Year End Tax Planning With Sean Mullaney
Episode 155R
Episode Guide
Episode Timestamps
ChooseFI Podcast Show Notes
Episode Summary:
The episode dives into the realities of consumer spending during the holiday season, highlighting the juxtaposition between the excitement of Black Friday shopping and the financial implications it brings. Brad and Jonathan share personal anecdotes regarding their aversion to standing in long lines for deals and discuss how societal pressures can lead to poor financial decisions. They emphasize the importance of being financially nimble and consider the narratives surrounding financial independence, including lessons from guests like Leslie Tain, who shared her journey from a financially abusive relationship to becoming an empowered individual. The discussion evolves into year-end tax planning, with practical strategies to optimize savings, deductions, and manage financial outcomes effectively. Special guest Sean elaborates on tax practices that can help individuals save more of their hard-earned income, centering the conversation on actionable insights that listeners can implement to take control of their financial futures.
Key Topics & Timestamps:
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Podcast Intro
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Black Friday Shopping Implications
- Brad and Jonathan discuss the societal pressures to shop on Black Friday.
- Personal anecdotes of avoiding long lines and making smart financial choices are shared.
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Interview with Leslie Tain
- Leslie discusses her journey from financial abuse to independence.
- The value of having open conversations about finances with one’s partner is emphasized.
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Year-End Tax Planning
- Practical strategies for tax optimization are explored.
- Sean discusses the importance of making deductions before the year-end.
Actionable Takeaways:
- Create a budget for holiday spending to avoid impulse buys.
- Maximize tax deductions before the end of the year.
- Open up financial discussions with your partner.
Key Quotes:
- "Avoid the hassle of waiting in lines; prioritize smart financial choices."
- "Achieving financial independence increases your safety."
- "Open up financial discussions with your partner."
Related Resources:
Discussion Questions:
- How do societal pressures impact your spending habits during the holidays?
- What strategies do you use to manage your finances better during the holiday season?
FAQs:
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What are some tips for avoiding holiday debt?
Answer: Set a budget before shopping and focus on what you can afford. -
How can I optimize my year-end tax strategies?
Answer: Consult with a tax advisor and utilize deductions effectively before December 31st.
Conclusion:
Join the discussion as the hosts explore the balance of holiday cheer and financial prudence during a financially stressful time. By focusing on smart spending and proactive tax management, listeners can set themselves up for success as the year ends.
- Podcast Extro
Navigating Holiday Spending and Year-End Tax Strategies for Financial Independence
The holiday season inevitably brings with it a surge in consumer spending, accompanied by significant financial implications. As you navigate through this period, understanding how to manage your finances effectively without falling into debt traps becomes paramount. Below is a guide on smart holiday spending and essential year-end tax strategies that can help you maintain financial health while pursuing your goals of financial independence.
Understanding Holiday Spending
Create a Holiday Spending Budget
Setting a budget specifically for holiday spending can help you avoid impulse purchases. Start by determining how much you can realistically afford to spend this season without jeopardizing your financial stability. Track your expenses meticulously to ensure that you stick to this budget.
- Actionable Tip: List your holiday expenses, including gifts, decorations, and festive meals, and ensure that the total does not exceed your budget.
Resist Societal Pressures
Holidays can often feel overwhelming, with societal pressures urging you to spend more. Remember, it’s entirely acceptable to say no to spending that will ultimately lead to financial strain. Reflect on the value of gifts and prioritize quality over quantity.
- Key Insight: Realize that avoiding the hassle of waiting in lines for holiday deals can lead to smarter and less stressful financial choices.
Year-End Tax Planning Strategies
As the year comes to a close, it’s essential to consider your tax planning to maximize savings and minimize liabilities. Here are some strategies to consider:
Maximize Deductions
Take advantage of tax deductions before the year-end. For individuals who itemize, charitable donations made before December 31 can significantly impact your tax return.
