WEBVTT - Smart Tax Planning Moves with Sean Mullaney #331 0:00:00.160 --> 0:00:02.520 Welcome to How the Money. I'm Joel and I and 0:00:02.680 --> 0:00:05.920 Matt and today we're talking smart tax planning moves with 0:00:06.040 --> 0:00:29.320 Sean Mulaney. Yeah. Sean mulaney is a financial planner c 0:00:29.520 --> 0:00:32.120 p A and the president of his own company where 0:00:32.120 --> 0:00:35.599 they offer fee only financial planning. Sean's career path took 0:00:35.680 --> 0:00:38.159 him from getting a degree at law school, landing a 0:00:38.240 --> 0:00:39.800 job with the I R S, to working for a 0:00:39.800 --> 0:00:43.000 couple of the big for accounting firms, and then finally 0:00:43.040 --> 0:00:46.080 to starting his own business UH and building it from scratch. 0:00:46.560 --> 0:00:50.440 In addition to providing a fiduciary financial advice to his clients, 0:00:50.440 --> 0:00:53.720 Sean also writes over at PHI tax guy dot com, 0:00:53.720 --> 0:00:58.160 where he blogs, of course about financial independence and taxes. 0:00:58.720 --> 0:01:01.160 And so with tax season upon us, we wanted to 0:01:01.160 --> 0:01:03.760 bring Sean on to discuss what listeners need to know 0:01:03.800 --> 0:01:06.040 about filing their taxes this year. So Sean, thanks so 0:01:06.120 --> 0:01:08.640 much for joining us today on the podcast. Matt and Joel, 0:01:08.720 --> 0:01:11.360 thanks so much for having me pleasure to be here. Sean, 0:01:11.400 --> 0:01:13.360 We're so glad to have you. And the first question 0:01:13.440 --> 0:01:16.399 we ask everybody that comes on the show is gives 0:01:16.480 --> 0:01:18.440 us like a window and the kind of person you 0:01:18.480 --> 0:01:20.759 are and Matt and I we drink a craft beer 0:01:20.840 --> 0:01:23.880 on every episode because we love beer and it's one 0:01:23.920 --> 0:01:25.880 of the things that we're willing to splore john now 0:01:25.920 --> 0:01:30.520 while we're also saving and investing intentionally for the future. So, um, yeah, 0:01:30.680 --> 0:01:32.880 what is that in your life? What's your craft beer equivalent? 0:01:33.520 --> 0:01:36.440 In my life, it would be travel to Hawaii. So 0:01:36.560 --> 0:01:39.600 I grew up on the East Coast, and until my 0:01:39.760 --> 0:01:43.440 honeymoon three years ago, I had never been to Hawaii, 0:01:43.840 --> 0:01:46.600 and now that I live in California, Hawaii is very 0:01:46.640 --> 0:01:49.720 accessible and my wife and I have now been twice, 0:01:50.080 --> 0:01:54.040 and in after coronavirus, I'd like to get back. And 0:01:54.200 --> 0:01:57.480 these days, actually a little uh side diversion I have 0:01:57.760 --> 0:02:01.480 is occasionally watching on YouTube some why travel videos. It's 0:02:01.520 --> 0:02:05.200 just a great place, so many different types of environments 0:02:05.440 --> 0:02:10.720 and leisure activities. So in my life, vacations in Hawaii 0:02:10.800 --> 0:02:14.079 would be my sort of craft beer equivalent. For you guys, 0:02:14.280 --> 0:02:17.160 I'm jealous because you can get their way cheaper than 0:02:17.480 --> 0:02:20.120 I can from the East Coast. What's the typical affordable ticket. 0:02:20.160 --> 0:02:22.440 What's a good price for you? Well, boy, it would 0:02:22.440 --> 0:02:25.200 be like maybe four dollars would be a good price 0:02:25.520 --> 0:02:28.800 where we've had some savings is through thank you points. 0:02:28.840 --> 0:02:31.280 My wife has credit card points that were able to 0:02:31.480 --> 0:02:34.960 use for accommodations, So that's sort of where we get 0:02:34.960 --> 0:02:38.480 the financial savings. In terms of going to Hawaii. Airfare 0:02:38.560 --> 0:02:42.760 is still relatively expensive though that was certainly true before coronavirus, 0:02:43.120 --> 0:02:45.799 and I suspect it's going to be true after coronavirus. 