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Speaker 1: Bloomberg Audio Studios, podcasts, radio news.

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Speaker 2: They're billing mobs. What our schools unfolded? Tell me what

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Speaker 2: in the help of pay taxes for well, the one

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Speaker 2: a little stop paying, stop at stop paying taxes, stop paying.

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Speaker 3: It's that time of year. I'm Barry Riddults and on

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Speaker 3: today's edition of At the Money, we're going to discuss

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Speaker 3: the moves investors should be thinking about in order to

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Speaker 3: reduce their twenty twenty five taxes. To help us unpack

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Speaker 3: all of this and what it means for your money,

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Speaker 3: let's bring in Bill Artzmeronian Full disclosure. Arts Eronian is

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Speaker 3: the director of tax services at Ritults Wealth Management and

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Speaker 3: we've been working with him for just about five years years.

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Speaker 3: So Bill, let's start with a simple overview. You've said

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Speaker 3: before tax advice is financial advice. I want to unpack that.

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Speaker 3: How should investors be thinking about the role of tax

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Speaker 3: planning in their overall weal strategy, especially here in December.

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Speaker 1: Well, thanks Barry for having me. Let's just think about

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Speaker 1: a financial plan for a second. What part of a

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Speaker 1: financial plan does not touch on taxes? I mean think

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Speaker 1: about just basic cash flow planning. Taxes for our investors

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Speaker 1: are often the largest expense in their annual budget, it's

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Speaker 1: mortgage and taxes. Those are the largest costs. Life insurance

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Speaker 1: is thinking about a tax free inheritance for the next

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Speaker 1: generation or for your errors. Estate planning is all about taxes.

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Speaker 1: If there was no estate tax, we wouldn't really have

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Speaker 1: to think about estate planning. And then basic portfolio management

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Speaker 1: is purely, you know, not purely tax centric. But our

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Speaker 1: investors are thinking about tax all the time. Our clients

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Speaker 1: would rather save one thousand dollars on taxes that make

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Speaker 1: six figures in a trading day. So it's all connected.

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Speaker 1: And the end of the year is like the report card.

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Speaker 1: Tax planning should be happening proactively for twelve months, but

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Speaker 1: we don't even stop there. We're not thinking about taxes

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Speaker 1: as a current year item or even a lifetime item.

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Speaker 1: We're thinking about this generationally. We're thinking about how can

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Speaker 1: we set up the next generation of client children, client

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Speaker 1: grandchildren for tax success.

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Speaker 3: So we have a few weeks left in the year.

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Speaker 3: What are the big boxes that you think investors should

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Speaker 3: be checking and what important items do they ignore? What

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Speaker 3: are the big mistakes people make?

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Speaker 1: I think one of the misunderstandings is on tax deferral

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Speaker 1: rather than tax avoidance. Many strategies can avoid taxes or

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Speaker 1: can defer taxes, but that bill will come do at

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Speaker 1: some point. You know, think about even just a four

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Speaker 1: to oh one k a pre tax contribution, You're going

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Speaker 1: to recognize that income at some point. Things like accelerated

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Speaker 1: depreciation will come back to bite you on the recapture

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Speaker 1: when you sell the asset. Opportunity zones are a tax

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Speaker 1: deferral mechanism. These are all very useful because time value

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Speaker 1: of money says that a tax deduction today is worth

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Speaker 1: more than a tax deduction in the future, but eventually

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Speaker 1: that there's going to be a tax hit. So I

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Speaker 1: think that's a common misunderstanding. A few other mistakes is

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Speaker 1: on capital gain timing. See we see clients not really

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Speaker 1: understand or consider the timing of when they recognize games.

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Speaker 1: When we onboard, folks were often pushing gains from the

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Speaker 1: fourth quarter of say twenty twenty five into the first

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Speaker 1: quarter of twenty twenty six, because that gives us a

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Speaker 1: full twelve months to tax lost havist and create losses

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Speaker 1: to offset any capital gains. The flip side of that,

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Speaker 1: of course, is even a small movement in a stock

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Speaker 1: price can cost more than a tax built just to

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Speaker 1: sell it, so you have to be pretty comfortable holding

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Speaker 1: the position for a couple weeks or even a couple months.

