Investments

The True Meaning of Tax Planning

By Barber Financial Group

March 31, 2022

The True Meaning of Tax Planning


Key Points – The True Meaning of Tax Planning

  • What Tax-Related Questions Do You Need to Ask Yourself?
  • The True Mean of Tax Planning is Part of Comprehensive Financial Planning
  • The Planning Process Behind Roth Conversions
  • Looking into Donor-Advised Funds and Qualified Charitable Distributions
  • Communication Between the CFP® Professional and CFP Is Critical
  • 22 minutes to read | 38 minutes to listen

Tax filing has been top of mind lately with the April 18 deadline fast approaching. While the tax compliance window is closing for this year, it’s important to remember that the tax planning window is always open. Bud Kasper and Logan DeGraeve discuss the true meaning of tax planning and how to best mitigate taxes over your lifetime.

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Meaning of Tax Planning - Tax Reduction Strategies

Show Resources:

Find links to the resources Bud and Logan mentioned on this episode below.


The Difference Between Tax Compliance and Tax Planning

Bud Kasper: Hello everyone, I’m Bud Kasper. Welcome back to America’s Wealth Management Show. Dean Barber is still out for this week, but he will be back next week. We are looking forward to that. Filling in again for Dean today is Logan DeGraeve. He’s been our go-to guy when Dean has been out. I appreciate Logan for being here.

Today, we’re going to talk about things that are impacting you, especially in the next few weeks, and those are taxes. Taxes can be an exciting subject, so there are a few things that we want to share with you that could favorably impact your result.

Logan DeGraeve: Yeah, Bud. I’m looking forward to this. When we’re talking about tax planning, a lot of people think that is getting your taxes done with your CPA. No, that’s tax compliance.

What’s the True Meaning of Tax Planning?

We’re going to talk about forward-looking tax planning. What can we do today to either put you in a better situation for next year, the following year, and more importantly, 10, 15 years down the way. In addition, this isn’t just for someone that’s about to retire. The way that you’re saving today and tomorrow in your 401(k) or wherever you’re saving is going to impact the way you take money out in retirement.

Bud Kasper: Exactly. We talk all the time about comprehensive financial planning. Well, this is one of the key components to that overarching way of looking at your entire financial life. With that in mind, you have about two weeks left to get your contributions into your IRAs. Make sure you’re maxing out those for the benefit of your family, of course. The door is about to close.

What Tax-Related Questions Do You Need to Ask Yourself?

Logan DeGraeve: It is, Bud. It’s getting down to the end here, but what that does is create opportunities. A lot of people have already gotten their tax return back. There are a lot of questions to ask, though.

  • What can we learn from last year?
  • How is last year going to be different than this year?
  • Are you still working?
  • Will your wages be different?
  • Are you adding a Social Security benefit?
  • Is it your lucky first year of Required Minimum Distributions?

All those types of things are going to drastically change from tax year to tax year. The best example I can give is when someone starts Required Minimum Distributions at 72. Well, their Social Security, maybe wasn’t taxable or was only 50% taxable. Now, they’re looking at around 85% taxability of Social Security. Those are the things that you want to get ahead of.

Bud Kasper: Absolutely. April 15 is the typical time to file your taxes by, but it’s the 18th for this year. We need to keep that in mind. It gives you a little bit more time to think about your contributions into your IRA for last year since this is the one opportunity that you need to do that.

Logan DeGraeve: You also need to make sure that you’re fitting in within the 2021 earning limits that have been set out. Make sure that there are no excess contributions. Bud and I know that excess contributions with the 6% penalty are not very fun to deal with. I encourage you to have those conversations with your CPA, CFP® Professional, or whoever you’re working with.

Tax Planning for Different Sources of Income

Bud Kasper: There is one very big mistake that people can make when they look at their overall portfolio. Whether it’s tax-deferred or taxable in a current year, people oftentimes fail to understand that tax strategies are applied to the sources of income that you have.

Logan DeGraeve: When you think about the sources of income that you have and tax planning strategies, you need to have a distribution plan. That will help you figure out where your money coming each month. That’s where you start.