0:02:46.240 --> 0:02:47.920 Well let's not. Let's let's dive into some of this. 0:02:48.280 --> 0:02:53.440 Some tax talk got quiet and educational and and and 0:02:53.440 --> 0:02:55.720 work history. How did you kind of like make the 0:02:55.800 --> 0:02:58.720 jump from the corporate world to doing your own thing 0:02:58.760 --> 0:03:01.960 to starting your own business. Yeah, so I've always been 0:03:02.000 --> 0:03:05.400 been interested in personal finance. It's always been sort of 0:03:05.600 --> 0:03:08.480 a hobby of mine. And I had a career in 0:03:08.520 --> 0:03:11.960 corporate tax that really treated me well. It was a 0:03:12.000 --> 0:03:15.600 great career. I got to travel to different client sites 0:03:15.680 --> 0:03:18.440 and different parts of our country. Um, but I always 0:03:18.480 --> 0:03:20.480 had that sort of longing to do my own thing 0:03:20.639 --> 0:03:24.320 and to go more on the personal individual side of finance. 0:03:24.760 --> 0:03:27.920 And so eventually I saved up some money and decided 0:03:28.000 --> 0:03:31.960 to leave big four accounting and start out my own venture. 0:03:31.960 --> 0:03:34.640 And I set up my own registered investment advisor firm 0:03:35.360 --> 0:03:38.800 I've been doing it as of this recording being released 0:03:38.880 --> 0:03:42.560 a little over two years and it's been a great adventure. 0:03:42.680 --> 0:03:45.960 And you know, recently I listened to a podcast where 0:03:46.120 --> 0:03:49.000 it was someone who has their own business and they said, yeah, 0:03:49.000 --> 0:03:50.920 well we've been doing it for two years, so we're 0:03:50.920 --> 0:03:54.160 really only just beginning, and that wrung true to me. 0:03:54.200 --> 0:03:56.920 I said, Wow, isn't that interesting there two years in. 0:03:57.200 --> 0:04:00.480 I'm not even two years in and there's saying they're 0:04:00.520 --> 0:04:02.720 just beginning, and I think it is. There is that 0:04:02.840 --> 0:04:06.080 piece of your learning the business of the business, right, 0:04:06.160 --> 0:04:09.600 So you know, I provide financial advice to clients, but 0:04:09.640 --> 0:04:13.080 I'm also building my own business and there's always lessons 0:04:13.120 --> 0:04:15.440 to be learned in terms of building your own business, 0:04:15.440 --> 0:04:18.160 which I'm sure Matt and Joel, you guys learned lessons 0:04:18.160 --> 0:04:20.880 every day. We like to think, Okay, I know this 0:04:20.960 --> 0:04:24.280 business and I can run this you know, no problem. 0:04:24.320 --> 0:04:26.880 There's nothing new under the sun, And it turns out 0:04:26.920 --> 0:04:28.880 when you're running your own business, there's a lot of 0:04:28.880 --> 0:04:30.880 new things to be thinking about in terms of how 0:04:30.920 --> 0:04:33.880 you run your business, all right, So I totally agree 0:04:33.960 --> 0:04:37.080 Matt and I were learning every single day about you know, 0:04:37.120 --> 0:04:39.840 working together too. Especially when you're working for someone else 0:04:39.880 --> 0:04:42.280 and you're not a solo preneurs. There's an element of 0:04:42.600 --> 0:04:46.279 that right of partnership. But yeah, Sean, what have you learned, Like, 0:04:46.320 --> 0:04:47.760 what are some of the biggest lessons you've learned in 0:04:47.760 --> 0:04:49.479 the first couple of years kind of getting up to speed. 0:04:50.320 --> 0:04:56.600 I would say having grace with myself in terms of results. Right. So, 0:04:57.120 --> 0:05:02.159 I think there's this impression when you work in corporate America, right, 0:05:02.200 --> 0:05:05.000 that we're always going to be successful, and we're always 0:05:05.000 --> 0:05:07.720 going to meet our numbers, and we're never going to 0:05:07.839 --> 0:05:11.040 make a mistake, especially in terms of UM client acceptance. 