Radical Personal Finance

Today on the show, I've got some last-minute tax planning ideas for you. These are all ideas and tactics that you can use in the last two weeks of 2014 to lower your income tax bill.

I hope you don't defer your tax planning to the end of December. The end of the year is far too late to start talking about the really good stuff. Good tax planning should begin before January 1.

But, these types of ideas can still be useful for you. It's possible that you've simply been too busy to do effective planning.

It's also possible you had an unexpected windfall and you need to wipe out some tax liability.

I'm here to help! :)

Let's start with the easy ones and move to the harder ones:

• Last-minute retirement account contributions.
  • 401(k)s and 403(b)s are tough becausec you have to have made your contributions as you go. Consider talking to HR about diverting a bonus check into the account if you can.
  • IRAs are simple. You can contribute any time until you file your return. You can contribute up to $5,500 in 2014. Don't forget about the $1,000 catch up if you're older than 50.
  • Almost everyone I've ever worked with is confused by the contribution limits. Read them for Roth IRAs and Traditional IRAs.
  • Little tricks for IRAs: You can make a separate payment for custodian fees, brokerage commissions, etc. in excess of the contribution limit. That will allow you to get the maximum value from the account.
  • Consider establishing a an HR10/Keogh Plan or a SEP IRA.
    • Keogh plans were very popular for self-employed people prior to 2001. There was a tax law change in 2001 and now they're largely replaced by SEP IRAs.
    • They have the same contribution limits but the SEP paperwork is much simpler.
    • A Keogh plan has to be established by the end of the year but it can be funded prior to filing your return.
    • A SEP IRA can be established after the end of the year and funded after the end of the year.
    • The maximum contribution is the lesser of 20 percent of earned income, less your deduction for half your self-employed payroll tax, before the deduction, or $52,000. (This winds up being 25% of net earned income after the deduction.)
    • Remember that you can have one of these plans in addition to a 401(k) and an IRA.
  • Don't forget about the HSA. If you're covered by a HDHP, you can make your HSA contributions any time up till you file your return. Your contribution limits are $3,300 for an individual and $6,550 for a family. Remember also that there's a $1,000 catch-up contribution for 55+. This won't save you on your employment taxes but it will save you on your income taxes.
  • One final little trick on IRAs. Look to see if you'll be eligible for a saver's credit. If you're at a low income level, this might help you...even if you can't afford to save for retirement. If you need to and you want to be aggressive, you can contribute to your Roth in December, take the savers credit on your return, and then take the distribution in January. (You'll owe tax on any gain but not on the contributions/basis.)
• Consider deferring your income in other ways.
  • You can enter into a binding agreement until January to defer the grant of a bonus that you would otherwise receive in December. You need to enter into the agreement before the bonus is "constructively received."
  • The easy way to defer your income is if you are in business for yourself is to simply delay billing your clients until late December. You won't receive payment until the following year. Thus, no taxes in this year.
  • Remember that this only works if you are a cash basis tax payer. If you are an accrual basis taxpayer in your business, you have to report the income when it is earned, not when it is received.
  • If you have income from the sale of property, consider using an installment sale to defer income to a different tax year.
  • Consider accelerating your expenses to lower your net income.
  • In business, you can think through any end-of-year transactions you need to pay: accounts payable, conference fees, insurance premiums, marketing and advertising expenses, etc.
  • Remember that you have to follow the 12-month rule.
  • Consider buying equipment. In general, equipment will primarily be depreciated rather than expensed. But remember that you can make a Section 179 elect to expense up to $500,000 and then take your depreciation after that.
  • Consider bunching certain expenses such as medical expenses. If you've had a lot of medical expenses this year, consider going ahead and getting your dental expenses and eye expenses taken care of and pay forward the annual premium on your LTC insurance. That may result in enough deductions to take advantage of the medical expense deduction.
  • Consider accelerating your tax payments: real estate taxes, personal property taxes, and state and local income taxes. Pay them now to take the deduction. (Be careful of AMT.)
  • Consider making your charitable contributions and make sure to bunch them in years that you can fully use them.
  • If you're making charitable contributions, be smart about how you do it, especially with regard to your taxes. Don't only think in terms of cash.
    • If you have appreciated property that you've held over 12 months, contribute it to the charity and take a deduction for the FMV. (Avoids the tax on the gain.)
    • If you have loss property, sell it, take the tax loss and give the cash.
  • You can take deductions for items paid by check in the current year even if you mail the check on New Year's Eve, as long as there is no reason why the check can't be cashed in January.
  • Credit card charges can be taken this year even if you don't pay the bill until next year.
• Think through the tax ramifications of your relationships.
  • If you're planning an end of the year or New Year's day wedding, calculate your taxes and see when you should actually schedule the marriage. Doesn't have to be the same day necessarily as the wedding itself.
  • In general, marriage will only cut your taxes if one spouse works or earns almost all the income. Marriage will actually boost your taxes if both spouses work and earn good income.
  • Dependents: Most people think purely about kids. There might be a planning scenario involving them. For example, if you're having a planned C-section and the safe zone covers new years, have it on 12/31. Or, if you're adopting, try to get it finalized before the end of the year.
  • But, the major benefit for some of you might be if you're caring for parents. There are a bunch of detailed rules. The one I want you to focus on is if you're providing more than half of a dependent's support. Doesn't mean income...it means support. Might be worth it to bunch some of your support here at the end of the year so that you can claim them as a dependent.
• Make sure you harvest your tax losses but also that you harvest some gains. Ratcheting up your basis in your investment portfolio over time can really save money in the long run.