Your IRAs, your tax-deferred 401(k) dollars, are going to be taxed differently than maybe your after-tax, taxable dollars and your bank accounts. Then, you have the fun Social Security taxation, which is your provisional income. So, there is a lot to it. All your sources of income aren’t taxed the same way. Additionally, what dollars do you spend first in retirement?

Bud Kasper: Exactly. From that perspective, I think people need to understand that as they source their income, they can possibly take some money out of their tax-deferred account. We know that you’re going to have taxes that are applied, but up to what level?

Taking Advantage of Your Low-Tax Years

When we look at tax brackets starting at 12% and then climbing up to 20%, 22%, and so forth, we can calculate ahead of time exactly where would be the best place to take money from time to time to mitigate taxes as much as we can.

Logan DeGraeve: I’ve had clients tell me that they’re at a zero or 10% tax bracket and that it’s great. Well, it may be great for that year, but where are you going to be at five or 10 years from now? You may be looking at a 22%, 24%, 25% bracket—whatever the brackets end up being, which is out of our control. But the point is to make sure that you’re taking advantage of those low-tax years.

That could mean doing Roth conversions or taking some money out of IRAs to spend in future years. Don’t give up that precious 12% tax bracket that may be 22% or 24% down the road.

Bud Kasper: What Logan is talking about here is your effective tax rate. It’s not just the tax rates that you see on a piece of paper that tells you what the thresholds are before you go into a higher bracket. When you look at it from a comprehensive perspective and see the combination of taxable and tax-free or low-tax type of investments, your effective rate might be as little as 10% or 12%.

It’s different for every individual based upon the sources of income that they’re utilizing in a specific year. We want you to understand that a lot of this is in your control.

The True Mean of Tax Planning is Part of Comprehensive Financial Planning

Logan DeGraeve: Absolutely. One question I always ask to anyone that comes through the door for the first time is, “When is the last time that your financial planner, financial advisor, and CPA sat down and had a conversation?” The answer is usually never. That’s a problem. That’s why Bud and Dean always talk about comprehensive financial planning with JoAnn Huber and her team. JoAnn is our CPA. We’ll discuss more techniques and things that we like to use shortly to help illustrate the true meaning of tax planning.

Bud Kasper: I think Logan raises a good point. Most people have somebody doing their taxes and someone else doing their planning or their investments, but the two don’t always coordinate with each other. That is where lost opportunity avails itself. That’s what we’re going to talk about more to help unveil the true meaning of tax planning and how to get the best results possible.

To get those best results, there are some very important to understand about taxes. Specifically, we’ll continue discussing the coordination between what is happening with your portfolio that could cause tax events and how we can possibly mitigate taxes in the future. So, Logan, let’s hear one of your favorite tax points?

Logan’s Love of Roth Conversions

Logan DeGraeve: One of my favorite things to talk to clients about is Roth conversions. It’s simply saying, “Hey, we’re going to move some money from Traditional IRAs and move those to Roth IRAs.” Everyone says, “Well, jeez, Logan. That sounds like a great idea. But what’s the caveat?” Well, you’re required to pay tax in the year that you do that. If you do a $20,000 conversion, you need to pay ordinary income at $20,000.

Three Main Reasons to Do Roth Conversions

There are a few reasons that people want to do that. First, you want to get some money out of those IRAs to eventually lower your Required Minimum Distributions at 72.

The second reason is one that a lot of people don’t think about. And I’ll use a metaphor to explain it. A financial plan is a perfect stained-glass window. This might sound strange, but it’s our job as CERTIFIED FINANCIAL PLANNER™ professionals to throw rocks at it. We want to stress test the plan.

Thankfully, there are a lot of times when both spouses live to 95 and everything is great. But what happens if one spouse passes away prematurely? You may lose a pension or one Social Security benefit, but those Required Minimum Distributions out of those IRAs that have never been taxed don’t get any smaller. The issue is that the surviving spouse becomes a single tax filer. Their bracket gets cut in half.

Another reason people do Roth conversions is for legacy. Because of the SECURE Act, if you inherit an IRA right now, you must take it out over a 10-year period and pay taxes on it. But with the Roth IRA, your loved ones inherit it, they take it out, but they don’t pay taxes on it.