0:05:11.080 --> 0:05:14.400 So I'll give you one example. No is a very 0:05:14.440 --> 0:05:18.600 powerful term when you're a solo preneurs, right, because there 0:05:18.600 --> 0:05:22.800 are times where opportunities come to you and it's like, Okay, 0:05:22.839 --> 0:05:25.800 if I take this opportunity, I'm going to make one X. 0:05:26.440 --> 0:05:29.200 But if I say no to this opportunity, I'm going 0:05:29.279 --> 0:05:32.440 to be able to say yes to another opportunity which 0:05:32.440 --> 0:05:35.560 will pay me two X or three X. I think 0:05:35.600 --> 0:05:38.719 when you work in W two Corporate America, there's this 0:05:38.760 --> 0:05:41.280 pressure to always say yes to any new assignment, to 0:05:41.560 --> 0:05:45.400 any new challenge. In being a solo preneurs. I've found 0:05:45.440 --> 0:05:48.640 that sometimes no is the most powerful term, because yes, 0:05:48.680 --> 0:05:51.719 you're saying no to one opportunity, but by saying no 0:05:51.839 --> 0:05:54.960 to that opportunity, you're saying yes to something that could 0:05:54.960 --> 0:05:57.880 get you two or three times the amount of revenue 0:05:58.160 --> 0:06:01.760 or rate per hour or whatever. Is So the power 0:06:01.800 --> 0:06:04.440 of no is so important, and it's something we're not 0:06:04.520 --> 0:06:08.000 conditioned to say. We're conditioned to say yes to our teachers, 0:06:08.000 --> 0:06:10.800 our professors, our parents growing up. And then it's like 0:06:10.839 --> 0:06:14.000 you become your own business person, and you probably better 0:06:14.040 --> 0:06:16.320 be saying no because if you just say yes all 0:06:16.360 --> 0:06:18.800 the time, you're gonna take work that probably isn't the 0:06:18.839 --> 0:06:21.720 work you should be doing. Yeah, not just from from 0:06:21.760 --> 0:06:24.760 an income standpoint, but from a just a self fulfillment 0:06:24.760 --> 0:06:27.520 standpoint to you, right, you know, and Sean, I feel 0:06:27.520 --> 0:06:29.560 like this kind of leads into maybe your definition of 0:06:29.760 --> 0:06:32.560 financial independence, which you know you mentioned on your site. 0:06:32.600 --> 0:06:35.240 It's not about getting rich. So what does financial independence 0:06:35.279 --> 0:06:37.880 mean to you? What's your what's your definition? Yeah, so 0:06:38.279 --> 0:06:43.520 my definition of financial independence is arranging your finances so 0:06:43.560 --> 0:06:47.200 that other things in life can take the priority. Right, 0:06:47.240 --> 0:06:50.440 So I believe what you're trying to do in financial 0:06:50.440 --> 0:06:53.360 independence is get to a place where you have more 0:06:53.440 --> 0:06:56.240 options for the things that really matter in your life, 0:06:56.240 --> 0:07:01.960 whether that's your spouse, your children, travel, charity, um, working 0:07:02.000 --> 0:07:05.920 a more flexible schedule, right, all these sorts of things 0:07:06.400 --> 0:07:11.120 as opposed to um, Hey, I have a fine number, right, 0:07:11.400 --> 0:07:14.480 I'm going to get thirty times my expenses every year, 0:07:14.560 --> 0:07:17.360 or twenty times my expenses every year, or twenty five times. 0:07:17.480 --> 0:07:20.160 There's nothing wrong with that, right. There are plenty of 0:07:20.200 --> 0:07:23.040 people in the fine movement, the five community, whatever you 0:07:23.080 --> 0:07:25.520 wanna call it, that say, my goal is to get 0:07:25.600 --> 0:07:29.000 twenty five times of my annual expenses, and that's financial 0:07:29.040 --> 0:07:32.240 independence for me. I think that's great. But for me, 0:07:32.320 --> 0:07:35.880 it's more about let's make good decisions in our financial 0:07:35.920 --> 0:07:39.720 life that gives us better financial outcomes over the long run, 0:07:39.960 --> 0:07:42.760 that gives us more options for the things that matter, 0:07:42.920 --> 0:07:45.960 for our faith, for our family, for charity, for travel, 0:07:46.400 --> 0:07:50.080 all those sorts of things. Yeah, it's a nice holistic 0:07:50.120 --> 0:07:54.000 beau Sean. I appreciate your perspective on financial independence because, yeah, 0:07:54.040 --> 0:07:57.240 sometimes it can be all about the numbers, and you know, 0:07:57.280 --> 0:08:00.240 we leave behind real life in the process. Um, And 0:08:00.400 --> 0:08:03.560 let's let's talk about taxes too. That's what we're gonna 0:08:03.600 --> 0:08:05.640 spend most of the rest of this episode talking to 0:08:05.640 --> 0:08:07.880 you about. And the real reason that we want to 0:08:07.880 --> 0:08:10.360 talk about taxes is because there's a lot of money 0:08:10.360 --> 0:08:13.040 on the line, and some of the money moves you 0:08:13.080 --> 0:08:16.520 make will affect your how quickly you're able to reach 0:08:16.560 --> 0:08:19.720 financial independence, maybe as an end goal, right, but also 0:08:20.000 --> 0:08:22.320 in the interim, how that affects your life. So to 0:08:22.360 --> 0:08:25.520 put things in perspective for folks, how much money could 0:08:25.600 --> 0:08:29.720 like the typical American household be unnecessarily paying in taxes? 