Ep. 48 | Q4 Tax Planning - It's Time
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Speaker 2:Hey everybody. Good day and welcome to episode 48. Today, we're gonna look at q four. That's the fourth quarter game time. Put your game face on.
Speaker 2:We're gonna talk tax planning and strategy and why it is more important now than ever. But before we jump into that, let's take a moment. Thank our sponsor.
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Speaker 2:Hey, everybody, and welcome back to the one, the only teaching tax flow, the podcast. I am John Trypalski from the TTF team here as always, joined by my was it PIC? My partner in crime, the brains behind TTF, the educator, the podcaster, the CPA, the everything else we could think of. Chris Pacuro, how are we, my man?
Speaker 4:Well, gosh. I feel like I need a mic drop. Thank you. I don't know about being the brains behind this. It might have been a vision, but we have a lot of brains behind this, including yours, and it's great to be back.
Speaker 4:We are excited to talk about tax planning and strategy. We enter the fourth quarter of the year, the most important quarter of the year in many ways. I don't know if I agree with that, but what I will say is because we do believe your tax return is a verb, not a noun here at teaching tax flow. This is the most critical time for implementation of tax planning and strategy. And, I'm excited to talk about that.
Speaker 4:And many of you might be listening saying, wait a second. It's September. Does this person he might be good with numbers, but not really good with the calendar. Well, for federal tax purposes, and most states comply, the fourth quarter actually is comprised of September, October, November, and December. The third quarter federal estimated tax payment's due September 15 and incorporates June, July, and August.
Speaker 4:I know it's confusing, but the last four months of the year are the fourth quarter, so that's why we are going to say, what should we be thinking about right now? We did a midyear update, but now we're getting closer and closer to the finish line. And, Chris, too, when you look at q four, so in regards I mean, obviously, to some, they like you just mentioned, they
Speaker 2:might look at it and say, oh, well, that's not true. You know, it's broken down and evenly into four quarters. But I think the the importance of everything we're gonna talk about here and really the importance of everything that teaching tax flow as a whole really encompasses and is built on really is strategy and planning. Right? So kind of twofold.
Speaker 2:If somebody's listening to this this show specifically and they say, wow, I haven't done any anything. I think I got an extension because that's what my preparer did. Oh, oh, crap. That's coming up here soon. I gotta knock that out.
Speaker 2:Or, oh my gosh. It's the end of the year. The holidays are coming up. There's a lot of stressors in q four. Right?
Speaker 2:It's like, I'm gonna make a sports reference. As you know, I know nothing about football, but the end of q four, technically, could be great. It could be a disaster. It's all about the situation you're in going into it. So that being said, Chris, kinda walk us through a few things.
Speaker 2:And, again, you've been doing this for a long time. So twenty plus years running a private practice, clients all over the world. What are some things that maybe people don't really plan for going into q four, but also things that can be accomplished now that really set them up for success going into q one of the following year? Correct. So first thing to remember,
Speaker 4:another of our three laws of teaching tax flow is is that tax agencies are your involuntary business partner. If you do no planning, the tax agencies, let's say for federal tax purposes, the IRS will pick your tax for you. So being reactive, not good. Being proactive, good. What should you do if you're sitting here and you have not done any type of tax planning for 2023?
Speaker 4:Let's start off with step one. We have a process in teaching Taxville that we're gonna walk you through, and let's just talk about where you're at if you've done nothing. If you're taxed you mentioned an extension. If your 2022 tax return is on extension, let's get that wrapped up over the next couple two, three weeks. You don't wanna wait till the very, very end.
Speaker 4:We are committed to getting the best result possible and so should you, and we love tax extensions here. That being said, we're getting into the scary zone. Right? We're getting into that point of, okay. Well, what if what if what if there's some information missing?
Speaker 4:What if there's some information that's gonna take time to to grab? So, all of your documents should be submitted to your tax professional by now and the ball's in their court. For most of the people listening, they've already filed their 2022 return. So step one is make sure 2022 has a bow put on it, at least the ball's out of your court as the taxpayer. Step so that's the pre step.
Speaker 4:Now let's talk about tax planning and strategy. Next, you have to get your year to date numbers. Without good numbers, you have nothing. I always talk to our clients about this. I need chocolate chips to make chocolate chip cookies.