So, those are three main reasons that I like to talk to people about doing Roth conversions. There are plenty of others as well. A fourth reason would be if you’re in your 50s or 60s, why not get money that grows tax free for another 20 or 30 years?

The Planning Process Behind Roth Conversions

Bud Kasper: Absolutely. One of the things that we do as CERTIFIED FINANCIAL PLANNER™ professionals is calculate the amount of tax savings over a given period. Depending on the size of the account, that could mean $80,000, $100,000, $150,000 in tax savings over a 10-year timeframe. I think that’s worth the visit and conversation.

Logan DeGraeve: Absolutely. A Roth conversion needs to be centered around a plan. I had a meeting earlier this week and a gentleman told me he’d been doing Roth conversions and was doing everything right.

I told him that was great and then asked him what his plan was for the Roth conversions. He said he just does $30,000 a year. Well, this isn’t something that we want to shoot from the hip on. There’s a lot more that goes into it than just doing the Roth conversions. What is your effective rate in doing the conversion? What is the actual cost? Another thing we need to think about is Medicare Part B premiums.

Bud Kasper: Exactly. That’s an additional tax that comes from higher income levels. That can be very punitive from the perspective of the people who are on Medicare. Understanding how we can control distributions and keeping them tax free can positively impact what Medicare premium would be. Of course, that’s within the extent of what our capabilities are based upon what that person’s individual situation is like.

The Opportunity within Roth Conversions

Roth conversions are a favorite subject of mine for the simple reason of what Logan just said. There’s opportunity that lies within them. However, you need to be very careful and understand exactly what tax ramifications you may be creating.

If we go back to the basics of 401(k) planning, the intention was to allow people to take their retirement in their own hands. Because of my age, I can say that I remember when 401(k)s were first introduced. Corporations were tired of paying pensions and having to live up to the obligation of making pension payments for that person’s life.

Let’s say that there’s a big corporation with 2,000. There’s a huge responsibility associated with that. From the corporation’s viewpoint, it allowed them to take some of that pressure off the corporation and put it back on the employee. But to enhance that prospect, they agreed to do some matching. So, if you put in 3% and your company puts in 3%, you’ve got 6% going in that’s growing tax deferred. But the tax deferral will catch up with you at some point.

Don’t Forget About Uncle Sam’s Piece of the Pie

Logan DeGraeve: That’s a great point. I’ve had so many people tell me that they have $1 million in their 401(k). Well, that’s great that they’ve done a nice job of saving, but they don’t have $1 million. Uncle Sam hasn’t gotten his piece of that pie yet. That’s what we really want to look at. So, then their question will be, “How am I supposed to know if I should do a Roth conversion?”

Bud Kasper: Good question.

Logan DeGraeve: Well, you need to have a plan. You need to have a financial plan that’s overladen with a tax plan because we need to see what tax bracket you are in. Along with needing to know your current tax bracket, we need to figure out what tax bracket you’ll be in five, 10, 15 years from now. Does it make sense to prepay some of that tax?

The Roth Can Be Beneficial, But It’s Not for Everyone

Sometimes, the answer is absolutely not. Other times, the answer is, “Hey, we’re in a nice 12% bracket now, but when Required Minimum Distributions start, we’re going to be in the 24% tax bracket.” That’s where you really want to look at it. We aren’t saying that this is a strategy that everyone needs to be doing. It is a case-by-case basis.

Bud Kasper: Yeah. The point that I was leading to up to earlier was the fact that you can control this tax outcome while you’re still employed. Almost every 401(k) in America now has a Roth option. How do you know whether you should take advantage of the Roth while you’re working or to be in the traditional? You need to look at your tax bracket in every year to determine that.

If you’re entering the workforce and have a low tax bracket at that time, just go ahead and do the after-tax contribution of the 401(k). But the instant that your tax bracket goes higher because of increases in salary, bonuses or whatever the case may be, you need to go back and revisit that.

