Talking Turkey and Tax Planning
by SGL Financial
Our 2 Cents – Episode #157
Talking Turkey and Tax Planning
On this episode of Our 2 Cents, Steve and Gabriel discuss various end-of-year tax planning topics to consider before 2023 comes to a close. But first, they’re sharing educational and festive Thanksgiving fun facts!
- Thanksgiving Fun Facts:
- Talking Turkey: The states that have towns named ‘Turkey,’ how many turkeys are prepared each Thanksgiving, a Butterball Turkey Talk line, and more turkey facts.
- History facts about this long-standing tradition that you might not know.
- End-of-Year Tax Planning Tips:
- The potential benefit of itemizing deductions, such as mortgage interest and charitable contributions, and “bunching” deductions to maximize tax savings.
- The benefits of tax-loss harvesting, contributing to 529 plans, and taking Required Minimum Distributions (RMDs).
- The advantages of Roth conversions, maximizing IRA contributions, and conducting a withholding analysis to avoid under-withholding penalties.
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Announcer: You’re listening to Our 2 Cents, with the team from SGL Financial, building wealth for life. Steve Lewit is the President of SGL Financial. And Gabriel Lewit is the CEO. They’re here to discuss all the latest in financial news, trends, strategies and more.
Gabriel Lewit: Hello, hello! Welcome back to Our 2 Cents. You’ve got the Steven Lewit here with you today.
Steve Lewit: I am.
Gabriel Lewit: Say hello.
Steve Lewit: Hello, hello. I have to say it twice like you do.
Gabriel Lewit: You’ve got me the Gabriel Lewit.
Steve Lewit: The Gabriel Lewit.
Gabriel Lewit: Set number two.
Steve Lewit: Are you ready for the show?
Gabriel Lewit: I’m ready.
Steve Lewit: Yeah, you should have seen him getting ready, folks.
Gabriel Lewit: I got my coffee in hand. And then I ate a chocolate chip cookie.
Steve Lewit: Wait a second! You slurped your coffee. Then you say to me, “Don’t slurp your coffee on show.”
Gabriel Lewit: We got to prepare. It’s important to be on point.
Steve Lewit: Then he gives me a chocolate chip cookie and he says, “Don’t chew on the show.” What did you give me the cookie for?
Gabriel Lewit: I actually only said don’t slurp on the show. You can chew on the show if you’d like to.
Steve Lewit: Folks-
Gabriel Lewit: As long as it’s not chomping. You can’t chomp.
Steve Lewit: … I am eating one of our fresh baked chocolate chip cookies, which is the main reason to come and visit us.
Gabriel Lewit: These truly are fresh baked today. They just came out of the oven, so they’re quite good.
Steve Lewit: Oh, they’re delicious.
Gabriel Lewit: Oh my goodness. Here he goes.
Steve Lewit: Here we go.
Gabriel Lewit: Chomp. Chomp.
Steve Lewit: All right, what are we talking about today?
Gabriel Lewit: Well, speaking of food, we’re going to talk about Thanksgiving coming up.
Steve Lewit: Oh my.
Gabriel Lewit: Can you believe it? It’s already turkey time.
Steve Lewit: No, I can’t believe it.
Gabriel Lewit: Yeah, actually the other day I woke up, I’m like, man, it just felt like October was just here. And now, all of a sudden, next week is Thanksgiving.
Steve Lewit: It is.
Gabriel Lewit: I’m like, gosh, how’d that happen?
Steve Lewit: Thanksgiving is my favorite holiday.
Gabriel Lewit: Yeah, it’s a great one. What’s not to like? Unless you’re the turkey.
Steve Lewit: Well, just hang out.
Gabriel Lewit: You’re a turkey, you don’t like Thanksgiving.
Steve Lewit: Yeah, that’s a fun fact for today.
Gabriel Lewit: Well, yeah, you beat me to it. We’re going to talk about some fun facts.
Steve Lewit: Yeah. One of those is how many turkeys are killed?
Gabriel Lewit: Well, I wouldn’t say that one’s the fun fact.
Steve Lewit: Well, it’s in the fun fact [inaudible 00:02:06].
Gabriel Lewit: It’s a fact.
Steve Lewit: It’s a fact.
Gabriel Lewit: Well, it doesn’t actually say fun facts on the article title. It says… Well, no, it does. I guess you’re right, it does say fun fact.
