Kevin Gaines (00:00):

It’s the most wonderful time of the year.

Stephanie McCullough (00:06):

Dear listeners, I’m so sorry that we had to subject you to that, but it is Kevin’s favorite time of the year. It’s tax season. Today we’re going to talk to you about how to think about getting yourself ready for taxes, which we all admit are a pain in the ass, but necessary.

[Music Playing]

Stephanie McCullough (00:31):

Hey, dear listeners, we need to let you know that Kevin and Stephanie offer investment advice through Private Advisor Group, which is a federally registered investment advisor.

Stephanie McCullough (00:41):

The opinions voiced in this podcast are for general information only and are not intended to provide specific advice or recommendations to any individual.

Stephanie McCullough (00:50):

To determine which strategies or investments may be suitable for you. Consult the appropriate qualified professional prior to making a decision. Now, let’s get on with the show.

Stephanie McCullough (01:06):

This is Take Back Retirement, the show that’s redefining retirement for women. Retirement is an old-fashioned cultural concept. We want to reclaim the word so you can make it your own. I’m Stephanie McCullough, financial planner and founder of Sofia Financial, where our mission is to reduce women’s money stress and empower them to make wise holistic decisions so they can get back to living their best lives.

Stephanie McCullough (01:29):

Kevin Gaines is my longtime colleague with deep knowledge in the technical stuff: investments, taxes, retirement plan rules. He’s a little bit nerdy and quantitative, I’m a little bit touchy-feely and qualitative. Together, through conversations and interviews, we aim to give you the information and motivation you need to move forward with confidence. We’re so glad you’re here.

Stephanie McCullough (01:55):

Coming to you semi-live from the beautiful Westlakes Office Park in suburban Philadelphia, this is Stephanie McCullough and Kevin Gaines of Sofia Financial and American Financial Management Group. Say hello, Kevin.

Kevin Gaines (02:06):

Hello, Kevin.

Stephanie McCullough (02:07):

Well, we had to do it at some point. This is the time Kevin gets a little excited. I get a little blah because I got to do my own taxes and it’s not very fun. So, we thought we’d come to you with a few helpful hints on how to get yourself ready for tax season and also what you can learn from going through the exercise.

Kevin Gaines (02:28):

Yeah, I mean, yes, I do enjoy geeking out on all the little details and all the little neat tricks and loopholes to watch out for or to take advantage of. But even I don’t enjoy all the data gathering, trying to get all the forms, making sure I got all the forms. And it’s inevitable as you got everything together, you think you’re finally on top of it. “Oh, crap. What about that institution?” And then you’re scurrying around trying to find out one other form. That part is a pain. I will admit.

Stephanie McCullough (03:01):

It is a pain. So, Kevin, question number one. Should our dear listeners be doing their own taxes?

Kevin Gaines (03:09):

That’s a great question. I’m glad I don’t have to have a professional dog in the fight to say, “Oh, yes, no,” because frankly, it depends. If you’ve been doing it and you continue to enjoy it, or at least don’t mind it. Yeah, probably keep doing it yourself.

Kevin Gaines (03:26):

If your tax situation is fairly simple, you have earnings from a job, you have a savings account, maybe one or two other little things, again, it’s probably not all that taxing, no pun intended to do it yourself. And it’ll be cheaper than the other options.

Kevin Gaines (03:49):

On the other hand, you don’t enjoy it. You just dread it. No matter how simple your tax situation is, it may be worth paying a couple bucks to somebody, so you don’t have to mess with all of this stuff. Or as much of it.

Kevin Gaines (04:06):

But be warned, even if you do use a professional, you still got to get all this stuff together. They’re not going to magically find all these forms for you. So, there’s always going to be some involvement on your part.

Stephanie McCullough (04:20):

That was my big sad realization when we first hired an accountant to be doing our taxes. I was like, “Wait, I’m still doing all the work.” But of course, there’s the kind of in between option of using some of the tax softwares.