Misconceptions of the Roth

At that point, you may want to say, “This doesn’t make any sense now. I’m going to go in and put in after-tax money into the Roth.” In the Roth IRA, that money will never be taxed again. It’s a beautiful thing. And it’s something that’s so incredibly obvious. Yet people still don’t approach it correctly to understand the ultimate benefit when they finally reach that retirement date.

Logan DeGraeve: And for someone that’s getting into the workforce, think about all that time that the money gets to grow tax free. Because the beautiful thing about a Roth 401(k) is that there are no income limits. It doesn’t matter whether you make $50,000 a year or $300,000 a year.

With the Roth IRA, we know there’re some limitations with being single or depending on how you file. They’re still pretty high and it’s something you need to look at. One of the biggest misconceptions is thinking that you can’t do a Roth 401(k) because you make too much money. That’s not true.

Bud Kasper: And that’s the intricacies of what we’re talking about. Let’s say that you have your money in your Roth 401(k) and now you’re retiring. If you don’t move that money into a Roth IRA at that time, then you’ll be back on the schedule of the IRS. That’s opposed to having all the freedom in the world with that money once it’s over in the IRA. This may sound light and somewhat unimportant, but it’s critical.

Logan DeGraeve: It really is. Bud and I talked about that last week and a lot of people don’t know that.

Bud Kasper: I know they don’t.

Logan DeGraeve: A lot of financial planners don’t know that.

Is Now a Particularly Good Time to Look into Roth Conversions?

Bud Kasper: I agree with that, too. No doubt. This is just one of the tips that we wanted to talk about because it can make a substantial difference in your retirement. You could have Uncle Sam in your pocket throughout your retirement or have a much more pleasurable trip by only understanding the importance comprehensive financial planning. It’s also important to work with a CERTIFIED FINANCIAL PLANNER™ Professional who has the background and the expertise to guide you through these very critical aspects of your retirement.

Logan DeGraeve: The last thing I want to share about Roth conversions is that I encourage people to start looking at them now. With the market being down a little bit, it’s a great time to get some money growing in a tax-free environment. Because we will get a recovery.

A lot of the old adage has been, “Hey, we’re not going to look at Roth conversions until the November, December timeframe.” No, let’s start doing it now. Let’s have a plan halfway through the year. This is what we want to do. And then, it makes everyone a little less anxious.

Bud Kasper: If you haven’t been looking at your savings and your future distributions through the lens of a tax professional, you’re making a serious mistake. And that’s the whole purpose of this show is to educate and inform about things like the true meaning of tax planning.

Is a Recession on the Horizon?

Bud Kasper: But I want to sidebar for just a moment because there was an event last Tuesday that was semi historical. In the business of bonds and interest rates, one of the things that we don’t want to see happen, happened. I’m talking about the inversion of twos and 10s—the two-year treasury and the 10-year treasury.

As you would think from a commonsense perspective, the two-year should always be a lower rate than what we have with the 10-year. Well, that flipped. Now, we the two-year is paying more interest than the 10-year treasury. That is not natural leads to talks about a future recession.

Logan DeGraeve: Absolutely. That’s one of the things that Bud and I look at a lot is the twos and 10s and in inversion in the past. We’re not here to scare anyone, but in the past, that’s signaled that there might be a recessionary time ahead. It’s definitely something that we keep an eye on. I’m glad Bud brought it up. Bud, what are your thoughts on what’s going on and what folks need to be thinking about within their portfolio?

A Bleak Future for Bonds?

Bud Kasper: Just to be honest with this, I don’t see a future in bonds. And that’s a tough thing because we’ve always used bonds. If you go back to 2020, bonds were absolutely an excellent investment following the onset of COVID. Bonds offset some of the decline that was experienced in the stock market at that time. Last year, they were neutral. You got a little bit of return, but nothing that substantially provided to the total return of portfolios. And this year, it’s even more so that bonds aren’t probably going to factor in.

As Interest Rates Rise, Bonds Tend to Fall

There are always exceptions to the rule, though. The exceptions could be inflation bonds that can aggregate an increase as interest rates rise and you get a little bit higher income. You can do that through mutual funds and exchange-traded funds (ETFs), but nonetheless, it is something that we need to be very aware of.