Steve Lewit: It says fun facts. 46 million turkeys were killed. This is a fun fact.
Gabriel Lewit: Well, we’ll just call that a fact. Just a fact.
Steve Lewit: Yeah, it’s not a lot of fun if you’re a turkey.
Gabriel Lewit: No. Well, funny enough, I was reading a book with my son last night. No, it was my daughter. And it was all about a turkey that doesn’t want to get eaten for Thanksgiving, so he keeps dressing himself up as other farm animals.
Steve Lewit: Oh my gosh.
Gabriel Lewit: And then eventually, he comes up with a genius idea, which is the Turkey delivers the family a pizza for Thanksgiving so that they eat the pizza, and they don’t go after the turkey.
Steve Lewit: Oh, that’s sweet. I was wondering how a children’s book would end.
Gabriel Lewit: Yeah.
Steve Lewit: Yeah, happy ending.
Gabriel Lewit: And then he creates, I forget his name, but like Turkey’s Pizza farm.
Steve Lewit: Nice.
Gabriel Lewit: It’s to save all the turkeys.
Steve Lewit: They deliver turkeys.
Gabriel Lewit: No.
Steve Lewit: I mean pizzas.
Gabriel Lewit: Yeah, the turkeys do not deliver themselves.
Steve Lewit: Cool. Very cool.
Gabriel Lewit: So, to that end, I thought we would share some of these either fun or just otherwise Thanksgiving facts with you here. And there’s actually a list of 45 of them. If you would like all 45, please email us prior to Thanksgiving. We will happily send them to you. But we are not going to cover all 45 here on the show just in case you were wondering. But I thought we would pick and choose a couple. We’ll alternate here being equal opportunity here with Steve and Gabriel. I’ll pick a fun fact and then you pick a fun fact, and we shall share these with our audience.
Steve Lewit: Okay.
Gabriel Lewit: Sound good?
Steve Lewit: You go.
Gabriel Lewit: No, I was going to let you go first.
Steve Lewit: I already did one. 46 million turkeys are killed on Thanksgiving.
Gabriel Lewit: Well, it does say prepared.
Steve Lewit: Once, they were alive. And now, they are prepared. That would be the same equal kilt.
Gabriel Lewit: Okay. Number one on my list here is there are … I didn’t even know this, so I thought it was interesting. There are four US towns named Turkey.
Steve Lewit: I can’t imagine.
Gabriel Lewit: Apparently there’s a Turkey, Texas.
Steve Lewit: I can’t imagine. No.
Gabriel Lewit: I couldn’t even say that.
Steve Lewit: Where are you moving to? Where are you moving to?
Gabriel Lewit: Turkey, Texas.
Steve Lewit: Turkey, Texas.
Gabriel Lewit: There’s a Turkey, Arizona. We didn’t independently verify this. Katie, Producer Katie, please. Can you Google map this here? Is there really a Turkey Texas? Yes, Turkey, city in Texas. Wow! What is the population? Does it say population? Can’t be big. Well, we got here, oh, 326 people.
Steve Lewit: In Turkey.
Gabriel Lewit: In Turkey, Texas.
Steve Lewit: In Turkey, Texas. Yeah.
Gabriel Lewit: Interesting. No kidding. Okay. We’ve got Turkey, Arizona. We’ve got Turkey, Louisiana. And then we’ve got … Oh, it’s Turkey Creek. Okay, that’s close enough. We’ll take Turkey Creek. You’ve got Turkey, Louisiana. And then Turkey, North Carolina. Yeah.
Steve Lewit: All places I can’t wait to visit.
Gabriel Lewit: Well, this is another Turkey Creek.
Steve Lewit: Yeah.
Gabriel Lewit: Okay. We’ll allow it and let’s say Turkey, North Carolina. What do we got?
Steve Lewit: Turkey Creek sounds like a town in a western movie.
Gabriel Lewit: Turkey is in fact just Turkey in North Carolina.
Steve Lewit: Doesn’t Turkey Creek sound like a town in a Western movie?
Gabriel Lewit: Sure.
Steve Lewit: Like Showdown at Turkey Creek?
Gabriel Lewit: Yes, it does, in fact. Turkey, North Carolina only has 213 people. There’s probably more turkeys than people in Turkey, North Carolina.
Steve Lewit: Right. What do you do in a town of 340 people? I mean, what do you do all day and night?