Kevin Gaines (04:34):

Yeah. I mean, we just saw the Super Bowl and if you didn’t know tax software existed before you do now. And I used some of that stuff before I started using the accountant, Stephanie. I used that stuff for years. And what I liked about it was it was really good about walking you through all of the potential forms and issues and things for you to consider.

Stephanie McCullough (05:03):

Yeah. They ask you the right questions. Right?

Kevin Gaines (05:05):

Right. At times it got tedious because it’s like, I don’t care about that. I don’t care about that. I don’t care about that.

Stephanie McCullough (05:09):

True. They’re going to ask you everything, even if it doesn’t apply.

Kevin Gaines (05:13):

Exactly. But sometimes it’s like, “Oh crap, I forgot about that.” So, it really is a good intermediate step between doing it as my dad used to sitting at the dining room table.

Stephanie McCullough (05:26):

With the calculator or the 1040 form.

Kevin Gaines (05:30):

And I always enjoyed that time of year because I always got to learn a few new words. And-

Stephanie McCullough (05:36):

You mean words that you shouldn’t say at school?

Kevin Gaines (05:38):

Yeah, let’s just leave it at that. Good times. But and then actually having to use an accountant, this is where that tax prep software, it serves a really good use for a lot of people.

Stephanie McCullough (05:53):

Yep. And then if you want to go use an actual professional human, there’s a couple different options there too. Probably the most cost-effective is going to be kind of what we think of as your storefront tax preparers or your H&R Block, Jackson Hewitt type.

Kevin Gaines (06:09):

Right. I mean, and we’re talking about trained professionals, they’re not necessarily CPAs or EAs or any of that, but they still have to go through training. They still have to go through continuing ed. So, you’re not getting just some schmuck that some company just grabbed off the street.

Stephanie McCullough (06:31):

And you are talking to a human, not a piece of software. So, that might be attractive to some people.

Kevin Gaines (06:36):

It really is. You have questions or whatever. I’ll tell you what, I hate using the chat bots on a lot of these websites or whatever. Because you can’t always quite get the question asked the right way.

Kevin Gaines (06:52):

But when you’re talking with somebody, you can banter back and forth a little bit and actually narrow down to what the real question is. For me personally, I find that very useful.

Kevin Gaines (07:07):

But they’re also just going to take what you give them, process it, manipulate it, get it into the tax form and say, there you go. And you’re not paying for this either. They’re not going to ask a series of six or seven questions to figure out is this the best strategy for you down the road as opposed to the next step Stephanie, which is our trained personalized professionals, CPAs, tax attorneys, enrolled agents, you hope to get those conversations from those people.

Stephanie McCullough (07:49):

Yeah. So, CPA, certified public accountant does many things accounting-wise, but also tax returns. And then as we heard on episode 76 from our friend Marianne Borneman about enrolled agents, EAs, where they have to go through very specific training and certifications on the tax code and tax preparation specifically. So, that is also another option.

Stephanie McCullough (08:14):

I know that there’s a shortage of accountants out there, so sometimes it’s hard to find a person to work with.

Kevin Gaines (08:21):

Yeah. I mean, and just like your financial advisor, it’s somebody you want to be comfortable with. If you’re dreading talking to them-

Stephanie McCullough (08:31):

Might not be the right fit.

Kevin Gaines (08:32):

How much value are they really delivering? Right.

Stephanie McCullough (08:35):

Yeah. Alright. So, you mentioned forms. What do people need to gather before they can do their taxes? Whether they’re doing it themselves, with the software or with the actual professional human?

Kevin Gaines (08:50):

Well, as I’ve already made reference to, this is not going to be an exhaustive list because I guarantee you something’s going to get forgotten.

Stephanie McCullough (08:58):

Oh yeah.

Kevin Gaines (09:00):

But did anybody pay you this year or last year? If the answer is yes, you need to get a tax form from them, probably a W-2, but it could also be a 1099 if it was just like a side hustle.

Stephanie McCullough (09:13):

W-2 is if you’re on a salary basis, on a payroll, 1099 if it’s independent, whether independent contractor or consultant, that kind of thing.