Logan DeGraeve: That’s a good point. I’ve been having a lot of conversations with clients about that. Just think about some of these broad bond market funds with longer durations. Those are really, really struggling this year because we continue to have interest rate increases. Those bond prices are going down and the longer the duration, the more sensitive they are to the price movement.

I would encourage everyone to have a conversation about what kind of bonds you hold, why you own them, and what the purpose of them are. Let’s use the Ticker SPAB, the total bond market fund, as an example. As of Tuesday, that fund was off about 5%, 6% for the year. I recently had a review with someone and they said, “This is my bond fund. This is supposed to be safe. What is going on?”

What you’re starting to see is with some of the recovery back in the markets is that higher equity portfolios with more stocks than bonds are outperforming the more conservative portfolios.

Taking a Hard Look at Treasury Inflation Protection Securities

Bud Kasper: At the drop of the market, we did see bonds—even though they were negative—outperforming stocks by a sizable margin. But now, we’re starting to see that even out a little bit. As we look at that, what can you do? Well, people have heard of these things called TIPS, Treasury Inflation Protection Securities. They’re issued by the United States.

If you look at the yield on those right now in a zero-to-five maturity range, they’re coming in at 4.6%. Well, people would say, “Well, gee whiz, that’s great. I love that number.” But if you look at the total return year to date, it’s relatively flat on the year. And yet it still has opportunity to do better than the broad base bond market, which is currently in a slight decline.

With that, the caveat is that you need to know the maturity range of the bonds that are inside your investment. If you want to have a TIPS type of fund in your portfolio, you certainly need to understand what the maturity range is.

If we go in and look at something called the STIP, you’ll see that that’s zero to five years of maturity. The shorter the maturity range, the less volatility you’ll experience.

Logan DeGraeve: And at the end of the day, I think it changes a little bit of what we need to do. We talked a lot last week about liquidity buckets and short-term buckets of money. With the bonds right now, though, that just doesn’t make sense. But you know what? Cash is OK, too, for the money you’re spending today and tomorrow.

Why Cash Could Be a Good Option Right Now

Bud Kasper: I’m pleased that you said that because that’s exactly the advice that we’ve been providing. Cash, even as weak as the return is, is certainly an advantage. When we get a rally in the stock market like we’ve experienced over the last week and a half, you don’t want the bonds to take away from that return.

If you’re in cash, you’re not making any money. We all know that. But it’s not detracting from the return. This is a good strategy for people to consider if they talk to their advisor and understand what’s going on. This might be an excellent approach.

Logan DeGraeve: Bud just made a very good point. It’s funny how short-term people’s memories are. Think about what a lot of our clients were saying last year. Many of them were asking why they were in conservative portfolios because bonds weren’t doing well and the stock market was up 25%.

Then, we get into the first part of this year and they’re like, “Oh my goodness. Even though all the bonds haven’t been doing well, stocks were off 15%, 16% depending on the index. Thank goodness I have these bonds because they’re protection piece.”

But now, as we see the stock market rally, rates going up and bond prices going down, people are asking about getting rid of bonds again. At the same and to Bud’s point, make sure that you’re not just chasing unnecessary risk because you don’t want to have bonds. It’s OK to be in cash for the money you’re spending today, tomorrow, and next year.

A Huge Challenge for the Federal Reserve

Bud Kasper: I think Logan is exactly right with that. We talked about the twos and 10s. That’s the two-year treasury bond versus the 10-year treasury bond. When we have that inversion that we just talked about, meaning the two-year pays more interest than the 10-year does, that usually leads to a recession.

Now, are we going to be in a recession? That could very possibly be a true statement, be we don’t know currently. It is going to be an incredible feat for the Federal Reserve to keep us out of the fire.

Are 0.5% Interest Rate Hikes on the Horizon?

We know they started raising interest rates just a couple of weeks with a 0.25% move. Logan and I talked last week about how we were a little disappointed that it wasn’t 0.5% increase. With the latest information that I’ve been receiving, they’re now looking at possibly doing three 0.5% increases as opposed to six 0.25% increases. That would still be on target with the 1.75% overall increase that they’ve had in mind.