Gabriel Lewit: I don’t know, man. I grew up in a town with a population of 3000. It can’t be that much different. Maybe it is.
Steve Lewit: It’s 10 times.
Gabriel Lewit: Yeah, 10 times the size.
Steve Lewit: Can you imagine-
Gabriel Lewit: I mean, you stop by the gas station. This is a glimpse into my childhood. You go to the gas station,
Steve Lewit: Spend an hour getting gas.
Gabriel Lewit: You pick up a lotto ticket and hope for a million bucks to get you out-
Steve Lewit: To get out of town.
Gabriel Lewit: … out of Turkey.
Steve Lewit: So, you can move out of town.
Gabriel Lewit: Yeah, you go hunting a lot in small towns. You go hunting.
Steve Lewit: Yeah, that’s good.
Gabriel Lewit: Probably for turkeys in Turkey.
Steve Lewit: You’re on a roll.
Gabriel Lewit: And then you go on walks. It’s exciting. It’s a good time.
Steve Lewit: Yeah. All right.
Gabriel Lewit: And you spend time with your family and friends. You know everybody in town.
Steve Lewit: I can’t imagine the amount of gossip that goes on in a town of 300. There is nothing else to do but to talk about each other. Can you imagine?
Gabriel Lewit: Yeah, I would think that’s the case.
Steve Lewit: Yeah. Okay.
Gabriel Lewit: Okay. I filibustered here a little bit longer than expected on US towns named Turkey. Okay, you’re up, Mr. Lew.
Steve Lewit: Oh, I picked one and I’ve turned the page. Hold on. Don’t go away. I have to go back to the page. It is coming. It is the average cost of a Thanksgiving. I have two parts to this. The average cost of a Thanksgiving dinner is, wow, $53.
Gabriel Lewit: Probably per guest.
Steve Lewit: Per guest. It says $53 for 10 guests.
Gabriel Lewit: Yeah. I think you can’t even get a turkey here for $50.
Steve Lewit: These guests do not eat a lot.
Gabriel Lewit: I think that must mean per guest. That sounds more likely.
Steve Lewit: I don’t know. And the other part of that is that in a turkey dinner, the average calories consumed are 3,000 to 4,000 calories.
Gabriel Lewit: Yeah, I could imagine that. I think I get that on one plate. And then I get two or three plates.
Steve Lewit: Those calories add up, don’t they?
Gabriel Lewit: Sure do.
Steve Lewit: Yeah, they do.
Gabriel Lewit: Yeah. Well, I thought this was nice. If in case you didn’t know, Abraham Lincoln declared Thanksgiving a national holiday on October 3rd, 1863. I did not know that I was established by Mr. Lincoln.
Steve Lewit: I didn’t know …
Gabriel Lewit: Our fellow Illinoisian.
Steve Lewit: Right. Yeah. There was another fact in here I liked about … where is that one I was sharing with you, Katie? Where is it? About having dinner with the Indians?
Gabriel Lewit: Well, let’s see here.
Steve Lewit: I had a terrible thought about that.
Producer Katie: The first one.
Steve Lewit: Which one?
Producer Katie: The first one.
Steve Lewit: The first one? Oh, the first Thanksgiving. All right. The Mayflower pilgrims founded the Plymouth colony in Massachusetts and had a three-day meal with the Wampanoag tribe in 1621. That was the beginning of Thanksgiving. And I had this terrible thought afterwards. Then they just robbed them of all the land and did them in.
Gabriel Lewit: Well, that’s depressing.
Steve Lewit: It is.
Gabriel Lewit: Let’s not go backwards there. I don’t want to dispute.
Steve Lewit: We have a history of not being very nice to the Indian folk.
Gabriel Lewit: Okay, well, that would be a topic for a different show or podcast. Not this one. Oh, man. Okay. Let’s see here.
Okay. Thomas Jefferson. This is in line with what I said before. Before Lincoln officially declared it a national holiday, Thomas Jefferson had to declare the holiday each year. Or no, the President had to, but Thomas Jefferson, however, refused to do so. He felt that the included prayer of the holiday violated the separation of church and the state. I didn’t even know there was a prayer to go along with Thanksgiving. Interesting. See? Fun facts.