Kevin Gaines (09:22):

Exactly. Financial institutions, your banks, credit unions, your investment accounts, all of them are probably generated some sort of tax or income for you that you should be paying tax on.

Stephanie McCullough (09:40):

Which is also usually a form 1099. Right?

Kevin Gaines (09:42):

Correct.

Stephanie McCullough (09:44):

In different flavors.

Kevin Gaines (09:46):

The problem with some of these institutions though is if you didn’t earn all that much, if you got like a dollar or two in interest, they’re not necessarily going to send you a tax form.

Stephanie McCullough (09:58):

In the mail.

Kevin Gaines (10:00):

In the mail. They’ll send out an announcement saying, “Listen, if you got less than $5 of interest, we’re not sending you a tax form.” So, what you would need to do then-

Stephanie McCullough (10:07):

Or $50 or a hundred dollars. Right. It’s not necessarily just de minimis amounts.

Kevin Gaines (10:11):

Correct. So, what you’ll have to do is check your bank statement, for example, year end bank statement. Typically, it says year-to-date interest earned. There’s your number. Nice thing about bank interest is it’s fairly straightforward. It’s just interest.

Kevin Gaines (10:29):

When you start getting into investment accounts and qualified dividends and all of that lingo, that’s harder to do off just a brokerage statement. You actually do need the tax form. But for your bank interest, worse comes to worse. You can grab your 12/31 statement and that should keep you out of trouble.

Stephanie McCullough (10:52):

So, if you’ve got investment accounts, you should be getting a 1099 from them. But I kind of got in trouble one year when they first started not mailing them. I was so used to gathering what came in the mail. I didn’t even think to look online.

Stephanie McCullough (11:04):

And one particular large institution, which I won’t name, but lots of people have accounts with them. I didn’t realize I had to go online to my account there and download my 1099. So, keep an eye out. Not everything comes in the mail anymore.

Stephanie McCullough (11:18):

So, another thing you’ve got to think about is, like Kevin said, if you’ve got income, income could be from a pension plan, from an annuity, and even from a 401(k), if you’re taking out distributions, there’s a 1099-R, which means a retirement plan distribution from most of those. You’ve got to gather up those as well.

Kevin Gaines (11:40):

Yes. And don’t automatically assume, “I heard somebody say this wasn’t taxable, so I don’t need to submit.”

Stephanie McCullough (11:50):

True.

Kevin Gaines (11:52):

Even if that is true, which nowadays not very often, you still want to have that form because a lot of times the government, IRS is still going to want to know that you received that money and there might be another field, one or two steps lower saying, not subject to taxation, but you’ll still have to report it in a lot of situations.

Stephanie McCullough (12:16):

Right. So, that’s income. What about outflow? Certain things we spend money on are tax deductible in the year. And this is another big one where we may or may not know, but there are certain categories of stuff that it’s useful to gather and provide to the preparer or have it ready when we’re walking through the software.

Kevin Gaines (12:40):

Yeah. I mean, number one, for most of us, our mortgage statement. And if your mortgage got sold during the year, you’re going to be looking for two mortgage statements.

Stephanie McCullough (12:52):

This is true. You might have had one for a few months and a whole different provider.

Kevin Gaines (12:56):

That’s fresh in my head because I got the second mortgage statement in the mail just the other day. That’s right. We did get sold.

Stephanie McCullough (13:04):

So, if you’re looking through your forms and you think, “Here’s my mortgage interest statement,” you might not be done because you might actually have two of them.

Kevin Gaines (13:10):

Yeah. I mean, and quite frankly, the IRS isn’t going to help you out there because this is stuff that is going to reduce your income. The IRS has no interest in helping you reduce your income.

Stephanie McCullough (13:22):

And just know that when financial institutions provide these forms to you, they’re also providing a copy to the IRS. So, the IRS knows. You can’t be like, just pretend you never got it and pretend it didn’t happen. This stuff has been reported officially.