Speaker 2:Hey, Chris. Do if I can interrupt for one second. I've I feel like I've heard this for well over a decade. You're saying the farthest part of your job is not preparing returns. It's not the planning.
Speaker 2:It's not the strategy. Actually, it is information collection. So when you talked about putting the ball in somebody else's court, that gives an earlier, the better. Right? That gives the opportunity for whoever is is doing y'all's text prep to say, oh, well, we are missing something here or, oh, this, you know, this needs to be changed.
Speaker 2:This needs to be updated instead of the night before the deadlines, and you're really up, you know what, creek. Right?
Speaker 4:You know what? I had this thought this analogy I thought of last week. I had the opportunity to do some really high level training in Chicago and I went to the airport. I left plenty early. No traffic.
Speaker 4:Got some security in fifteen minutes in Nashville here, which is very rare. I learned to fly on Tuesday evening, which is
Speaker 2:the And you and you avoid all the bachelorette parties in and out of town.
Speaker 4:So that's all that. You're you're in good shape. And, and then guess what? I got on the airplane. We're ready to leave.
Speaker 4:Flight got delayed by an hour because the staff they were allegedly understaffed in Chicago. They let us get out of the plane and I went and got a little more work done. But my point is, think about you anyone listening if you travel via via airplane or car, when you're scrambling, that's the equivalent of driving somewhere and you're running late. You're not enjoying the trip at all. You're stressed.
Speaker 4:You're looking at that little GPS thinking that you could beat it. Arrival is this. And that's not an enjoyable experience versus, I don't have the stress, I'm getting to the airport a little early. I can kick back. I could get a coffee.
Speaker 4:I could get a drink. I can return some emails. I can read. Hey. I don't mind a little people watching.
Speaker 4:I'm not stressed about finding parking. Your stress level is not elevated. But the funny thing is, the reason I threw in the flight delay is you could do all that and the IRS still delay your refund or or something happened. So with tax planning, it's the same way. Don't wait till end of the year to start doing tax planning.
Speaker 4:So think about where you're at tax wise right now. Now for those that are on a salary, it might be similar to your 2022. Then the first step, the first step comes in, which is diagnose your current situation using your marginal tax rate. Step one out of the four of our secret sauce, our proprietary tax planning and strategy process. So diagnose your current situation using your marginal tax rate.
Speaker 4:Your marginal tax rate, number one key performance indicator for any tax planning. Marginal tax rate is different than your tax bracket and, you have to determine, hey, what is my marginal tax rate here in 2023? It could be correlated or not correlated to 2022. Once you know that, then you know what strategies you should be thinking about. Diagnose, prescribe, step two, prescribe different strategies.
Speaker 4:Explore what you should be doing for the 2023 tax year that's appropriate for your situation. You might have six, seven strategies that you're considering. You might only implement two or three and that's okay. You are looking for the strategy that makes the most sense for you. Mhmm.
Speaker 4:So unless you identify what you're looking for, your everything is going to seem, oh, that sounds good. That you're gonna you're gonna be a squirrel. You know? Like, that strategy sounds good. This strategy sounds good.
Speaker 4:No. Diagnose step one. Prescribe different strategies, step two. Then step three, what we call in the teaching tax flow system, is our IQ test. Says to identify a strategy, quantify results.
Speaker 4:But to make that simple, the IQ test is really a it's a four part test that determines if this strategy is appropriate for you based on a variety of different factors. And those factors are your liquidity. Like, everyone would love to put money into certain investments or retirement plans. But guess what? Last time I checked, you have to have the money to do it.
Speaker 4:Right?
Speaker 2:You guys one of those money trees don't exist? The things that just like you don't grow hundred dollar bills and you pull them off?
Speaker 4:No. It doesn't exist, and and it has to be suitable. Right? So for some of the strategies, you have to be an accredited investor. For some, you do not have to be.
Speaker 4:You have to be comfortable with it. So it has to meet your horizon, time horizon, your, your risk tolerance, and we always say don't let the tax tail wag the dog, and it has to make tax sense. So if the strategy is I've got $1,000 to my name, I'm gonna donate it to a charity to save 20¢, 2 2 hundred dollars. Even though that's a benevolent thought, that doesn't make much tax sense.