Okay. The average number of guests surrounding the modern Thanksgiving dinner table is 10, in case you were wondering. If you have a large or few number of people, the average is 10. And the most popular drink to toast in order of popularity on Thanksgiving is wine, beer, and then whiskey. Would you have guessed it?
Steve Lewit: Not bourbon.
Gabriel Lewit: Not bourbon. Whiskey, my friend.
Steve Lewit: Whiskey. I’ve got to become a whiskey man. I’ve gotten turned on to bourbon April.
Gabriel Lewit: Yeah, I know. You told me that the other day.
Steve Lewit: Did I? Yeah.
Gabriel Lewit: Okay. How about, we’ll do two last facts for you and two last facts for me. And then folks, we’re going to move on to everyone’s favorite thing to talk about around Thanksgiving, which is taxes.
Steve Lewit: Definitely. Definitely. Yes. Butterball turkey. Each year, the Butterball turkey talk line … there’s a talk line for Butterball turkeys, gets 100,000 calls about how best to prepare a Butterball turkey. They have a 24-hour message line. So folks, if you have a Butterball turkey and you don’t know what to do with it, if you don’t want to deep-fry it or bake it or whatever you can do, just call the Butterball Turkey line. I don’t have the number.
Gabriel Lewit: Yeah, I’m not sure what they do for you on that line.
Well, here’s what I thought was a fun one. Frozen TV dinners were apparently, supposedly invented by mistake by a Swanson employee that accidentally ordered 260 tons of turkey for Thanksgiving in 1953. And as a result, the solution was to sell all of the Turkey as frozen dinners. That’s what this says.
Steve Lewit: Oh my goodness.
Gabriel Lewit: Again, not independently fact checked. All right, let me pick one last one for us here.
Steve Lewit: No, no, my turn.
Gabriel Lewit: Oh, your turn, okay.
Steve Lewit: Yeah. So, in line with the 46 million turkeys that are done in each year, we consume 50 million pumpkin pies.
Gabriel Lewit: Wow.
Steve Lewit: And our pie giveaway right now is in … when is it, by the way? When are we doing pie day?
Producer Katie: The 21st.
Steve Lewit: Thursday?
Gabriel Lewit: Tuesday.
Steve Lewit: Tuesday. Tuesday, we give out our share of 50 million pies.
Gabriel Lewit: You sure do. About 49 million would you say?
Steve Lewit: 49 million.
Gabriel Lewit: Lines out the door.
Steve Lewit: Yep.
Gabriel Lewit: Well, speaking of pumpkin pie, this’ll be my last one here. In 1705, the town of Colchester, Connecticut canceled Thanksgiving because they couldn’t make pumpkin pies. The river, because they imported things via river back then, had frozen over leaving their import of liquid sugar inaccessible. And thus they decided to postpone Thanksgiving so they could wait until their pies were ready.
Steve Lewit: Honey, are you baking a pie today? No, the river is frozen over.
Gabriel Lewit: Yes. Our sugar did not come in.
Steve Lewit: Our sugar didn’t come in.
Gabriel Lewit: Yeah. So different world. Different world.
Steve Lewit: Can you imagine living during those times?
Gabriel Lewit: Of course. I love all the …
Steve Lewit: I bet there was something really nice about it.
Gabriel Lewit: You know me, I’m a history buff. Anything historical about going back in time, whether it’s like … I don’t know if I’ve ever said this on the show. I went to Medieval Times a couple of weeks ago. That was fun. I liked that.
Steve Lewit: Yeah. What’s your favorite-
Gabriel Lewit: Then there’s the Renaissance Fair. I didn’t go to that this year, but I liked it. I like all the old-time stuff.
Steve Lewit: I do too.
Gabriel Lewit: It’s kind of cool.
Steve Lewit: Yeah. Yep.
Gabriel Lewit: Yeah. Well, folks, that’s our fun trivia for you. The show’s not done. Our trivia is done. So, you can wow your friends and guests with all the fun facts that you now know. Jot these down. Or if you want our cheat sheet of all 45 facts, feel free. And email us. We will send it on over to you.
Steve Lewit: You bet.
Gabriel Lewit: I’m sure we’ll get a flood of requests for those.
Steve Lewit: You bet we won’t. I mean you bet we will.
Gabriel Lewit: Yeah. Oh! Oh, that reminds me of emails coming in. I don’t know if I mentioned it since I talked about it. But I apparently was giving a lot of grief about Tootsie Rolls on one of our recent episodes and asking questions such as, who likes Tootsie Rolls? And if you happen to like them, please email and let me know because I’ve never met anyone that actually liked them. And I got many, many, many emails.