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Speaker 1: And then the last mistake is misunderstanding just basic payment obligations.

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Speaker 1: There are safe harbors to avoid estimated tax penalties, but

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Speaker 1: on the flip side of that is, if you pay

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Speaker 1: too much, there's opportunity costs. If you have a big

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Speaker 1: refund in April, that means you paid a little bit

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Speaker 1: too much and that money could have been better put

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Speaker 1: to use.

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Speaker 3: So Bloomberg has a fairly sophisticated audience of high earning professionals.

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Speaker 3: What are the three top moves you see for folks

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Speaker 3: like that, they have a portfolio, they have a pretty

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Speaker 3: decent income, and they can expect to continue that for

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Speaker 3: the foreseeable future.

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Speaker 1: Let's start with charitable giving. We'll talk about it more

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Speaker 1: throughout the show, but it's often the most accessible lever

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Speaker 1: to pull for tax savings. The caveat being you need

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Speaker 1: to be conscious of where your total deductions fall. We

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Speaker 1: see some clients give a certain amount of charitable gifts

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Speaker 1: and they don't even itemize their deductions. So from a

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Speaker 1: federal tax standpoint, maybe they gave away ten k, but

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Speaker 1: they're still taking that standard deduction. They're not benefiting from

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Speaker 1: that charitable gift. So that's where bunching strategies and some

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Speaker 1: other strategies with don't advice funds can come into play.

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Speaker 1: Number two is on the equity comp side. Equity compensation

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Speaker 1: for folks compensated through their company stock, the timing of

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Speaker 1: the income can often be flexible. Think about stock options

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Speaker 1: company stock options, we should be asking the question, how

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Speaker 1: much can we recognize in stock option income before the

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Speaker 1: end of the year before we bump up against the

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Speaker 1: next federal or state tax bracket. How much if these

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Speaker 1: are incentive stock options, how much can we recognize without

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Speaker 1: paying AMT alternative minimum tax. These are questions we should

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Speaker 1: all be asking if we're paid through equity or if

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Speaker 1: we have clients that are paid through equity. And the

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Speaker 1: last one is for small business owners. There's a whole

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Speaker 1: lot on the small business side of this. I'm focused

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Speaker 1: a lot on qualified business income, which is a twenty

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Speaker 1: percent deduction for pass through income, but there are limitations,

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Speaker 1: and those limitations can be on based on how much

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Speaker 1: you pay your employees or yourself in a wage If

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Speaker 1: you don't meet a certain wage number, that QBI benefit

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Speaker 1: could be significantly reduced or even reduced down to zero

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Speaker 1: if you're really screwing this up. And then on the

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Speaker 1: small business side, we should be looking at are we

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Speaker 1: prepared to maximize retirement contributions? The max four one K

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Speaker 1: is seventy thousand dollars this year between employer and employee contributions,

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Speaker 1: and so you have to be ready to have that

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Speaker 1: cash available to fund those contributions. Say you're a mom

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Speaker 1: and pop shop to owners zero employees, maybe you're structured

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Speaker 1: as an es corp. You're gonna have to come up

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Speaker 1: with some cash to meet the four to one K

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Speaker 1: obligations either before the end of the year before the

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Speaker 1: tax filing.

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Speaker 3: So I'm glad you brought up tax advantage accounts like

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Speaker 3: four O one k's. There always seems to be a

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Speaker 3: last minute frenzy to maximize not only for A one k's,

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Speaker 3: but IRA's health saving accounts. Five twenty nine. How have

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Speaker 3: the rules changed around credits and ceilings for this year

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Speaker 3: and for twenty twenty six?

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Speaker 1: Right at least once a year with our clients, we're

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Speaker 1: running through the quote unquote basics of all of these contributions.