Kevin Gaines (13:36):

Yeah. The IRS is really good about sending letters to you saying, “Hey, we matched up all the stuff we got versus what you submitted and you’re off by $7, please send us a check for $8 because we’re penalizing your ass for making a mistake.”

Stephanie McCullough (13:53):

That’s how I discovered the one financial institution that I hadn’t downloaded the 1099. I got a letter; I got a letter from the IRS.

Stephanie McCullough (13:59):

So, mortgage interest, charitable contributions. There are limits there and we’re not going to get into that. But you want to have your acknowledgements of your charitable contributions, medical expenses sometimes.

Kevin Gaines (14:15):

I mean, and again, you want all this stuff documented. 20, 30 years, it was easier to just come up with an estimate, a good faith estimate. I’m not talking about people trying to engage in shenanigans or anything, but it was okay to just wink, wink, nudge, nudge. Okay. As long as you’re not asking for too much, just come up with some reasonable number and you’ll be fine.

Kevin Gaines (14:38):

They’re getting a lot more strict about the filing requirements that they want an acknowledgment from the charity, for example, saying, “Yes, you did send $500.”

Stephanie McCullough (14:50):

Yeah. You usually get those letters or emails or something with the acknowledgment of the date and the amount. So, gather those up.

Stephanie McCullough (14:57):

Kevin, if someone does have their income on a 1099, meaning they’re a business owner or they’re an independent contractor or some sort, there are some other deductions that are important, expenses.

Kevin Gaines (15:12):

Yeah. I mean, as a business owner, myself, and Stephanie, you know this too. We get this 1099 saying, we got all this revenue, but you know what, a hundred percent of revenue doesn’t go into a hundred percent of my pocket.

Stephanie McCullough (15:25):

This is true.

Kevin Gaines (15:26):

There’s a lot of expenses and you need to have those tracked. You need to know what you spent on software programs, on travel. There’s lots of little places where this can come-

Stephanie McCullough (15:41):

Rent.

Kevin Gaines (15:42):

Into play. Rent.

Stephanie McCullough (15:44):

Other people that you might’ve paid. You’ve got to get them 1099s. And then, professional education or networking groups. Anything you do that supports your business. If you have actual products, raw materials, and that kind of thing.

Kevin Gaines (16:02):

Yeah. Generally speaking, if you used it to generate revenue or to help you attempt to generate revenue, there’s a decent chance you’re going to be able to deduct it, but you’ve got to be able to prove it.

Stephanie McCullough (16:14):

Right. Now, if you have a side hobby where sometimes you make a little money, there are rules about how many years in a row you can claim a loss on a business, then it just becomes a hobby in the IRS’s eyes. If you’re spending thousands of dollars on jewelry making equipment and classes and materials, and you only make a couple hundred dollars every year on selling jewelry, they’re going to get tired of that.

Kevin Gaines (16:41):

And there’s some jobs that they’re very specific. IRS is very careful not to let people say, “This is a side job,” professional gambler, professional investor.

Stephanie McCullough (16:53):

Interesting.

Kevin Gaines (16:54):

So, I almost wonder if there’s a connection between the two sometimes. But those two particular job descriptions and there’s others, but they’re rife for abuse. So, if you’re going to try to claim you are one of those, the IRS is going to look at you really hard to make sure you are legitimate in that claim. I know, I looked into it.

Stephanie McCullough (17:20):

And then you want to make sure you let your tax preparer know, or the software will ask you if there was a big event that affects your taxation. If you bought a house, if you bought an electric vehicle, if you certainly got married, got divorced, had a kid, all these things can affect your taxable filing status and situation. So, you want to make sure you alert whoever’s helping you out to these changes in circumstances.

Kevin Gaines (17:50):

And again, this gets to our earlier point of the more complicated your tax life becomes, the more you want to elevate the level of service you get.

Stephanie McCullough (18:00):

Yep. If you change state, if you move to a different state.

Kevin Gaines (18:05):

Right. Change in life arrangement, marriage, divorce, self-employed, you’ve got a business. I mean, those are all, even if you can do all this stuff yourself, the time and effort involved may not be worth it.