Steve Lewit: But wait! But wait! It gets better. I have a client that walks in, sits down and says, “I’m so angry at your son.” I said, really? What did he do? I thought she was serious. He dumped on Tootsie Rolls. And I had to bring Gabriel in for an apology.
Gabriel Lewit: Well, I had no idea. Yeah, I had somebody else write me said that they know a guy or gal that works at the Tootsie Roll Factory and brings them bags and bags of Tootsie Rolls. And they just have them lying around their house, different flavors and such. So yeah, I will retract my statement. Apparently, it’s a delicious chocolatey confection that people love.
Steve Lewit: That tastes like …
Gabriel Lewit: They’re still not for me.
Steve Lewit: But we should do a-
Gabriel Lewit: I won’t dig this hole any further.
Steve Lewit: … Tootsie Roll lovers’ day. How many people will show up?
Gabriel Lewit: A few.
Steve Lewit: Yeah, a few of them.
Gabriel Lewit: A few. Okay. Well, to round out our show here today, we do talk about more than just turkey. We’re going to talk turkey and tax and tax planning here for the rest of our show today.
So, with that in mind, Thanksgiving is a reminder that the end of the year is nearly approaching us. And we have sent out some information on tax planning. Hopefully, you got that in your mail or email. Steve, I know you do webinars on tax planning. Those sometimes talk about topics that are different than nitty-gritty tax planning tips. okay. And so we have a list in front of us, and again, if you want this list, email in, email@example.com. And we will email you the full list from Kiplinger here.
But we thought we would talk about some of these because there’s some good ideas buried within these. And there’s many, many tips and we won’t have a chance to go through all of them. Similarly, to the turkey facts, just not quite enough time. So, with a couple months here, month and a half left before the end of the year, here are some of the top ideas of what you might want to do to save money on taxes. And we are going to dive into some of these here and talk them through with you so you have a good understanding.
Steve Lewit: Take the lead, sir.
Gabriel Lewit: Okay, I shall. Number one on our list here is …
Steve Lewit: I just want to insert one thing. Sorry to interrupt you. There are two types of tax planning. There’s in-year tax planning, which means what can I do this year to keep my taxes as low as possible, which is what we’re going to talk about today. And then there’s longer-term tax planning. And those two are very, very different things.
Gabriel Lewit: There’s actually a third Mr. Lew.
Steve Lewit: And there’s a third.
Gabriel Lewit: The third is … Actually, I say this exactly this way with a lot of clients is there’s three ways. You hit the nail on the head with two of them. You’ve got saving money today, this year on taxes. Saving money over your lifetime on taxes. And the third is making sure you save as much money as possible on taxes when you pass away from a legacy so that your beneficiaries maximize how much they keep after tax as well.
Steve Lewit: Yeah, that’s a great point. So, three different tax planning. And most CPAs and tax preparers do which one, Gabriel?
Gabriel Lewit: I was sipping my coffee.
Steve Lewit: I know. I did that on purpose. As soon as you picked up your coffee, I said I got to ask him a question.
Gabriel Lewit: Most CPAs focus on number one.
Steve Lewit: Number one.
Gabriel Lewit: And there’s a very important reason for this. I hate to say it’s because many of us humans are … we don’t think too far down the road. So, we care about most about how do we save money today.
Steve Lewit: Short term. Yeah.
Gabriel Lewit: And A CPA wants to be the hero for you, so they want to focus for you on how to save the most amount of money today because then you’ll look at them and be like, wow, this guy saved me money. He’s a hero.
Steve Lewit: And that’s the reason we hear this often enough that my CPA said, “Don’t do a Roth conversion.” And it’s like, well, why not? Well, he just said don’t do it. And one of the reasons could be that if he does that, your taxes will go up during year.
Gabriel Lewit: You’ll have a bigger bill.
Steve Lewit: And his job is to give you a smaller bill and he doesn’t want to be the guy that gives you a bigger bill.
Gabriel Lewit: Yes, because most people look at their CPA and say, your job is to save me money on taxes. And if you do a Roth conversion or other things that are maybe more beneficial for longer-term tax planning, it runs counter to the shorter-term tax savings goal.
Steve Lewit: Yes, sir.