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Speaker 1: Are you on track to hit each of these with

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Speaker 1: a four one K? We just talked about it a

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Speaker 1: little bit, but there's a seventy K limit. Now, if

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Speaker 1: you're a W two employee and you don't own the company,

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Speaker 1: you're gonna make employee contributions. Maybe there's a megabackdoor Wroth

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Speaker 1: option in there for you. We talk to folks all

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Speaker 1: the time who have this eligible or eligible in their plan,

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Speaker 1: but they don't even know about it. Nobody's talking to

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Speaker 1: them about this when they join the company, and that

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Speaker 1: megabackdoor Wroth allows you to put after tax dollars into

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Speaker 1: the four oh one K, convert it to WROTH, and

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Speaker 1: have a nice Wroth tax free bucket growing alongside the

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Speaker 1: pre tax contributions that you already made. Iras don't come

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Speaker 1: up a lot in our world for a few reasons.

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Speaker 1: Number one is most of our clients are employed with

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Speaker 1: a retirement plan through their employer, and if that's the case,

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Speaker 1: deductible IRA contributions may be limited. However, there is a

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Speaker 1: backdoor option in the IRA. If you don't have any

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Speaker 1: pre tax money in any iras, you can make after

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Speaker 1: tax contributions and again convert to WROTH in the IRA

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Speaker 1: just as well as you can in the four oh

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Speaker 1: one K. And then the HSA. I love tax owners,

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Speaker 1: love hsas you need to be on a high deductible plan,

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Speaker 1: which isn't for everybody. My colleague Bill Sweet and I

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Speaker 1: we ran an analysis on high deductible plans and we

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Speaker 1: found that there's a pretty there's a pretty attractive break

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Speaker 1: even on high deductible plans because the premiums are lower

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Speaker 1: and the long term benefit of investing deducting HSA contributions

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Speaker 1: and treating those as another retirement vehicle. Again, those are

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Speaker 1: like roths where they're text free. Those can compound very,

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Speaker 1: very nicely. Where maybe you retire early, and let's say

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Speaker 1: you retire sixty instead of sixty five, you have a

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Speaker 1: five year gap where you need to cover probably significant

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Speaker 1: healthcare premiums. That HSA can be used in that case,

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Speaker 1: and it's a nice text free bucket to have.

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Speaker 3: And what do the ceilings look like on all these

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Speaker 3: taps advantage accounts for twenty twenty six? How has the

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Speaker 3: recent legislation changed the max people can kick into those?

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Speaker 1: The big change in twenty twenty six is that rough

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Speaker 1: catchup contributions for folks over age fifty are now forced

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Speaker 1: to be rough contributions again starting twenty twenty six. Historically,

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Speaker 1: catch up contributions, which are going to be seventy five

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Speaker 1: hundred this year seventy five hundred next year. Folks in

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Speaker 1: their fifties are often in their highest earning years. Therefore

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Speaker 1: the pre tax option is usually preferred. However, starting next year,

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Speaker 1: the catchup contributions that seventy five hundred are going to

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Speaker 1: be required to be wroth contributions. My theory is, I

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Speaker 1: don't mind this at all. Nobody ever regrets a roth contribution.

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Speaker 1: Nobody ever really regrets a roth conversion because once you

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Speaker 1: pay tax, you don't really think about it. And so

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Speaker 1: you know, if we have investors in their fifties and

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Speaker 1: sixties that are forced to make a small ROTH contribution

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Speaker 1: instead of a pre tax contribution, that just gives them

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Speaker 1: exceedingly more flexibility down the line, because now they're going

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Speaker 1: to have different buckets of money to pull from in retirement.

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Speaker 3: Sounds really interesting. You mentioned earlier tax loss harvesting. We've

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Speaker 3: been using canvas as our direct indexting product, but it

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Speaker 3: seems like this has become ubiquitous. What are your thoughts

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Speaker 3: on tax harvest thing. What does thoughtful harvest thing look like?