Is education something that we buy or something that we work for? Ever thought about that?

My guest today is Scott Young. I first heard of Scott when I watched his TEDx talk on "How to Get an MIT education for $2,000."

This interview is filled with tidbits that will be useful to you whether you're designing your own education or whether you're helping someone else with their educational plan.

Enjoy!

Joshua

Links:

• ScottHYoung.com

I love real estate investing. I think it's one of the most accessible, realistic ways for people to grow their long-term wealth at an excellent rate of return.

Today, I'm thrilled to bring you an interview with John Schaub. John is widely renowned as one of the good guys.

John has been investing in real estate for decades. He's also been teaching the subject for decades.

He has a wealth of ideas and knowledge to share with us today.

Enjoy!

Joshua

Links:

• JohnSchaub.com
• John's Seminars
• John's recommended authors: Bill Nickerson, Jay Decima, Zuckerman (?), Al Lowry, Donald Trump, Robert Allen, Robert Bruss

Today, we have a really fun Q&A for you! I hope you enjoy!

Here are the questions I answer:

• 2:25 If I have the cash, should I pay cash for a house or invest it?
• 17:13 Should I use my Coverdell ESA to speculate on early-stage biotech stocks?
• 28:05 Should a physician try to continue a private practice with a partial ownership interest or take a full-time hospital job?
• 40:38 How can I account for the business deductions in my side business?
• 49:40 Is multi-family, multi-generational living a good idea?
• 1:03:40 What do I need to know about disability income insurance?
• 1:26:03 Which college expenses can I pay for out of my 529 account?
• 1:33:27 Why do I use different inflation rates on calculations?
• 1:39:26 What kind of account can I use to gift money to my nephew?

Enjoy!

Joshua

Links:

• Lower Your Taxes Big Time! by Sandy Botkin

Today, we have a really fun Q&A for you! I hope you enjoy!

Here are the questions I answer:

Enjoy!

Joshua

Links:

Today, I have a really great interview on finance from a Canadian Perspective. But make sure to listen whether you're Canadian or not.

My guest is Dan Bortolotti, founder of the Canadian Couch Potato website. He has a really great story where he began as a personal finance writer and blogger and later moved into the space of being a professional financial advisor.

We chat about:

• The value of a paying fees to a financial advisor
• The fit between PF writer and advisor
• Canadian tax law and retirement accounts
• Indexing from a Canadian perspective and similarities to the US market
• Home country bias
• And more!