Gabriel Lewit: Yes, sir.
Steve Lewit: Yes, sir.
Gabriel Lewit: Okay. All right. So back to our hit list here. Number one. Now, part of this depends if you’re deciding to itemize, not itemize. We’ll get into some of that here, but let’s look at your home interest, right? If you have a mortgage bill, you can deduct the interest portion on Schedule A of your tax return. And you could also pay your January mortgage bill in December if you’re looking to boost up that total amount of interest paid in the calendar year 2023. So, a very small little tip and depending on the size of your mortgage.
Now with current mortgages, new ones recently originated, what is the problem with those? They have really high interest rates. So, there is potentially a hidden liner to that, which isn’t a great one, admittedly, where you might have higher interest payments. You will have higher interest payments,
Steve Lewit: It might pay to itemize, in that case.
Gabriel Lewit: You might be able to itemize more or prepay your January mortgage and really take a big chunk of that interest and put it through to this year. Now, keep in mind, some of these strategies where you prepay for one year then won’t do as much for you the next year. But there’s a strategy called bunching, which is kind of what this is in line with, which is if you alternate years and bunch certain things into one year, take the itemize and then the next year you take the standard and then the next year you bunch and take the itemize, over time, that’s a tip to actually save you quite a bit of money. Because if you just do everything in their calendar year, you may never reach the level of itemizing your taxes. And thus, you only get the standard deduction. Whereas if you bunch and itemize, bunch and itemize and then take the standard and the alternate years, you can come out ahead.
Steve Lewit: Yeah, that’s a great point. Most people right now are taking the standard deduction because it’s so high. It’s really actually a very good deduction. And most people can’t itemize enough to cover that deduction.
Gabriel Lewit: And that’s where you bunch.
Steve Lewit: That’s where you bunch and then you can get the best of both worlds.
Gabriel Lewit: You sure can, my friend.
Steve Lewit: Yeah.
Gabriel Lewit: So that would in itself be a kind of an overall concept. Bunch and itemize. And then alternate years because the next year, if your interest or whatever you would otherwise use to itemize is really, really low, it doesn’t matter. You’ll get the standard deduction either way. And then you just repeat that process.
Steve Lewit: Yeah. So, you mentioned giving gifts. I think you mentioned that.
Gabriel Lewit: I have not yet. Oh, it is on the list though.
Steve Lewit: I thought you said something about gift giving. I’ll wait.
Gabriel Lewit: Oh, sorry. Yes. Charitable contributions are ones that are often bunched.
Steve Lewit: Oh yeah. Charitable.
Gabriel Lewit: So, let’s say you’re giving $10,000 this year and $10,000 next year.
Steve Lewit: That’s right.
Gabriel Lewit: But if you just gave $10,000 or whatever the amount is, it wouldn’t be enough to push you into being itemizing your taxes. Let’s say you do $20,000 this year and zero next year, so you can bunch and itemize this year, take the standard next year. The following year, do the same thing. You’re charitably contributing the same amount. You’re just changing the strategy of when you do it timing wise to give yourself an additional tax benefit.
Steve Lewit: Yeah, well said. I was going down the road of gifting money to your kids, which doesn’t give you any tax advantages.
Gabriel Lewit: But you have a ‘use it or lose It’ annual gift exclusion.
Steve Lewit: Yeah, well, that’s where I was going. So, since you opened that door, I will go through it.
Gabriel Lewit: I’m lobbing the tennis ball to you, Mr. Tennis player.
Steve Lewit: Thank you for the tennis ball. So, the annual exclusion right now, I believe 17 per person, 16 or 17. But you can give a lot more than that because whatever you give over the annual exclusion goes against your lifetime gift exemption and your lifetime gift exemption right now is 22 million if you’re a married couple.
Gabriel Lewit: I think it’s a little higher than that.
Steve Lewit: It might be. So, it’s least that. That’ll go to 12. So, the chances of using up your lifetime gift exemption is pretty low. So, if you want to give extra money to your kids, you really can. You don’t have to worry about the annual exclusion.
Gabriel Lewit: Well, if you happen to be listening to our show and you are potentially at risk for a federal estate tax liability, which would mean you have lots of money, you might want to take advantage of gifting every year up to the limit consistently every single year because then you don’t use your lifetime exclusion and you’re saving that for other estate planning strategies.
