’m retired from active practice. Somebody who doesn’t have time on their hands might look at two or three and figure they have seen it all and didn’t learn anything they didn’t know already. I’m here to tell you that if you keep hunting, you might find some gems. But better than that, I will share what I have found in the event you don’t have the time or inclination to look at another twenty or thirty tip sheets.

Created from the Peter Reilly, CPA article posted 12-15-24

This podcast is meant for entertainment purposes only. For the more thorough, complete, and accurately written version of this article which includes citations, visit us at http://www.tottb.tax

Transcript

Welcome back, everyone. Ready to dive into some year end tax strategies, those kinda hidden gems that can make a real difference for our clients. You know, we've been sifting through tons of expert articles and research to bring you the good stuff. Right? Absolutely.

We're all about cutting through the noise. You know, finding those actionable, insightful pieces of advice that you can actually put to work right away, not just the same old fund your 401 k stuff. Exactly. Yeah. So let's jump right into it.

Retirement savings. You know, Brian Davis' article really reminded me about the saver's credit and how often it gets overlooked. Oh, for sure. It's a nonrefundable credit. So it can bring that tax liability down to 0, but no refund if it goes beyond that.

Right. Right. But the thing is, it's worth up to 50% of contributions for folks with AGI under $76,500. And you know what? It applies to way more accounts than people realize.

Yeah. Traditional IRAs, Roth IRAs, 401 k's, even ABL accounts. It's not just that limited scope everyone thinks. Totally. Now speaking of Roths, most articles are all about how great they are.

But Cheryl Rawling actually made some really interesting points about when they might not be the best choice. Yeah. She was talking about those situations where you know a client is probably going to be in a higher tax bracket later in retirement. Think younger clients with a lot of earning potential ahead of them or those expecting a big inheritance. Paying the taxes now could actually be smarter in the long run.

That makes a lot of sense. Do you find that clients often misunderstand how Roths actually work, you know, all the details? Oh, definitely. It's easy to get caught up in that tax free withdrawals and retirement idea without really thinking about the whole picture. What I do is really get into those detailed projections with them, you know, showing them what their tax liability would look like down the road in different scenarios.

I like that approach. Now William Baldwin had a pretty different take on Roth conversions. He pointed out some pretty serious risks if a client situation takes an unexpected turn. He was really focused on that risk of needing the money you just converted during what he calls the gap year. Like, imagine you convert a bunch of money, you get hit with a big tax bill, and then, bam, some huge unexpected expense pops up.

Suddenly, you're scrambling to cover that tax liability and you might not have the resources. Wow. Yeah. That's a scenario I hadn't really thought about before. Makes you realize how important it is for us as tax professionals to walk our clients through those what ifs.

Right? Make sure they've got some backup plans in play. A 100%. It's all about asking the tough questions. Right?

Yeah. Making sure those clients are ready for whatever curve balls life might throw at them. Now let's shift gears a bit and talk about loss harvesting. It's something we hear about all the time, but John Laughlin brought up this really interesting concept of gain harvesting, specifically for clients in the 0% capital gains bracket. Gain harvesting.

Now that sounds a little counterintuitive. Why would you wanna realize gains if you don't have to? Well, think about it. Clients who are getting close to retirement or maybe their income fluctuates a lot, if they strategically realize gains while they're in that lower bracket, they lock in that sweet 0% rate. Uh-huh.

So it's all about managing that tax liability proactively and getting ready for those potential bracket increases down the line. That's a really valuable insight. Okay. Let's switch over to charitable giving. We saw a lot of recurring themes in the articles we review, but those qualified charitable distributions or QCDs really stood out.

Oh, yeah. QCDs are fantastic for clients who are over 70a half and have to take those required minimum distributions from their IRAs. Instead of taking the distribution and then donating it, they can just directly transfer those funds to a qualified charity. And the best part is it doesn't count as taxable income. Right?

Potentially saving them a big chunk of change in their tax bill. Exactly. One of the articles even gave this perfect example. An 80 year old client, $2,100,000 IRA, uses a 105 $1,000 QCD to take care of their entire RMD for the year. That's gonna significantly impact their taxable income.

Talk about a win win. They fulfill their RMD, support their favorite charities, and reduce their tax burden. Can't beat that. For sure. And then there's donor advised funds, DAFs, for those clients who are charitably inclined but don't necessarily need the tax deduction right away.

Right. DAFs let them make a large contribution all at once, get that immediate deduction, and then they can decide how to distribute those funds over time. Gives them a lot of flexibility. It really does. It's a powerful way to maximize those tax benefits while still giving them the control to support the causes they care about for years to come.