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Speaker 1: I think the trend thoughtful there implies to me that

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Speaker 1: there should be an ongoing activity, not just a year

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Speaker 1: end item. Historically, taxpayers sell DIY, investors and even advisors,

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Speaker 1: they'd look at the portfolio in December. They'd say, Okay,

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Speaker 1: what's underwater. Let's book those losses through direct indexing. This

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Speaker 1: is now an ongoing activity. But you don't need a

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Speaker 1: direct indexing portfolio to look at your portfolio. You can

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Speaker 1: even if you're not in a direct indexing setup. You

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Speaker 1: can still tax lost harvest throughout the year. Why just December?

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Speaker 1: This should happen with regularity. There's nothing saying we can

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Speaker 1: only book losses in December. Now a lot of this

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Speaker 1: is dictated by individual stock market volatility. But with an

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Speaker 1: ultra diversified bucket of stocks, some will ultimately be losers,

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Speaker 1: so you sell those, you pick up tax losses, You

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Speaker 1: invest in a similar company, so you keep the fidelity

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Speaker 1: of the portfolio, and then you don't trigger wash sale rules.

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Speaker 1: The only caveat there is state by state stuff. New Jersey,

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Speaker 1: for example, does not allow tax loss carry forwards. So

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Speaker 1: we're doing in December, we're doing a bit of the

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Speaker 1: opposite with our New Jersey clients. We're actually we're looking

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Speaker 1: historically over the first eleven months, what did we realize

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Speaker 1: in losses. Let's go make a game's harvest. Instead of

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Speaker 1: realizing more losses, We're going to realize capital gains so

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Speaker 1: we can use them at the state level this year.

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Speaker 3: That's really interesting. So I know the deductions have changed,

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Speaker 3: the standard deductions have become permanent. There are new floors,

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Speaker 3: there are new ceilings for that for itemized and charitable gifts,

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Speaker 3: how should those people who are charitably inclined think about

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Speaker 3: You mentioned bunching donations or donor advice funds. Give us

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Speaker 3: a little more detail about how people should be using

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Speaker 3: these vehicles.

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Speaker 1: Yeah, we're doing a lot of this with our clients

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Speaker 1: throughout the year, but specifically at the end of the year,

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Speaker 1: we kind of tee up charitable planning, like here, let's

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Speaker 1: think about what we want to accomplish, and then let's

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Speaker 1: take a look at the end of the year and

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Speaker 1: figure out how we're going to get this done and

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Speaker 1: if it's the right year to do it, what we

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Speaker 1: need to be conscious of is all the other deductions. Right,

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Speaker 1: Like I mentioned previously, you might have a hurdle rate

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Speaker 1: before you even start to deduct your charitable gifts. And

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Speaker 1: that's where you might want to consider bunching maybe three years,

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Speaker 1: maybe five years, maybe ten years worth of charitable gifts

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Speaker 1: into twenty twenty five. For example, twenty twenty five. Maybe

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Speaker 1: it's a high income year. Maybe you're paying down your mortgage,

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Speaker 1: so you're not getting that mortgage deduction anymore, and you

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Speaker 1: want to take advantage of an appreciated security that you

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Speaker 1: gift for charitable purposes. We do a lot of this.

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Speaker 1: We take maybe a client comes to us, they've worked

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Speaker 1: at a tech company. The tech company, they've been compensated

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Speaker 1: well in that stock, they have charitable intent. We say, okay,

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Speaker 1: let's use that stock. Let's send it to a donor

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Speaker 1: advised fund. Let's bunch five years worth of gifting, and

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Speaker 1: now you have your own little charitable fund that you

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Speaker 1: can make grants out of over the next five years.

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Speaker 1: So we're going to time the deduction, but we're not

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Speaker 1: actually going to change the way you're giving.

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Speaker 3: Really interesting, so I'm in New York, you're in Philly.

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Speaker 3: These are big salt regions. I know the most recent

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Speaker 3: big beautiful bill changed all sorts of things. Where are

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Speaker 3: this is a question I hear all the time. Where

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Speaker 3: are we with salt deductions today? How has this changed?