Steve Lewit: And since you opened that door, I will take it down one more piece of road is that you got to be very careful. If you’re a really wealthy person and you give away a lot of money, use up your lifetime gift exemption. That’s great. Let’s say you gift out 22 million, whatever it is. But when you die, if the lifetime gift exemption is 12 million, guess what?
Gabriel Lewit: What’s that?
Steve Lewit: They are going to apply the exemption on the date of your death, not when you made the gift. So, you got to be really careful about gifting large amounts of money.
Gabriel Lewit: Yep.
Steve Lewit: For you wealthy folks.
Gabriel Lewit: Yes, indeed. So, let’s see. Again, there’s tons of things on this list. I’m trying to pick and choose some of the more interesting ones here.
All right let’s see here. Let’s see here. Hold on. I’m trying to flip and choose here. Okay, you’ve got …
Steve Lewit: Well, stock market, take your capital losses.
Gabriel Lewit: Yes, exactly. You can do some tax-loss harvesting. Now, it depends on what positions you have. But if you have losers on the year, not every stock goes up every year, you can sell those. And it’s called tax-loss harvesting. Especially if you don’t want to keep them long-term, you can sell them while they’re down, harvest the loss. What I mean by harvesting is you capture that loss to carry forward with you indefinitely to then … it’s kind of like harvesting some grain and storing it in a grain silo. And then you can carry it forward indefinitely until you need it.
Steve Lewit: Yeah, I’m with you. I was just looking at something else here. And the other place to be careful folks, is if you buy mutual funds, mutual funds generate capital gains inside the fund. And those capital gains, you may be holding the fund, you didn’t sell it, but the mutual fund itself is buying and selling inside the fund. And those capital gains get passed on to you are often a surprise at the end of the year that you have $25,000 of capital gains. You say, well, I didn’t sell anything. That’s right. But you still have $25,000 of capital gains because the mutual fund passed those gains on to you. And lots of times, folks do not have the money prepared to pay that tax.
Gabriel Lewit: Yes, exactly. Exactamundo. All right. A couple other things here that could be interesting for you.
If you are planning to contribute to a 529, you get a tax deduction on the state level, at least here in Illinois. So basically, what you want to do is contribute before the end of the year. If you have that opportunity, let’s say you are generally going to max things out and you want to make sure you don’t miss that window, that’s another one there for you to do, okay?
Let’s see. You got RMDs. Don’t forget to take your RMDs. This is generally something that if you’ve never taken RMDs before and you happen to be turning 73 this year, this is something you want to make sure you’re paying attention to. And if you basically are already taking RMDs, just make sure you don’t forget because there can be big penalties if you miss it.
Steve Lewit: Likewise, if you still can contribute to an IRA and a Roth, make sure you do that this year. I mean, you’ve got $7,000, $7,500 thereabouts that can go in if you’re over the age of 50. So why not take advantage of that?
Gabriel Lewit: Yes, indeed. All right, other things. There’s more. But wait, there’s more. Wait, Roth conversions, good idea. If you are planning on potentially exploring those, you want to start that now. Because we talked about those on a couple of podcasts this year but also in our letters that we send out. But this is really the time of the year to get going on those, if you’re interested,
Steve Lewit: You should be interested.
Gabriel Lewit: You should. Yes, indeed.
Steve Lewit: I would be more affirmative about that. You should be looking at Roth conversions if you believe, as I do and as Gabriel do, that taxes are going up in the future because of the national debt and the burden on the national debt and rising interest rates and all that goody stuff that all of your IRA money becomes a liability for the future. And at the end of each year, like here, October, November is our Roth conversion month, so we’re doing hundreds of them. But if you’re not looking at that or you want us to look at that, Gabriel will give you the contact number and make sure you reach out to us.
Gabriel Lewit: And that contact number is, of course, (847)499-3330. Or you can email us firstname.lastname@example.org.
Steve Lewit: You do that so well.
Gabriel Lewit: Anytime that you’d like.
Steve Lewit: I like the sound of that.
Gabriel Lewit: Thank you.
Steve Lewit: Yeah.