Speaking of strategic timing, the Armenino white paper really emphasized that classic move deferring income and accelerating those deductions or the other way around. Yeah. They were saying that with all the economic uncertainty right now, that strategy is more important than ever. It's all about managing cash flow proactively and capitalizing on those potential future tax rate changes. Absolutely.

We've gotta help our clients adapt to this constantly shifting landscape and position themselves for the best possible outcomes. And speaking of shifting, how about we shift over to estate planning? Oh, estate planning. Yeah. Always a fun one.

Right? I mean, it can be overwhelming for us and our clients. But those articles we read had some good insights. The annual gift tax exclusion and 5 29 plan funding, those are always important reminders. But what really stuck with me was that potential reduction of the lifetime exclusion in 2026.

Oh, yeah. That's a big one. Especially for those high net worth clients, one of the solutions they mentioned was a spousal access trust. Basically, it lets clients give more generously while still having some access to the assets. So it addresses that fear of giving away too much too soon.

Right? Right. Allows them to provide for their spouse while still chipping away at their taxable estate. Precisely. It's definitely a more sophisticated strategy, needs careful planning and execution, but it can be incredibly valuable for clients with a lot of assets.

You know, before we move on, I do wanna mention a few of those less obvious things we found, those hidden gems, you know. Oh, absolutely. Always love a good hidden gem. Lay them on me. 529 a able accounts.

These are designed specifically for people with disabilities. They can save for those qualified disability related expenses and still keep their eligibility for government benefits. That's a great one. I bet there are a lot of families out there who would benefit from knowing about those accounts but just haven't heard of them. Probably so.

And remember, JPMorgan's advice about those pro form a 2024 returns, that can really help us identify which clients might be eligible for these less common strategies, those strategies that could have a huge impact. It's all about being proactive, exploring every possible avenue for our client. Exactly. And while we're at it, a couple of quick reminders from the articles. Don't forget about IRMAA considerations, especially for folks getting close to retirement.

Stay up to date on those Corporate Transparency Act reporting requirements. And keep in mind those state income tax implications, you know, for clients working remotely or who've moved across state lines. It's easy for those little things to slip through the cracks, especially during the craziness of tax season. Important reminder to stay focused and cover all the bases, even the ones that don't always scream for attention. Couldn't agree more.

We've gotta be thorough and meticulous to make sure our clients are getting the best advice possible, the most comprehensive advice. You know what? I think it's time to take a quick break, and then we'll come back and dig even deeper into some of these strategies. We'll talk about how to actually put them into practice. Back again, ready to keep uncovering these year end tax gems.

There's always more to learn. Right? More ways to up our game for our clients. You got it. And, you know, before we jump back into specific strategies, I really wanted to hit on that whole idea of proactive planning.

That was a big theme in pretty much everything we read. Like JPMorgan, they were really pushing those pro form a 2024 returns for clients. Yeah. Makes sense. It's not just about reacting to whatever changes come up.

Right? We gotta be looking ahead, anticipating those potential issues and opportunities. Exactly. When we project those income, deductions, credits, all that for the coming year, we can spot those potential tax traps before they even happen, and then we can come up with strategies to head them off. It's like giving our clients a sneak peek into their tax future so they can make smart decisions.

I like that. A sneak peek. And, you know, running those pro form a returns can also help us figure out which clients might qualify for those less common strategies, like the 529 a ABLA accounts we talked about before. Oh, for sure. Being proactive, exploring all the options.

That's how we find those golden opportunities that might otherwise get missed. Now remember those Roth conversions, they can be great for some folks, but William Baldwin's article had some good points about the downsides, you know, if a client situation changes unexpectedly. Yeah. He was talking about that risk of needing to access the money you just converted during that gap year. Right?

Imagine converting a big chunk of money, getting hit with a hefty tax bill, and then suddenly needing those funds for something you didn't see coming. That could be tough. No kidding. That's why it's so important to really plan for those what ifs. Walk our clients through those scenarios, and help them come up with strategies for dealing with setbacks.

We gotta make sure they get it, you know, really understand the risks before making a big move like that. It's all about those open and honest conversations, isn't it? Making sure they're really ready for those potential downsides. Do they have other resources they could tap into if an emergency pops up and they need to cover that tax liability? Gotta ask those questions.

Absolutely. We're there trusted advisers. We're there to guide them through the whole process. Alright. How about we dive back into those charitable giving strategies?

We touched on QCDs and DAFs before, but I think it's worth exploring them a little deeper. Yeah. Those QCDs especially seem like a great option for those charitably minded clients who also have to take those required minimum distributions from their IRAs. They really are. And, you know, they have some pretty cool advantages over just making a regular donation.