Enjoy!

Joshua

Links:

• Canadian Couch Potato
• Dan's DIY Investor Service

The new year is fast upon us. Even though we're in the midst of the busy holiday season, this is a convenient time to consider the success and failures of this year and look forward to plans for next year.

Even though the articles you're now seeing in your feeds on "10 End-Of-The-Year Planning Ideas" can be useful, they just don't get it done because they're not focused on the core need.

The fundamental key of financial planning is to understand the process. Building wealth is a process. Achieving goals is a process. It's simple and can be readily replicated if you understand it.

It starts with a clear desired outcome. A.K.A. a goal. Or objective.

Then, it's a matter of laying out a strategy that is likely to work. And that strategy is connected with specific action steps.

And then you simply repeat the cycle over and over and over again.

Enjoy the show. I hope that it's useful for you!

Joshua

p.s., this might be a great show to share with others. Let me know if it's helpful.

Potential Journaling Prompts:

Financial Planning is--and should be--fully integrated with every aspect of life. Often, there are non-financial ways of hitting financial goals that are more efficient than just simply "buying the solution."

Helping your children develop their talent is one such area of focus. If you can launch a young man or woman with real, useful skills that have an economic value in the marketplace and which are aligned with their individual personality and interests, they will be far ahead of many of their peers.

This early start can launch the magical cycle of compounding earlier which can have a lifetime impact.

Consider the impact of an early start:

• If a 16-year-old can learn to earn and invest $100 per month through developing and marketing their talent, they could accumulate a nest egg at 66 of $1,746,876.07. (50 years of investing, $100/mo each month, 10% interest compounded monthly, starting with $0.)
• If a 22-year-old begins when they graduate college, they will wind up with $955,649.56 at age 66. (44 years of investing, $100/mo each month, 10% interest compounded monthly, starting with $0)

My guest is Jonathan Harris and he writes at the website www.10kToTalent.com. He is the father of 8 children and is a both a learner and an expert at developing talent in children.

Enjoy the interview!

Joshua

Links:

• Jonathan's website: 10kToTalent.com
• Jonathan's guides on helping children discover talent
• Jonathan's 13-year-old son's website: Scarab Coder
• Jonathan's 17-year-old son's website: Redding Drone

Doug Nordman is a really neat guy who has made an incredible contribution to the Early Retirement (ER) community. Known affectionately in various forums as "Nords," he contributes a rational, learned perspective on financial topics.

He and his wife both retired from the US Navy. Doug was 41 and has somehow managed to stay retired for the last decade. ;)

Join us today for a really neat discussion of the history of the early retirement movement and some of the contributions from its early leaders.

(It's not all fun and games...we do get into some technical details on early retirement as well!)

Joshua

Links:

• Doug's website: The Military Guide
• Cashing In On The American Dream by Paul Terhorst
• Early-Retirement.org
• RetireEarlyHomepage.com
• Yahoo article on Anton Ivanov (who lied about financial independence plan)
• "The Millionaire Liar" - Article from the original PF blogger who publicized his story
• The Hapless Y2K Retiree

It's Friday! That means a Q&A show for you. Today, I answer all of these questions.

Here are the questions and the time stamp for where each can be found in the episode.

Enjoy!

Joshua

1. 10:00 - Brandon: How do I convey our financial information to my executor if my wife and I die? Should I have my testamantery trust managed by a professional trustee?
2. 29:43 - Kyle: How do I save money on taxes as a young, single physician resident?
3. 54:01 - Daniel: Is it ok for a young person to have a 100% stock allocation?
4. 1:02:44 - Greg: I have $2.5M, can I afford to retire?
5. 1:10:44 - John: How do I find a good team of advisors?
6. 1:28:00 - Tom: Could I take a loss on a house I transfer into an ESA and then get the gain out tax-free?

Links:

• Last Pass
• Password Gorilla
• Save Taxes By Moving
• Step Transaction Doctrine
• Substance Over Form
• Garrett Planning Network
• XY Planning Network