0:08:29.760 --> 0:08:33.920 How much could poor tax planning actually be costing us? Yeah, 0:08:34.000 --> 0:08:38.400 so I think it's it's hard to exactly quantify it. 0:08:38.480 --> 0:08:41.880 I look at it in two buckets, right. One bucket 0:08:41.960 --> 0:08:45.640 is what I'll call tax optimization. So folks, for example, 0:08:45.640 --> 0:08:48.200 I've seen it where folks leave something like a roth 0:08:48.280 --> 0:08:51.760 ira on the table, right, So they qualified to contribute 0:08:51.760 --> 0:08:55.000 to a roth ira. They had the money to do it, 0:08:55.080 --> 0:08:57.520 but they didn't do it. Right, So the money remains 0:08:57.520 --> 0:09:01.280 in taxable accounts in any one year, that's only gonna 0:09:01.320 --> 0:09:04.439 cost you a relatively modest sum that will build up 0:09:04.480 --> 0:09:08.120 over time. Right, So that's going to be very dependent 0:09:08.160 --> 0:09:10.640 on just how much income you have what your marginal 0:09:10.720 --> 0:09:13.559 tax bracket is. But you know, let's just say you 0:09:13.720 --> 0:09:17.360 for went, you know, for went roth Ira a contributions 0:09:17.360 --> 0:09:20.640 of six thousand dollars over a decade. That's sixty tho 0:09:20.960 --> 0:09:23.840 dollars at least that could have been in a rath. 0:09:23.960 --> 0:09:26.920 That's now in taxable accounts. You know, even at a 0:09:27.360 --> 0:09:31.760 two percent yield, that's twelve dollars of dividend income every year. 0:09:31.800 --> 0:09:34.520 That's now going to hit your tax return every year. 0:09:34.760 --> 0:09:37.840 Even at a qualified rate of say fifteen per cent, 0:09:38.360 --> 0:09:41.720 we're talking about two hundred dollars of leakage every year. 0:09:41.800 --> 0:09:45.679 That's compounding. Right now, That's not the end of the world. Okay, 0:09:45.840 --> 0:09:48.240 there's still ways to get to say financial independence or 0:09:48.320 --> 0:09:52.360 retirements if you're not optimized. That's one example. Here's the 0:09:52.440 --> 0:09:58.240 second example, though, what I'll call um tax problems. And 0:09:58.280 --> 0:10:02.520 where this is is, hey, you know, um, this isn't 0:10:02.600 --> 0:10:05.960 a roth Ira. This is I'm going to set up 0:10:06.000 --> 0:10:08.120 my own business. I'm going to set up my own 0:10:08.320 --> 0:10:11.400 s corporation and I'm not going to work with a professional, 0:10:11.920 --> 0:10:15.200 And so what do I miss? Maybe I miss paying 0:10:15.240 --> 0:10:19.360 myself a reasonable compensation out of that s corporation. Maybe 0:10:19.400 --> 0:10:22.560 I miss my solo four O one K, or I 0:10:22.880 --> 0:10:25.120 what I do is I over contribute to my solo 0:10:25.200 --> 0:10:29.439 four O one K. Now I have excess contribution taxes. 0:10:29.880 --> 0:10:33.040 Now I have planned disqualification I have to worry about. 0:10:33.400 --> 0:10:36.400 Now I have remediation costs. When the I R S 0:10:36.480 --> 0:10:38.599 comes in and says your solo four one K is 0:10:38.640 --> 0:10:42.440 no good or you have to go apply for they 0:10:42.440 --> 0:10:45.920 call it the voluntary compliance program to solve that or 0:10:46.000 --> 0:10:49.120 fix that solo four one K, or the I R 0:10:49.200 --> 0:10:51.560 S comes in and audits you and says you owe 0:10:51.600 --> 0:10:56.280 all these back payroll tax taxes plus interest on that right. 