Like we said, those QCDs aren't included in your taxable income, which can be huge for clients trying to stay under certain income limits, you know, for Medicare premiums or other tax benefits. Right. And they can actually count towards that RMD for the year. Two birds, one stone. They take care of their RMD and support their favorite charities all at the same time.

Exactly. And for those clients who are all about giving but don't need that immediate tax deduction, DAFs can be a real game changer. Totally. They get to make a big contribution, grab that deduction right away, and then they can take their time figuring out how to distribute the funds. Super flexible.

It is. Plus, it's a great way to bring the family into the mix. You know, clients can set up a DAF and make their family members advisors or successors, get them involved in the whole grant making process. I love that. It's not just about the tax benefits.

It's about passing on those values, building that legacy of giving. Okay. I wanna switch gears a little bit here. How about state income taxes? Something we don't always talk about but can be really important.

Definitely. With so many people working remotely these days, moving around more, gotta stay on top of those state tax rates and residency rules. They can be all over the place. Exactly. Can't just assume everyone's paying taxes in the state where they live.

Right? Yeah. We gotta ask the right questions. Figure out their work situation, their living arrangements, all that to make sure they're not gonna get hit with some surprise tax bill. For sure.

And don't forget about IRMAA. You know, those Medicare premium surcharges, even a small bump in income can trigger those. Right. That's why we gotta be thorough. Look at the big picture.

Help our clients make those financial decisions without getting blindsided by unexpected consequences. Okay. I know we've covered a lot, but I'm curious. What else really stuck out to you from all those articles we read? Any big takeaways?

You know what really struck me? It was how important those seemingly small details can be, the ones that are easy to overlook. Like, one article mentioned how you can actually change the beneficiary on a 5 29 plan if you need to. Oh, yeah. That's a good one.

A lot of people probably don't realize they have that flexibility. Like, what if a kid decides not to go to college? Or they get a big scholarship. You can just switch those funds over to someone else, a grandchild maybe or even yourself. Yeah.

Don't wanna lose out on those savings. Exactly. It's about knowing the rules, being resourceful. Another one, the saver's credit. So many clients who could benefit from that but just don't realize they might qualify, that can be a real game changer for folks with lower incomes.

Totally agree. It's those little victories. Right? Those little things that can make a big difference in our clients' lives. Alright.

I think we're ready for the final stretch. Let's wrap things up and talk about how to actually implement all this great stuff in our practices. And we're back. Time to wrap up our deep dive into those year end tax strategies. We've uncovered some real gems so far.

Now how do we actually take all this back to our practices? You know, make it absolutely That's the key. Right? Turning insights into action. And if there's one big theme that's come up again and again, it's gotta be proactive planning.

Totally. Projecting those 2024 returns, thinking about the lifetime exclusion changes, even considering those less common scenarios like the ABL accounts. Yeah. What does that look like in the day to day? Well, it starts with those good questions.

Don't wait for clients to come to us with problems. Right? We need to dig deeper. What are their goals? What are they worried about?

What are their plans for the future? Like, are they thinking about early retirement, starting a business? Those are big life changes that can have some serious tax implications. We can help them navigate that. We're not just number crunchers.

Right. We're advisors. And that means being resourceful, thinking outside the box. Exactly. Remember that saver's credit.

So easy to miss. Or those 529 plans, lots of flexibility there that people don't realize. Digging into those less obvious options can make a huge difference for clients. It's about constantly learning, staying ahead of the game. But, of course, we can't forget about compliance.

Gotta make sure we're keeping our clients out of trouble. Oh, absolutely. Those reporting requirements like the Corporate Transparency Act, they're not going anywhere. We've gotta be on top of it to help our clients avoid those nasty surprises down the road. It's a balancing act for sure.

Keeping up with all the rules and regulations while also being strategic, creative with our tax planning. It's a challenge, no doubt, but it's rewarding too. Ultimately, it's all about trust, providing that top notch service to our clients. Speaking of service, we've covered a lot of ground today. What's the one big takeaway you hope our listeners walk away with?

I think it's this. The tax world is getting more and more complex. Right? Client situations are constantly changing. We've gotta be able to think critically, adapt quickly, and find those creative solutions.

That's what sets us apart. Love it. Embrace the challenge, stay curious, and never stop learning. Couldn't have said it better myself. Well, I think that about wraps up our deep dive into year end tax strategies.

It's been a great conversation. Hopefully, everyone listening got some valuable insights they can put to work. Remember, with the right knowledge and approach, we can guide our clients through any tax challenge and help them reach their financial goals. Thanks for having me. It's been a pleasure.

Until next time, everyone.