Stephanie McCullough (18:21):

Yep. So, next topic. One of the things that Kevin and I have observed over the years, if you are using a tax profession professional, a CPA or an EA, sometimes they get super focused on the year in question. They’re going to look at your taxes for, we’re recording this in February of 2024. They’re going to be looking at your 2023 taxes and seeing everything they can possibly do to reduce your taxable income in 2023.

Stephanie McCullough (18:48):

And sometimes it gets to a point where it’s actually a little bit shortsighted. You want to zoom out a bit and look at the bigger picture. You don’t want to make a move this year that could come back to haunt you down the road. What are we talking about, Kevin?

Kevin Gaines (19:03):

Yeah. We’re really saying make sure you see the forest and not just the tree. It’s all well and good to get a low number this year or a big refund this year, but if that sets you up down the road, because you’re going to have to start taking social security, you’re just going to start taking required distributions from retirement accounts.

Kevin Gaines (19:26):

Or you know or suspect you’re going to lose significant deductions or change in your filing status, unfortunately, be aware of these situations to say maybe this upcoming year is not the year for me to try to reduce my income, but I actually want to realize more income.

Stephanie McCullough (19:53):

Yeah. And what we’re talking about is these things where you have the choice of when to recognize from a tax perspective the income. Such as retirement accounts is a big one that we see all the time. You could take money out of your IRA or 401(k) without a penalty any time after age 59 and a half. You don’t have to start taking it out until 70 and a half, then 72, then 73, then 75. They keep changing the dates on this.

Stephanie McCullough (20:18):

But and if you inherit it, as we talked about in episode number 78, there’s a whole different set of rules. So, you can always take more. But in our experience, the CPAs are like, “You don’t want to do that. That’ll bump you to a higher tax bracket. You’ll pay more taxes this year.” But you’ve got to look down the road like Kevin said and see what’s coming. It might not be a terrible idea to take more [income] this year, depending on where you fall in the tax brackets.

Kevin Gaines (20:45):

Yeah. Stephanie, great example that you just gave was inherited IRA. If you’ve got a kid, if your kids are going to be going to college in two or three years.

Stephanie McCullough (20:56):

Yes.

Kevin Gaines (20:57):

You know what, maybe you do want to take a bit larger distribution out of that inherited retirement account now, so your income isn’t higher when you’re trying to file for financial aid, for example. Or speaking to another episode we just recently did talking about Medicare is age 63 is a big number because when you file for your Medicare at age 65, they look at what you earned in your year of … 63.

Stephanie McCullough (21:31):

Two years prior to filing. Yep.

Kevin Gaines (21:33):

Two years prior. So, if you know you’re 61 or 62 now again, let’s take some more money now, so we don’t get stuck with this IRMAA surcharge on our Medicare premiums, for example.

Stephanie McCullough (21:50):

Yep. There’s a lot of moving pieces. And I think, I mean, the accountants certainly know this stuff and if you could ask the questions like, “Ooh, hey, what about when I start applying for Medicare?” Or we’ve seen some business owners who are so proud that they’ve gotten down to zero income for their taxes because they have a lot of expenses of their business.

Stephanie McCullough (22:12):

Well, that also means a zero on your Social Security earnings that year. See our episode with Heather, episode 82 on Social Security getting the most from it. That could be shortsighted as well.

Kevin Gaines (22:25):

But this is also how you can make the relationship with your tax professional better. Let them know you’re thinking of these questions. That you’re thinking of the future. Because as you know, conversations with Marianne, for example, has said they’re trained to think of this current year because that’s what most of their clients are worried about.

Kevin Gaines (22:48):

And if they even try to bring it up, sometimes they get the pushback. So, they have not so much an incentive, but it’s their relationship they have with their client. If they’re only worried about that current year, then that’s what they’re going to focus on. Let your accountant know, “I’m interested in what my tax bill’s going to be three, five years down the road. So, if there’s something we need to be doing, let’s have a conversation.”