0:10:56.600 --> 0:10:59.559 So that's where it's like, hey, you know, if I'm 0:10:59.559 --> 0:11:02.560 gonna be a little more sophisticated in my life, that's fine, 0:11:02.960 --> 0:11:05.360 But that's sort of an addition of you know, wait 0:11:05.360 --> 0:11:07.760 a minute, I should get a professional involved in my 0:11:07.840 --> 0:11:12.080 life just to make sure I'm not missing opportunities and 0:11:12.120 --> 0:11:14.440 I'm complying with the law in such a way that 0:11:14.480 --> 0:11:17.120 the I R S can't come back to me and say, hey, 0:11:17.160 --> 0:11:19.839 where's all those payroll taxes you know you owe us? 0:11:20.160 --> 0:11:21.960 Where you know you put too much in your soul 0:11:22.080 --> 0:11:24.600 for one k you know, you have to withdraw that 0:11:24.720 --> 0:11:27.560 and pay attax and deal with that sort of stuff. 0:11:27.600 --> 0:11:31.439 So I think it's two buckets Matt and Joel. It's 0:11:31.480 --> 0:11:34.359 a little hard to quantify because it is so specific 0:11:34.440 --> 0:11:37.200 to your situation, but you know, I look at it 0:11:37.240 --> 0:11:40.400 as with some advance planning. You can say, on the 0:11:40.480 --> 0:11:42.960 right side of the I R S and take advantage 0:11:42.960 --> 0:11:46.440 of all the legal opportunities you have to build wealth 0:11:46.480 --> 0:11:49.200 in a tax advantage matter. Yeah, yeah, it's not just 0:11:49.280 --> 0:11:51.920 about the savings here now or a month a month, 0:11:52.000 --> 0:11:55.240 but I mean the amount that you could be kind 0:11:55.240 --> 0:11:57.480 of screwing yourself over could be I mean, theoretically it 0:11:57.480 --> 0:11:59.040 could be infinite. You know, Like I guess, it just 0:11:59.120 --> 0:12:01.880 kind of depends on how let you are earning, because 0:12:02.120 --> 0:12:04.640 a tax mistake for for Bezos is gonna look a 0:12:04.640 --> 0:12:07.920 lot different than a tax mistake for Joel. Well, and 0:12:08.200 --> 0:12:10.440 another thing to think about is just the concept of 0:12:10.520 --> 0:12:14.000 tax insurance. Right, So the idea of a roth ira, 0:12:14.200 --> 0:12:17.360 for example, it's such a great idea in part because 0:12:17.640 --> 0:12:21.400 you lock in today's relatively low tax rates. We don't 0:12:21.440 --> 0:12:23.240 know what tax rates are going to be in the future. 0:12:23.400 --> 0:12:26.120 It could be that they come down, but considering the 0:12:26.120 --> 0:12:29.880 federal deficit and other factors, it may be that tax 0:12:30.040 --> 0:12:32.199 rates go up, and it may be that you're gonna 0:12:32.200 --> 0:12:36.640 live years. Wouldn't it be nice to get into your 0:12:36.679 --> 0:12:39.840 eighties or nineties and just know that you have tax 0:12:39.920 --> 0:12:43.120 free accounts that are growing tax free. You never have 0:12:43.200 --> 0:12:46.160 to worry about requirementum distributions, You never have to worry 0:12:46.160 --> 0:12:49.800 about tax rate increases. To my mind, it's like, let's 0:12:49.800 --> 0:12:52.520 get some tax insurance, you know, let's do some good 0:12:52.600 --> 0:12:55.600 tax planning to get money into tax free accounts if 0:12:55.640 --> 0:12:58.720 we can. And you know what if tax rates never 0:12:58.800 --> 0:13:01.320 go up, well, it's insurance, right. It's like when we 0:13:01.360 --> 0:13:04.520 pay our auto insurance bill every you know year. We 0:13:04.600 --> 0:13:06.560 hope we never use it, right, we hope it's a 0:13:06.559 --> 0:13:11.000 waste of money. Yep, knowing that I don't need the 0:13:11.040 --> 0:13:14.520 case that yeah, um, we're never going to use this, 0:13:14.600 --> 0:13:16.720 but very likely we may have to use it at 0:13:16.760 --> 0:13:18.480 some point, and we're gonna be glad we did that 0:13:18.840 --> 0:13:21.760 if we ever have to, uh, you know, to be 0:13:21.840 --> 0:13:25.400 worried about increasing tax rates. Right. Yeah. And so you know, 0:13:25.400 --> 0:13:27.920 we're talking about some different situations here depending on the person. 