By the way, the increases don’t have to stay on the meeting schedule of the FOMC, the Federal Open Market Committee, that is chaired by Jerome Powell. They can achieve what they want, but they’ll do it in a more dynamic way.

Logan DeGraeve: Bud, I think you’re right. You just hit on a great point. And we knew that when they raised rates on a Wednesday and the following Monday they came out and said they weren’t aggressive enough and that the inflationary pressure is a little bit out of control. So, I wouldn’t be shocked if we see a 0.5% hike very soon.

Bud Kasper: It’s like Goldilocks. Is it the porridge too hot, too cold, or just right? Well, right now we don’t know. We need to be prepared for whatever outcome.

The Fed Is Playing Catch-Up

Logan DeGraeve: The Federal Reserve is playing a little catch-up right now. Bud and I talked last week about why the rates should have started increasing last year. But they didn’t. So, like with anything else where you procrastinate a little bit, you need to play catch up.

Bud Kasper: The Federal Reserve is hoping to create what we call a soft landing. Bonds are challenging the Fed’s hawkish stance at this particular point, but it’s critical that we get this under control for the future of our markets.

Circling Back to the True Meaning of Tax Planning

While we wanted to give a quick update about what’s going on with interest rates, let’s circle back and wrap up with talking more about the true meaning of tax planning. We want to give you a few tax planning tips as we close out the tax year on April 18.

What About Donor-Advised Funds?

We talked a lot earlier about Roth conversions, but one of the other things that’s been an important component for a lot of our clients, has been donor-advised funds. I know Logan has some experience with those. What are donor-advised funds and why are they so important?

Logan DeGraeve: I’ll give a few examples that I’ve run into with clients. Maybe they have some highly appreciated stock and were giving or they weren’t wanting to spend. And maybe they sold a rental property, had a big earning year, got a big bonus, or were going to do a big Roth conversion in a year. So, they could have a very, very large tax bill.

A donor-advised fund allows you to possibly take a bigger tax deduction in one year by donating. You can still space out your donations over a 10, 15-year period. It’s a fund in your name that you can give to whoever you want.

We all hope we have that one year with very good earnings or we sell something. How do we alleviate these taxes? A little more than a year ago, Dean had Chris Rigsby from the Greater Kansas City Horizon Foundation as a guest on The Guided Retirement Show™. Chris and Dean discussed donor-advised funds and charitable giving. They’ve helped us out a lot with donor-advised funds over the years. Donor-advised funds might not make sense for everyone, but we want people to know that they’re an option.

Taking Advantage of the Tax Codes

Bud Kasper: It’s an opportunity to utilize the technique that the tax codes permit us to do. To paraphrase what Logan was saying, if you know you’re going to have a year where the tax bite is going to be severe and you are also charitably inclined, this is a good opportunity to commit X-amount of money into a donor-advised fund. That can last for five, 10, 15 years—whatever the case may be. In the year that you make the donation, you have a tax advantage associated with it because it’ll mitigate your overall tax liability.

Logan DeGraeve: It just depends on what you give to. If you’re given stock or cash, it’s going to be a little bit different. That’s why you need to work with a CERTIFIED FINANCIAL PLANNER™ Professional and a CPA to have those conversations about the true meaning of tax planning. It’s a great opportunity if you want to do big levels of Roth conversions.

Bud Kasper: We’ll ask people what charities they give to? They might say that they give to hospitals, St. Jude Children’s Research Hospital, or whatever the case may be. Then, the other question we’ll have is whether they’ve looked at other charitable giving alternatives. Typically, when people give to charities and their giving from an IRA, they take the money out and they pay tax on it.

Qualified Charitable Distributions

Now, they give the money to the charity and they get a deduction on the charity. But was that the smartest way? Well, one of the very few helpful things that the IRS has done are the creation of Qualified Charitable Distributions. QCDs allow you to take money directly out of the IRA and put it into another IRA in the name of the charity for a qualified distribution. At that point, you get a huge tax advantage associated with it.

Logan DeGraeve: Qualified Charitable Distributions are one of the little known, but best tax planning techniques that we have.