Stephanie McCullough (23:12):

Yep, yep. That’s a good point. And then the other piece of that is if you have the option to make an IRA contribution, because for 2023, the deadline is April 15th, 2024. You could be deciding, do I make a pre-tax? Like traditional IRA contribution, which would be tax deductible, which may make your CPA happy, or do I make a Roth contribution? You don’t get any deduction for a Roth contribution.

Stephanie McCullough (23:38):

But if you go back to our episode 20 on Roth IRAs, the good part down the road is that you don’t owe any tax on the money you take out of a Roth IRA down the road. So, that’s another clear question of kind of balancing the today benefit with the future benefit.

Kevin Gaines (23:56):

And that actually gets to a broader point that we’ve made before, Stephanie, of working with your whole financial team.

Stephanie McCullough (24:02):

Yeah.

Kevin Gaines (24:05):

After all this is done and all the paperwork is put together, having a meeting with you, your financial advisor, your tax professional is a good way to review everything. And again, this gets us to that bigger picture of this year’s all well and good, but what is things going to look like 3, 5, 10 years down the road for me?

Stephanie McCullough (24:30):

Or even near term. Right Kevin? So, once you look at your tax return, when it is complete and you see, “Do I owe extra? Am I getting a refund?” There are some things that you might want to decide for just for 2024, for the year you’re in now. Like adjusting your withholding if you’re a W-2 employee.

Kevin Gaines (24:52):

Yeah. I mean, that’s the other advantage of getting the taxes done. But the other thing you want to do after you hit submit to the IRS of your tax return for last year is say, what do these numbers tell me about this year? Or the year going forward withholding, like you just said, Stephanie, is that something I need to adjust or want to adjust?

Kevin Gaines (25:17):

Maybe there was something that happened in your life or you just said, “You know what, I paid too much this year, or my refund was too big, and I’d rather have that money during the year instead of all at once.”

Kevin Gaines (25:29):

And that gets back to an age-old conversation of if you’re bad at savings, is it really that wrong to have big withholding during the year just to have a forced savings account? For some people, that’s what works for them. But for most of us, we’d rather have that money during the year. At least I would.

Kevin Gaines (25:53):

But it’s also a good reminder when you look at the form, did you actually make your IRA contribution last year? Because you’ll get the form from your IRA custodian and they’ll tell you, “Hey, you made a contribution or you didn’t make a contribution,” you may have forgotten. This is a good time to say, “Oh crap, let me get the money in. I still have time,” in most cases.

Stephanie McCullough (26:18):

And go back to our episodes number 20 on Roth IRAs and number 12 on IRAs. There are rules about deductions and, and contribution limits and all that stuff, which we’re not going to get into right now, but everyone could make an IRA contribution. It’s just what kind and is it deductible?

Kevin Gaines (26:34):

Exactly. And the other thing is, and this is little less than what you actually see on the tax forms, but since we’re talking about revisiting all your withholdings and deductions, it’s a great time to ask the question, am I older than I was last year, and can I now take advantage of catch-up contributions? With retirement, your workplace retirement accounts, once you hit the age 50, you can put extra money into your retirement account.

Kevin Gaines (27:01):

And once you hit 55, you can put more money into your HSA account, your health savings accounts, if you have the ability to make those savings, you don’t want to miss the opportunity.

Stephanie McCullough (27:14):

Absolutely. For HSAs, remember from episode 27, that’s the one account where you’re not balancing, is it the tax benefit today or the tax benefit in the future because they’re triple tax preferred, no tax when you put the money in, no tax when it grows, no tax when you take it out. If you take it out and follow all the rules.

Kevin Gaines (27:32):

Yeah. So, that’s definitely one you don’t want to miss.

Stephanie McCullough (27:36):

Yeah. If you’re eligible.

Kevin Gaines (27:36):

In my unbiased opinion.

Stephanie McCullough (27:37):

Which I sadly am not.

Stephanie McCullough (27:41):

So, the other thing that you can see though, from your taxes, from your tax return when it’s done, which is important, Kevin, that we always talk about being aware of is where do you fall in those tax brackets? Are you at the bottom of a bracket? Are you at the top of a bracket? Are you close to hitting the next bracket?