Speaker 2:And Chris, you mentioned too. I mean, diving into all those, you know, just to even break it down more, you know, back to your back to your comment, and we always talk about this, you know, the IRS being that involuntary business partner. It's it's so important that there's any strategy and any planning involved. Like you had mentioned, you might have seven different options. Right?
Speaker 2:You don't have to have all these option or, I mean, I shouldn't say all these options. All these opportunities, and you're sitting there pulling your hair out saying, no. I need to do them all. I need to do them all. If I don't do this one, everything's gonna fall apart.
Speaker 2:Just knowing that they exist. And then as you mentioned, say that number seven. You're lucky number seven. Say you have seven opportunities to take advantage of. They don't all necessarily go away at the end of the year, which is a is is another topic there I know we've touched on in the past.
Speaker 2:But then also just knowing what's there for years to come, which then I mean, even diving into a deeper, which now we start to get into, what do you call, like, another dimension, right, when you when you think about it. Knowing that an opportunity exists, knowing that you can plan for an opportunity that exists really does open up a bunch of doors. So what I mean by that is it's almost motivating knowing, say, hey. You know what? A great, a a great opportunity for me might be to look at investment properties.
Speaker 2:Oh, crap. I don't have the liquidity to do it right now, but I wanna get to that point. And then there's another opportunity. So, really, it's like planning for growth based off of strategy, I think would be a a decent way to say it. Correct?
Speaker 4:Absolutely. You you the IQ test is important because you have to determine what's appropriate for your situation. I just recently met with one someone in, one of the one of the members of the teaching tax school community had us come in, do a personalized tax plan for him and his spouse. One of the items that we talked about was that they own 50% of a multi member LLC. That LLC owns some properties.
Speaker 4:All of the people in the LLC are family members, but not all of them have the same age, risk tolerance, income. And that LLC is considering selling a piece of property at a gain of of somewhere between a half million dollars or a million dollars. So although maybe a ten thirty one exchange might make sense for two of the four members of the LLC, For the other two, it doesn't make sense. So we walked through that IQ test. You know, what should we do?
Speaker 4:And what strategies can work with others? So it's not it's not a either or, it's a and. I would do the strategy and that strategy, or what are my options. You know, and we identify actually, we identified five different paths for this this taxpayer and which leads us to our fourth step of the tax planning strategy, process is implementation. Many of these tax strategies you can implement on your own.
Speaker 4:Let me give you an example. Make a health savings account contribution. You don't need much help with that. Just go up to the banker, log in, create an HSA account, make a contribution. But the more advanced a tax strategy is, the more implementation pieces there are, and we might have to involve, people within your within your, what we call, your board of directors.
Speaker 2:And those implementation partners, it's it's worth every conversation with those, right, just based off of expertise and and really making sure you do
Speaker 4:it right and not completely muddy the waters up. Absolutely. We we were working I'll give you another real quick example. I was working with another person in the teaching tax law community, came in for a personalized tax, plan. That person was purchasing a property from a mature aged couple and for over a million dollars, and and they were looking at the financing.
Speaker 4:They were looking at a bunch of things, and I said, well, does the selling do the people selling do they want the money or do they just want no headache? And, like, well, they really don't need the money. I said, have you considered offering maybe more money to purchase a property, but asking them to sell or finance at a lower rate than you're gonna get at the bank, something reasonable? It puts just as much money in their pocket in many ways, yet it's more tax it's more tax favorable because it's more of a capital gain than in and and it also eases you into purchasing the property cash flow wise because the property didn't work. But those are the so who's an implementation partner in that?
Speaker 4:It's actually his realtor because the realtor has to go back to the seller and talk through it. Now they might not go for it, but implementation partner doesn't always it's anyone on your board of directors. So it doesn't always mean a financial adviser or an insurance professional or an accountant. Mhmm. It could be anyone.
Speaker 4:And that's the thing to consider. You want, you know, you wanna make sure that you have those relationships in place. Final thing that someone needs to be considering right now, we talk about that implementation. There's a myth out there, and we did a series, at the end of twenty twenty two when we went through all of our four color coded diagnosis, and you pestered me and asked me which one's my favorite year end strategy, and I said, I'm gonna tell you my favorite year end strategy for each of these colors, but diagnosis, but that doesn't mean it's my favorite strategy. Timeline is just as important as the strategy sometimes.