0:13:28.040 --> 0:13:30.360 But you know, for you, as someone who helps other 0:13:30.400 --> 0:13:32.240 people with their you know, with their taxes. Can you 0:13:32.240 --> 0:13:34.559 give some thoughts on like when doesn't make sense then 0:13:34.600 --> 0:13:37.000 to do your own taxes and when people need to 0:13:37.040 --> 0:13:40.319 maybe hire someone to help them file their taxes. Yeah. So, 0:13:40.440 --> 0:13:43.480 if your tax planning is limited to I have a 0:13:43.640 --> 0:13:46.240 W two, I contribute to my four O one K, 0:13:46.559 --> 0:13:49.120 I contribute to a roth iarra, I'm well within the 0:13:49.160 --> 0:13:52.920 income limits of contributing to a roth DIARRAE. That doesn't 0:13:53.000 --> 0:13:56.679 scream out higher. A tax return prepare doesn't mean you 0:13:56.720 --> 0:14:00.880 shouldn't write at all levels of sophistication. You should consider 0:14:00.960 --> 0:14:04.480 hiring a tax return prepare. But some indisha that you 0:14:04.559 --> 0:14:08.360 might want to hire a tax return prepare often involved 0:14:08.440 --> 0:14:12.840 things like self employment, having your own business, possibly having 0:14:12.880 --> 0:14:16.160 a side hustle. Those are in disha that boy, I 0:14:16.240 --> 0:14:20.440 might need to um hire a tax return prepare. Another 0:14:20.520 --> 0:14:23.560 one would be life changes. Right, so I have my 0:14:23.640 --> 0:14:26.840 first child, I get married, I have a death in 0:14:26.880 --> 0:14:30.560 the family, some big change in my life. I buy 0:14:30.600 --> 0:14:33.560 a house for the first time. That could also be 0:14:33.600 --> 0:14:36.120 an indisha that you know what, maybe I want to 0:14:36.200 --> 0:14:39.760 hire a professional to do my tax return this year. Yeah, 0:14:39.840 --> 0:14:43.080 and Sean on your blog you've written about how looking 0:14:43.080 --> 0:14:45.640 at your return from the prior year can actually help 0:14:45.680 --> 0:14:47.560 you when it comes to filing your taxes for the 0:14:47.600 --> 0:14:50.640 current year. Absolutely, when you're doing that, like if you're 0:14:50.640 --> 0:14:53.000 trying to d I y uh, one are the things 0:14:53.040 --> 0:14:54.800 you need to be looking out for from a prior 0:14:54.880 --> 0:14:57.840 year's return so that you can do it yourself. So 0:14:58.000 --> 0:15:00.360 I would look at things like, did I file a 0:15:00.440 --> 0:15:04.800 Schedule C, right, so that is self employment income? Did 0:15:04.840 --> 0:15:08.240 I file file a Schedule E that's usually rent and 0:15:08.360 --> 0:15:11.400 royalty type income. UM. I would look at things like 0:15:11.760 --> 0:15:15.320 h S A S. Did I take an hs A distribution? Right? 0:15:15.360 --> 0:15:17.600 If I'm young and healthy and I took an hs 0:15:17.600 --> 0:15:20.920 A distribution, that could be a planning opportunity that no, 0:15:21.040 --> 0:15:23.440 I want to in the future keep that money in 0:15:23.480 --> 0:15:26.480 the hs A to grow tax free for a long time. 0:15:26.920 --> 0:15:29.960 I would look at my scheduled D. So their scheduled 0:15:30.000 --> 0:15:33.040 D is for capital gains and losses. UM. There's a 0:15:33.080 --> 0:15:37.000 box on there for something called capital gain distributions. While 0:15:37.040 --> 0:15:40.040 I'm not here to give anyone investment advice on this podcast, 0:15:40.440 --> 0:15:43.120 i will say capital gain distributions are sort of the 0:15:43.520 --> 0:15:46.840 boogeyman of the investing world. Right. So these are distributions 0:15:46.880 --> 0:15:48.840 where you have a mutual fund or an e t 0:15:49.080 --> 0:15:52.800 F and it generates these things called capital gain distributions 0:15:53.040 --> 0:15:56.320 because there were sales inside the mutual fund. Some of 0:15:56.360 --> 0:15:59.960 them are unavoidable, right, So having some capital gain distribution 0:16:00.200 --> 0:16:03.640 is unavoidable if you're gonna invest in taxable brokerage accounts, 0:16:03.920 --> 0:16:06.720 perfectly fine. But if you've got a big number in 0:16:06.720 --> 0:16:11.320 that capital gain distribution UM box, you might want to 0:16:11.320 --> 0:16:13.720 think about, Hey, is there a way I could reallocate 0:16:13.760 --> 0:16:16.920 my portfolio? You know, in in a tax advantage manner, 0:16:16.920 --> 0:16:19.120 you still gotta worry about gain on the sale of 0:16:19.560 --> 