Bud Kasper: Because you don’t have to pay taxes on the contribution.

Logan DeGraeve: I had a client come in the other day and they didn’t need the Required Minimum Distribution. Let’s just say it was $20,000.

Bud Kasper: It’s a nuisance.

Logan DeGraeve: It’s a nuisance. They need to pay tax on it and it’s making their Social Security more taxable. So, they asked me what to do. We started having these conversations about charity and they said that they give $5,000 to $10,000 to their church every year. Then, I asked how they were giving that money. They said, “Well, you send us money, it goes to our bank account, and then we write a check.”

Bud Kasper: Yeah. After you pay taxes.

When the True Meaning of Tax Planning Really Comes to Light

Logan DeGraeve: Exactly. That’s after you pay taxes. So, at Barber Financial Group, we use TD Ameritrade. What Bud and I are talking about here is that you can send money from your IRA at TD Ameritrade to the charity of your choice. If you do the proper paperwork, you don’t have to pay taxes on that income. That’s a huge benefit and it what the true meaning of tax planning is all about.

I’ve had so many cases and I’ve worked with JoAnn, our CPA, where she said, “Hey, Logan, tell them to do a Qualified Charitable Distribution of $2,000.” And I say, “JoAnn, they’re not charitably inclined.” And JoAnn says, “Well, it’s going to save them $4,500.” That can change someone’s mind in a hurry. So, that’s one of the techniques that we like to talk about.

Bud Kasper: There are many people that we work with who are doing distributions to their church, but they’re just doing it every Sunday in the offering plate. QCDs are a better way to do it. And by the way, the churches are aware of this. They should be talking to their parishioners about the advantages associated with this technique. And you should know about it because it is a better way of keeping Uncle Sam out of your giving to a charity.

A 0% Long-Term Capital Gains Bracket?

Logan DeGraeve: I agree. This last topic that Bud and I want to hit on with tax planning is my favorite and is also little known. A lot of people aren’t aware that there is a 0% long-term capital gains bracket. In 2022, there’s a 0% rate that applies for individual taxpayers with taxable income up to $41,675. And for married filing jointly, it’s $83,350. Those numbers are a tad different for 2021.

Bud and I talked earlier about where your money is coming from and where it should be coming from. There’s a real chance that if you have after-tax money, maybe in a joint account, trust account, or bank account with your Social Security, you should be able to be in that 0% capital gains rate. A lot of people assume that it’s 15% or it’s 20%. No, it’s zero for some folks.

Bud Kasper: And again, that’s where we bring in our CPAs. In our firm, we can engage CPAs inside our firm. The coordination between the CPAs and the CFP® professionals is critical to the overarching plan in trying to grow your money in the least taxing way possible. It’s a fascinating field. I’m so happy that I’m in it and you’re in it as well. We can do so much good both for charities and the cases that we’ve been talking about before. But more importantly, we can make sure that the people we represent are trying to do the smart thing.

Communication Between the CFP® Professional and CFP Is Critical

Logan DeGraeve: We can’t stress enough that he true meaning of tax planning is for it to be multi-year and forward-looking. It’s not just where you’re going to be at for 2022 or 2023. Where are you going to be at for 2025, 2026? I love those meetings. That’s what I’ll be spending a lot of time doing in May, June, and July. If your financial planner, investment advisor, or whoever you’re working with is not communicating with your CPA, you’re missing an opportunity.

Bud Kasper: Absolutely. You can advantage of what Logan’s talking about by scheduling a 20-minute ask anything session or complimentary consultation with one of our CERTIFIED FINANCIAL PLANNER™ professionals. I’m Bud Kasper, along with Logan DeGraeve, and we want to thank everyone who listens to America’s Wealth Management Show. Dean Barber will be back next week, and we’ll have a great show for you. Have a wonderful weekend.


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The views expressed represent the opinion of Barber Financial Group an SEC Registered Investment Advisor. Information provided is for illustrative purposes only and does not constitute investment, tax, or legal advice. Barber Financial Group does not accept any liability for the use of the information discussed. Consult with a qualified financial, legal, or tax professional prior to taking any action.