Speaker 4:So for instance, some of the strategies you can implement in 2024 but still count for 2023. So if you're thinking about your fourth quarter right now, you need to figure out, okay, What are the you know, where am I at right now? What's my diagnosis? What potential strategies exist? Does it make sense financially for me?
Speaker 4:And when I go to implement, what do I have to get done today? First you know, we've got clients, John, as you know, in the Teaching Tax School community that are finishing their implementation up for 2022. Sometimes it's a a subcontribution. Sometimes it's a, a cost segregation study. There are several things that might count to do for 2022.
Speaker 2:Right. And some of them are quick to implement. Is basically an HSA like you had mentioned. Other ones take significant time, and there's no, you know, basically just pulling the lever and it's done. You know?
Speaker 2:And and you mentioned too. I mean, again, back to, you know, board of directors. I think I think this is a a the absolute best podcast episode that we've done that I would almost put that challenge out if nobody's done it before is to really look I mean, obviously, get your information over to your tax preparer if you haven't done that yet. Let's let's not even that consider a challenge. That's a that's a task.
Speaker 2:But almost considering this as a challenge is saying, you know, what does my board of directors look like? I know we did a did a whole episode on that, and you hit a fantastic point just moments ago too. You said everybody's board is different. Case in point, I mean, if you're, if if you're selling a if you're selling technology, you really don't need a, you know, an architect on your board of directors necessarily. You know what I mean?
Speaker 2:So it's everybody's looks different. I mean, obviously, you have your tax pros, your attorney, your your realtor possibly always kind of at hand, but I would put that challenge out. If you haven't done that yet, look at your board, start to put it together. And then even if it's getting into to '1 next year and you have a couple open seats, you know, quote, unquote open seats, you start to look to fill those. And I know a a good opportunity too is look at the people that are on your board for you, but then maybe reach out to them and try to fill those other seats.
Speaker 2:You know, birds of the feather flock together if you if you're like minded and those are the people that you like having that think the same, act the same as you, that's something. If you like people that think completely different than you, just for opposing opinions, You don't approach that to fill those seats. But I'd put that out as a challenge. Do you agree with that, Chris? Think that'd be
Speaker 4:a good one? I I agree with you. And and to wrap it up here because on top of that challenge, if you didn't like the results of your 2022 return, look at the return and figure out why. And this is the time to really think. You know, in in the final thing I wanna say is one of the myths that we always talk about in many of our our presentations is that you don't have to have a significant amount of income or a significant amount of assets to do tax planning and strategy.
Speaker 4:I would argue, taxpayers with with that are just getting started or don't have a ton of assets, don't have a tough a ton of income just yet, tax planning is much more important to that person, because an extra thousand dollars in their pocket goes a long way. And that could be something as easy as, I have day care expenses. Should should I if my employer offers a a pretax option to put money away towards day care, should I put it there? Or should I just pay it out of pocket and take the credit on my personal tax return? Those are just little things that could save tons of families significant amount of money.
Speaker 4:And so just to put a bow on this, think right now. If you need to really trip your mind up, pretend that September 30 is December 31, and you know on October 1 you're gonna see the Halloween stuff and then on November 1 you're gonna see all the Christmas stuff in the stores, But pretend that September 30 is the end of the year, what would you do? That's and other than that, you know, obviously, reach out to us, with any questions and We'll drop. Not beat out.
Speaker 2:And we'll drop a couple of the, couple of our courses as well that's available on our website, which is completely free for the basic membership. We'll put those links in the show notes and and check those out and really just go through those at your leisure. Usually, it's ten, fifteen minutes to get through that whole course and then send over any of those questions. So I appreciate everybody joining us here as always. Q four q four q four.
Speaker 2:Plan, strategize, execute. Get ready for q '1. So until then, we'll see everybody next time. Hey, everyone. Thanks for hanging in there with us.
Speaker 2:John here still from the teaching tax flow team. Great episode. We just powered through here with Chris looking at q four and really the importance of tax planning and strategy. Not only for the now, but for the later looking into next year. So take some of the notes that you've got from this episode, some of those topics, store them in your brain, and get ready to move forward.
Speaker 2:So take that challenge though. Look at your board of directors. Build that out if you haven't yet. But really, if you haven't yet, get your information, your tax preparer. Otherwise, you're really in trouble.
Speaker 2:So until next time.
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