- Actionable Takeaway: Make charitable contributions to organizations that align with your values; ensure they are completed by the end of the year to qualify for deductions in your current tax year.
Consult a Tax Advisor
Consultation with a tax professional can help ensure you are aware of all available deductions and credits. Before December 31, review your tax situation and explore options such as contributing to a Roth IRA or using tax-advantaged accounts.
- Expert Advice: Use tools and calculators to estimate your tax liability based on your current income and expenditures, enabling you to make informed decisions as the year ends.
Tax Strategies for Investors
If you're investing, consider the following strategies. Find ways to save on taxes while growing your wealth.
Tax-Loss Harvesting
Consider this strategy if you have investments that have decreased in value. Selling these investments can allow you to harvest tax losses, which can offset capital gains and reduce your taxable income.
- Insight: This strategy can also allow you to carry forward losses to future tax years if they exceed your capital gains for the current year.
Contribute to Tax-Advantaged Accounts
Before the year closes, ensure that you are maximizing contributions to tax-advantaged accounts like a Roth IRA or HSA.
- Actionable Insight: These accounts can provide tax-free growth and tax-free withdrawals in retirement, making them invaluable for long-term financial planning.
Practical Family Financial Conversations
A significant aspect of financial independence is having open conversations about finances with your partner or family.
Set Family Financial Goals
Discuss and align on your family’s financial objectives. Engaging in conversations about your budget, savings, and long-term goals can ensure everyone is on the same page.
- Action Item: Schedule a family meeting to reflect on past financial decisions and set actionable goals for the upcoming year.
Educate on Financial Independence
Financial dependence can create vulnerabilities. Focus on achieving financial independence to ensure that all family members feel secure and empowered.
- Key Quote: “Achieving financial independence increases your safety.”
Conclusion: Take Control of Your Financial Future
As you approach holiday spending and year-end tax planning, keeping a firm grasp on your budget and being proactive about your tax situation can set you on the right path toward financial independence. Use these strategies to gift yourself peace of mind during the festive season and beyond.
For actionable insights and community support, remember that resources like the ChooseFI community can provide additional guidance and inspiration as you navigate your financial journey.
Sean Mullaney joins the show to discuss year-end tax planning. He goes into deductions, self-employment income, and how to get the most from your deductions.
[elementor-template id="143609"]Insights From Leslie Tayne
In this week's episode, Leslie has a very frank conversation with Brad and Jonathan about balancing family and money as a single parent.
If you haven't listened yet, you can find the full episode here.
Leslie has overcome an abusive financial relationship to provide for her children. Now she is a beacon of hope for those going through dark times because she was able to build a great life for her family.
However, the idea of a perfect balance is something she pushed back on. It was impossible to be the best mom and best businesswoman at the same time. Some days she focused on her children. On others, she focused on the business.
She did the best she could based on the value that was available in her life.
For MK, this struck a personal note. She was raised by a single mother until her stepdad joined the picture. Both were incredibly hard-working and MK sees many similarities between Leslie and her own mother. Her mother taught her the importance of hard work and living within her means.
Looking back, the best thing that they gave me was a hard work ethic and seeing that hard work does pay off.
Sports And Financial Goals
Leslie also touched on the idea that creating limits for your spending on sports and other activities is okay. In fact, it is important to analyze your reason for committing to this spending.
Every family needs to look at their own priorities and what they are truly getting out of this.
Take a minute to evaluate your own reasons for helping your kids participate in sports.
Tax Planning
As the end of the year approaches, it is time to take a look at your tax strategy. Sean Mullaney, the FI Tax Guy, shared many helpful tips. Of course, you should consult a tax professional about your unique situation but this can be a place to start the conversation.
Deductions
In the post-tax reform world, deductions are significantly easier. Most Americans will take the standard deduction but some should choose to itemize.
The standard deduction for 2019 is $12,200 for singles and $24,400 for married couples filing jointly. The big items for itemization include home mortgage interest, state and local taxes, and charitable contributions. Depending on your situation, it may make more sense to itemize.