Stephanie McCullough (27:58):

Obviously, it’s too late to do anything at this point, right after you finish your tax return for the previous year. But this year, “Oh, okay. You know what, I’ve got some more room left in the 22% bracket. Maybe I do want to take some more out from that IRA I inherited from my grandmother this year, even though I’m not required to. Maybe that’s a good idea because down the road I might be paying a higher tax bracket on it.”

Kevin Gaines (28:23):

Or do a Roth conversion. Again, I have the room and it’s not going to cost me a higher percent of my income to get it done. So, why not do it where I know what the rates are.

Stephanie McCullough (28:37):

Now, we don’t know what the year holds for us. You make it a huge bump in income for whatever reason, lottery winnings, pay raise at work and that may throw all this math off kilter.

Stephanie McCullough (28:50):

Yes. We don’t have a crystal ball.

Kevin Gaines (28:52):

At least be aware now. And then October, November, revisit that conversation. Put it on your calendar. Am I still where I think I am on the income, and can I do something to take advantage of that information?

Stephanie McCullough (29:10):

Yep. Good idea to have that meeting we talk about with your financial planner and your tax preparer, later in the year to say, “Okay, what’s going on? Look, our income was lower year this year than we thought it wasn’t that great a year at work. Maybe I should do some Roth conversions this year.”

Kevin Gaines (29:26):

Or I had a huge expense at work. We bought a big piece of equipment or machinery or a big software program. So, I actually have, again, less income so I can do these other things maybe.

Stephanie McCullough (29:40):

So, it’s all about being aware. I mean, we’re not saying that you can plan this perfectly and get it exactly right. And also, just a little reminder, remember the way the tax brackets work, if you have a little bit of extra income and you are actually technically, “in a higher tax bracket,” meaning let’s say you’ve reached this amount and you’re in the 32% tax bracket, that does not mean that you’re paying 32% on every single dollar of your earnings.

Stephanie McCullough (30:09):

It’s a marginal tax bracket, which means the amount above that limit, that’s what you’re going to pay 32% on. So, if you guess, and you get it wrong, okay, so you’re paying the higher amount on a little bit of money. It’s not the end of the world. We’re not going for precision here.

Stephanie McCullough (30:25):

But that awareness of where you are in the tax brackets now and where you might be in the future, can pay off. It can mean that being aware of this and planning strategically can help reduce your lifetime tax bill, which is the dilution of your hard-earned assets to Uncle Sam.

Kevin Gaines (30:48):

That’s right. I mean, remember all of these conversations are how do we improve our overall financial wellbeing? How do I have more resources for me today and for my future self? Taxes are a big thing. What you can do to reduce your overall lifetime tax situation is a good idea. Maybe that means you reduce the tax bill a lot today, or maybe you don’t, but remember this is a long game. This isn’t just a one and done.

Stephanie McCullough (31:23):

And we’re not talking about doing anything outside of the rules. We’re working within the law. The tax code is endlessly complicated, which is why Kevin gets so excited about learning about it. But we’re not saying to do anything unethical at all. Just being aware, conscious, and intentional about how you position yourself year to year, it can help.

Stephanie McCullough (31:49):

Thanks so much for being with us. We’ll talk to you next time. It’s goodbye from me.

Kevin Gaines (31:54):

And it’s goodbye from her.

Stephanie McCullough (31:57):

Be sure to subscribe to the show and please share it with your friends, show notes and more information available at takebackretirement.com. Huge thanks for the original music by the one and only Raymond Loewy through New Math in New York. See you next time.

Voiceover (32:12):

Investment advice offered through Private Advisor Group, LLC, a registered Investment Advisor. Private Advisor Group, American Financial Management Group, and Sofia Financial are separate entities. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investments may be appropriate for you, consult your financial advisor prior to investing. This information is not intended to be substitute for individualized tax advice. Please consult your tax advisor regarding your specific situation.