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Speaker 3: I know we're not quite back the way we were,

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Speaker 3: but it seems to have improved for a lot of people.

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Speaker 3: Tell us what's going on with the state and local

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Speaker 3: tax deductions.

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Speaker 1: Well, it's good news for most folks. For some folks,

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Speaker 1: it's not going to change the damn thing. It's gonna

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Speaker 1: What we have here is the for Since twenty seventeen,

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Speaker 1: the state and local tax deduction as part of your

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Speaker 1: total itemized deductions was limited to ten thousand dollars for

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Speaker 1: folks bury in New York, California, New Jersey, Connecticut, Pennsylvania.

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Speaker 1: Ten thousand dollars just wasn't cutting it a lot of

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Speaker 1: You know, we see tax returns here every day where

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Speaker 1: there are sometimes six figures of state and local taxes

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Speaker 1: between real estate and income taxes. The new limit is

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Speaker 1: forty thousand dollars. That was maybe the most talked about

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Speaker 1: provision of Trump two point zero tax bill. It's an

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Speaker 1: increase from ten k to forty k with caveats. If

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Speaker 1: you're earning more than five hundred thousand dollars of total income,

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Speaker 1: you start to get phased out. These are for both

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Speaker 1: single filers and married filers. Once you had six hundred thousand,

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Speaker 1: you're all the way back to ten k. So we

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Speaker 1: have some clients that are not going to see a

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Speaker 1: change at all. They make a million dollars a year,

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Speaker 1: they're not going to benefit from this whatsoever. We see

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Speaker 1: other clients where we're having tactical discussions on all kinds

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Speaker 1: of income. Maybe we defer a capital gain into next

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Speaker 1: year because we want to take full advantage of that

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Speaker 1: salt deduction this year, or maybe vice versa. But there's

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Speaker 1: a lot more planning to do on all of these deductions.

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Speaker 1: We talked about charitable This is along the same lines.

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Speaker 3: What else from the Big Beautiful Bill has changed the

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Speaker 3: way you think about year end planning. Do any of

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Speaker 3: these provisions show up as actual savings for clients?

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Speaker 1: I think it's back to the charitable piece. There are

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Speaker 1: some changes next year that are going to impact charitable giving,

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Speaker 1: which make twenty twenty five perhaps more attractive from a

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Speaker 1: charitable landscape. Next year, there's going to be a quote

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Speaker 1: unquote a floor on charitable gifts where the first zero

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Speaker 1: point five percent of your agi will not be deductible

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Speaker 1: for charitable purposes. So if you make a million bucks,

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Speaker 1: the first five k you give away to charity provides

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Speaker 1: zero federal tax benefit. The other change for the highest

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Speaker 1: earning folks, folks in the thirty seven percent bracket, they

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Speaker 1: are going to be limited on their overall deductions. They'll

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Speaker 1: be treated as thirty five percent taxpayers. So that two

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Speaker 1: percent delta can can really add up when we're talking

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Speaker 1: about when we're talking about big deductions. So we're doing

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Speaker 1: a lot of shifting of charitable salt deductions, even mortgage

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Speaker 1: even mortgage deductions. We're trying to get most of that

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Speaker 1: into twenty twenty five, especially for our highest income tax

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Speaker 1: paying clients.

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Speaker 3: So to wrap up, there's still plenty of time before

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Speaker 3: the year ends. There are lots of moves individual investors

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Speaker 3: can make to not only reduce the taxes they're going

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Speaker 3: to owe for the twenty twenty five year, but also

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Speaker 3: to think about long term planning their estate, maximizing every opportunity.

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Speaker 3: The government gives us lots of ways to either reduce

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Speaker 3: or defer our contacts Bill. Everybody should take full advantage

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Speaker 3: of what's on offer. I'm Barry Ridolts. You're listening to

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Speaker 3: Bloomberg's at the Money.

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Speaker 2: Stop paying, all right,