For example, let's say you are single and you've already paid $10,000 in state tax and given $5,000 to your church. In this case, it makes more sense to itemize.
Anything you plan to deduct needs to be completed by December 31. However, there is some flexibility on this date for retirement accounts.
Listen: How to Fund Your Child's Roth IRA and Other Tax Optimizations with the FI Tax Guy
Tax Loss Harvesting
If you have a stock that lost money this year, then you can use it to offset your capital gains. Simply sell-off this losing stock to offset your capital gains.
State Tax Deductions
Currently, there is a $10,000 cap per year for this deduction.
Related: How To Plan Your Itemized Deductions
Accelerating Business Payments
The deadline for this deduction is December 31. If you are a solo entrepreneur with a Schedule C business, then you recognize deductions when you make the payment.
You can pay for 2020 expenses in 2019 to accelerate payments. For example, you can pay for your January 2020 rent in December 2019. The primary benefit would come if you plan to be in a lower tax bracket for 2020. Additionally, there is the time value of money benefit.
Exemptions VS Dependants
Since tax reform, there are no more exemptions on your federal tax return. However, dependants still matter. Most people will receive a child tax credit of around $2,000 for kids under the age of 16.
Since the terminology changes, tax calculators might still use exemptions as an input term. If you are using a tax projection calculator, then check the output. If you are receiving too much for the child credit in their estimate, then you might need to adjust your exemptions.
Related: Best Places To Get Your Taxes Done!
Roth Conversions
If you are planning to make more money in 2020, then you should consider making your Roth conversions in 2019. A Roth conversion is a planned taxable event that many in the FI community choose to undertake.
Related: How And Why To Set Up A Roth Conversion Ladder
Tax Protections
Although tax planning is important, it is also important to protect your finances. Here are some more tips from Sean.
Required Minimum Distributions
If you are 70.5 or have inherited a retirement account, you will be required to take minimum distributions each year. You need to withdraw this RMD by December 31. Otherwise, you could be subject to a 50% penalty.
Beneficiary designations
It is critically important to have your beneficiary designations up to date for your retirement accounts. Now is a good time to double-check these documents.
IRS PIN
The IRS Personal Identification Number is a way to protect against identity theft. It is available in 19 states and the District of Columbia. You can apply for this PIN through an application on the IRS website. Once you sign up for the program, the IRS will give you a unique pin for each year. You will submit this PIN when you submit your tax return.
Otherwise, criminals may try to steal your tax return. Check out Sean's post to learn more.
Tax-Advantaged Savings
If you are using tax-advantaged retirement accounts, then you usually have until April 15 of the following year to make your contributions.
Side Hustle Taxes
If you have a side hustle, then you have more ways to save.
Solo 401(k)
This is a great option if you are self-employed or have a side hustle. You will need to establish the account by December 31 but you may have some flexibility on the funding deadline.
SEP IRA
Another option for optimized side hustle savings is the SEP IRA. You have until October 15 of the following year to fund this account. Although there are drawbacks, such potential lower contribution limits, it could be a good last-minute option.
Related: Retirement Plans For The Self Employed: SEP IRA Vs Solo 401(k)
Tax Payments
Making accurate tax payments throughout the year is important. Otherwise, you could be penalized by the IRS.
To avoid any underpayment penalties, abide by the safe harbor provisions.
Start by looking at your 2018 tax return and find the total tax. If you made less than $150,000, then you need to pay at least the same total tax again in 2019 to avoid a penalty. Preferably, this would be evenly distributed throughout the year. If you made more than $150,000, then multiply your total tax of last year by 1.1.
If you misjudge and are penalized, then you may be able to have the penalty waived by filing a petition with the IRS.
Related: How Estimated Quarterly Taxes Work
How To Connect
You can connect with Sean through his website, the FI Tax Guy. Through Twitter @seanmoneyandtax. Or through his financial planning firm Mullaney Financial and Tax.
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