Gabriel Lewit: Okay. There’s a couple other last items here. If you are planning on taking withdrawals this year, you can also make sure it doesn’t bump you into higher brackets or basically a surcharge tax called the NIIT. And what that is basically if you’re above a certain income level, about $250,000 generally, you pay an additional 3.8% surtax on your net investment income. So it’s called the NIIT. And that applies to dividends, taxable interest, capital gains, you name it. An additional 3.8%. And it’s very easily avoidable for many people that if they have the opportunity to flex with some of their income withdrawals, they can do so in a way that avoids that additional 3.8% tax.
Steve Lewit: Yeah. It’s not only that, but driving yourself into a higher capital gains bracket. This is the time of the year to figure out if I’m going to do a Roth conversion or if I have extra capital gains, does it drive me into a higher capital gains bracket from zero, maybe into 15%, maybe into 20%? Does it exempt me from the senior tax freeze where the income limit I believe is $60,000. The thresholds for social security being taxed at 50% of social security or 85% of social security or none of it being taxed. What are the thresholds? Look at all of those threshold numbers and make sure you’re not pushing yourself through a threshold or try to get down below a threshold and save yourselves a bunch of money.
Gabriel Lewit: Mm-hmm. Exactly. And I’ll give you one last final one here from my side. And Steve, you could pick one more if you feel so inclined. But if you haven’t yet or you are worried about assessing what your tax bill might be next April, one of the most common tax planning things we do is what’s called a withholding analysis, where we check, based on your year-to-date pay subs and income and withholdings, what your potential projected taxes are likely to be in 2024 and whether or not you’re likely to owe money or have a refund. The good news is if you are under-withholding, there is still time in your late November, December paychecks to withhold more.
Steve Lewit: Make it up.
Gabriel Lewit: And it will be treated as being evenly distributed if it’s done through your payroll. So, you don’t necessarily have to worry about under-withholding penalties, which is called safe harbor. We won’t get into that here in detail. But there’s some time left on that front if you are concerned about that. I just did one for a client the other day. And they were slightly under withholding and that’s exactly what we’re going to do to try to get them to catch back up here before the end of the year.
Steve Lewit: My last contribution to this wonderful review that is saving people thousands of dollars, I hope.
Gabriel Lewit: Tens of thousands.
Steve Lewit: Tens of thousand dollars. And I just had this too, Gabriel, it was a client that came in and said, I just redid my house, I redid my roof and I earned clean energy tax credits and energy efficient tax credits. I really don’t know much about that, but I know that they’re out there. And I know some smart people really know how to take advantage of that. I think you were looking at putting a roof in at one point, right?
Gabriel Lewit: Yeah, I didn’t end up doing it.
Steve Lewit: You didn’t do it though. I know. Yeah, but there are some folks out there that are really clever about this stuff. And as I said, I don’t know much about it, but definitely worth looking into.
Gabriel Lewit: Yes. Yeah. Folks, there’s so much here on the tax world. I think one of the key things is it’s hard to be familiar with all these things, how they work, when they fit in, when to look for them, when to avoid them. And that’s really where working with a team of experts, if I can toot our own horn, like us can really help save you lots of money. So if we can help you in any way with your taxes, that’s what we’re here to do. I can’t help you with your turkeys. You got to get your own turkeys.
Steve Lewit: It’s the old thing. It’s not what you make, it’s what you keep. And we, like you folks and us folks too, keeping as much in our pockets as we possibly can.
Gabriel Lewit: I was trying to end it with my turkey call back.
Steve Lewit: Well, it was depressing, so I thought I’d end on something else.
Gabriel Lewit: So, give us a call anytime.
Steve Lewit: I had forgotten the turkeys and how you reminded me, yeah.
Gabriel Lewit: (847)499-3330. Or go to sglfinancial.com, click contact us. And most importantly, on behalf of Steve and I and I’m sure you’ll chime in.
Steve Lewit: I got all depressed again.
Gabriel Lewit: I don’t know why, because all I said was we can’t give you turkeys, but that’s okay. Have a very, very thankful and happy Thanksgiving-
Steve Lewit: Definitely!
Gabriel Lewit: … for you and your family.
Steve Lewit: Enjoy. Enjoy and we’ll see you in a week.
Gabriel Lewit: And we’ll talk to you soon.
Steve Lewit: All right, stay well everybody.
Gabriel Lewit: Bye now.
Announcer: Thanks for listening to Our 2 Cents with Steve and Gabriel Lewit. For any questions about your finances, give SGL a call at (847)499-3330. Or visit us on the web at sglfinancial.com. And be sure to subscribe to join us on next week’s episode.
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