0:16:23.520 that would be generated if you reallocate it. But maybe 0:16:23.560 --> 0:16:26.320 you have a loss in that security and it generated 0:16:26.360 --> 0:16:30.200 capital gain distributions that can happen. Maybe there's an opportunity 0:16:30.240 --> 0:16:33.520 to do some reallocation of my portfolio if I've got 0:16:33.520 --> 0:16:35.360 a big number in that box. So those are just 0:16:35.440 --> 0:16:38.200 a few examples. Like you said, I blogged about this. 0:16:38.640 --> 0:16:40.400 It's a little bit of a way of let me 0:16:40.440 --> 0:16:42.760 take a look at last year's tax return with a 0:16:42.840 --> 0:16:46.520 critical eye. Maybe there's some planning that that tax return 0:16:46.600 --> 0:16:49.560 will reveal to me. That's good, that's good. It's you know, 0:16:49.560 --> 0:16:52.120 it's good to see who needs to consider maybe some 0:16:52.120 --> 0:16:54.000 professional help. You know, It's something we talked about here 0:16:54.040 --> 0:16:56.200 often on the show. How there's a lot of the 0:16:56.200 --> 0:16:58.600 basics that you need to know that you can figure 0:16:58.600 --> 0:17:00.640 out yourself, but when it comes to to tax law 0:17:00.680 --> 0:17:03.000 and how that's kind of constantly shifting and and just 0:17:03.160 --> 0:17:05.639 all the fine nuances, sometimes that does make sense to 0:17:05.760 --> 0:17:08.200 bring on a professional. Uh, you know, and we're talking 0:17:08.200 --> 0:17:11.200 about the massive impact that doing your taxes can can 0:17:11.240 --> 0:17:13.479 have on you. And so actually after the break, we're 0:17:13.480 --> 0:17:15.439 gonna dive into what it is that we need to 0:17:15.440 --> 0:17:17.600 pay attention to when it comes to filing your twenty 0:17:17.680 --> 0:17:19.800 twenty taxes. We'll get to that right after the break. 0:17:30.040 --> 0:17:32.040 All right, we're back and we are one month out 0:17:32.119 --> 0:17:34.080 from tax day, and that's part of the reason we 0:17:34.080 --> 0:17:37.520 wanted to have Sean Millennial to talk about smart tax 0:17:37.520 --> 0:17:40.679 planning moves and Sean. Before we dive into some of 0:17:40.720 --> 0:17:43.080 the specifics that people need to think through when it 0:17:43.080 --> 0:17:46.800 comes to tax specific issues, I kind of want to 0:17:46.800 --> 0:17:49.960 ask you something. A question is just a little more broad. Uh. 0:17:50.000 --> 0:17:52.639 If we put I think maybe too much emphasis on 0:17:52.760 --> 0:17:56.560 tax planning, are we potentially letting the tail wag the dog. 0:17:56.600 --> 0:17:58.679 I know that that's a concern that some people have, 0:17:58.840 --> 0:18:01.280 is that maybe they're thinking about out taxes too much, 0:18:01.320 --> 0:18:04.480 they're overthinking it, They're they're trying to get their tax 0:18:04.480 --> 0:18:06.639 bill down so hard that they're forgetting some of the 0:18:06.680 --> 0:18:09.439 other things that are important in life. How much of 0:18:09.480 --> 0:18:11.840 an emphasis should we be putting on tax planning in 0:18:11.920 --> 0:18:15.080 our lives. Very much agree that we don't want to 0:18:15.160 --> 0:18:18.640 let the tax tail wag the dog. Right, So your 0:18:18.760 --> 0:18:23.040 goal is something like financial independence. Maybe it's retirement at 0:18:23.080 --> 0:18:26.320 a certain age, maybe it's funding the purchase of a home. Right, 0:18:26.560 --> 0:18:29.480 you have financial goals. Your goal isn't to get the 0:18:29.560 --> 0:18:32.280 latest and greatest tax planning technique and get that on 0:18:32.359 --> 0:18:35.000 your tax return. Right. That's a tactic that, in many 0:18:35.040 --> 0:18:38.400 cases maybe a great tactic. I'll give you one example, 0:18:38.920 --> 0:18:41.920 tax planning for your kids. I see this a lot 0:18:42.200 --> 0:18:45.719 in the world as I talked to prospective clients social media. 0:18:46.280 --> 0:18:50.000 Folks want to do tax planning that would benefit their children, 0:18:50.600 --> 0:18:53.280 and I think that's okay, But I think you should 0:18:53.280 --> 0:18:56.240 take care of your own finances first. I think that's 0:18:56.240 --> 0:18:59.879 the sort of thing if you're a financial independence go ahead, 0:19:00.000 --> 0:19:02.560 and start thinking about tax planning for your kids. But 0:19:02.640 --> 0:19:05.440 if you're you know, in your late twenties, early thirties, 0:19:05.840 --> 0:19:07.800 you've got a four year old and a two year 0:19:07.920 --> 0:19:10.119 year old at home, and you're doing fine, but you're 0:19:10.160 --> 0:19:13.680 nowhere near financial independence. Any tax planning that's for your 0:19:13.800 --> 0:19:17.800 children I would put off, even if it's for college savings, right, 0:19:17.840 --> 0:19:21.040 I would invest in your own taxable brokerage accounts. You 0:19:21.080 --> 0:19:24.760 can mentally segregate that is, that's for junior's college education, 0:19:25.000 --> 0:19:27.919 but it's in our name, and it's our asset. And 0:19:27.960 --> 0:19:30.960 if we do really good financially and they turn eighteen 0:19:31.000 --> 0:19:33.600 and they need money for college, we can tap into 0:19:33.680 --> 0:19:37.160 that resource and pay for some or all of their college. 0:19:37.240 --> 0:19:40.760 But maybe at age eighteen, we aren't doing so well. 0:19:40.840 --> 0:19:43.800 Mom and Dad's finances aren't so good. Isn't it good 0:19:43.800 --> 0:19:46.199 that we've put that in our own accounts so that 0:19:46.280 --> 0:19:49.600 we can help ourselves. The best gift you can give 0:19:49.680 --> 0:19:54.600 financially to your children is stabilizing your own finances. Your 0:19:54.680 --> 0:19:57.040 kids have plenty of time to pay for their own college. 0:19:57.480 --> 0:20:00.199 You want to make sure your finances are stabilized. And 0:20:00.240 --> 0:20:03.120 once that happens, you get to say financial independence, then 0:20:03.160 --> 0:20:05.600 start thinking about maybe some tax planning for your kids 0:20:05.720 --> 0:20:09.080 if you qualify. And it's the right answer. I love it. 0:20:09.160 --> 0:20:11.600 That's a great example, and so shout, let's let's talk. Now, 0:20:11.720 --> 0:20:15.040 let's shift to right that there are some specific tax 0:20:15.080 --> 0:20:18.080 issues that have come up because of the year that 0:20:18.400 --> 0:20:22.000 is formally known as I guess now referring to it 0:20:22.040 --> 0:20:24.080 down the review, I don't know, but uh so, first, 0:20:24.359 --> 0:20:26.919 for tax paper payers out there who haven't received their 0:20:26.960 --> 0:20:30.240 full stimulus payment, how do they go about receiving what 0:20:30.359 --> 0:20:33.879 they are entitled to? So there is an opportunity to 0:20:33.960 --> 0:20:37.600 potentially receive more of the stimulus. Right, everybody thinks of 0:20:37.640 --> 0:20:40.480 the stimulus as those checks or direct deposits that came 0:20:40.480 --> 0:20:44.399 from the I R S during but it turns out 0:20:44.600 --> 0:20:46.959 what it is is it's a tax credit on your 0:20:47.000 --> 0:20:51.280 tax return that was essentially prepaid by the I R S. 0:20:51.680 --> 0:20:53.639 And so what you want to be thinking about is 0:20:54.200 --> 0:20:58.800 how much money did I make in twenty and if 0:20:58.840 --> 0:21:01.959 I made less money twenty than I did in nineteen, 0:21:02.359 --> 0:21:05.240 that's one example there might be an opportunity to actually 0:21:05.280 --> 0:21:08.119 get more stimulus tax credit. Let me give you a 0:21:08.160 --> 0:21:10.800 brief example. I've written about this on my blog. But 0:21:10.880 --> 0:21:14.360 let's just say in twenty nine in you know, it's 0:21:14.359 --> 0:21:16.960 a married couple no children. They did really well in 0:21:16.960 --> 0:21:20.199 twenty nineteen, so they had two D twenty thousand of 0:21:20.200 --> 0:21:24.119 adjusted gross income. Based on that adjusted gross income number, 0:21:24.359 --> 0:21:27.080 they got no stimulus check from the I R S. Right, 0:21:27.160 --> 0:21:30.280 Let's just assume that's all true. Let's also say that 0:21:30.440 --> 0:21:34.439 one of those spouses in lost their job for a 0:21:34.440 --> 0:21:39.000