89: Our Favorite Tax-Saving Strategies for 2024

0:28The Burlington Coat Event is back. Oh, Hilton, stay. Your beds are soft and cozy. No lumpy couch, no stiff futon. No shower line at crack of dawn. Oh, Hilton, stay. Oh, Hilton, stay. When you want holiday comfort you can count on, it matters where you stay. Enjoy comfortable rooms and friendly service when you stay with Hilton instead. Save up to 25 % this season when you book with Hilton. Hilton for the stay. Terms apply. Hey, everyone, and welcome back to the Rich Habits Podcast, a top 10 business podcast on Spotify. My name is Austin Hankwitz, and I'm joined by my co-host, Robert Croak. Robert is a seasoned entrepreneur in his 50s with lifetime revenues of over 300 million, and I'm an entrepreneur in my late 20s with a background in finance and economics.

1:16Since quitting my full-time job in corporate finance a few years ago, I've built a seven-figure media business and actively advise some of the most well-known fintech companies around the world. Now, as the show name might suggest, every episode, we talk about rich habits as they relate to business, finance, and mindset. However, we try to bring you two unique perspectives. One from an industry veteran, which is Robert, and then the other, myself, someone who's still in the process of building wealth and figuring it all out. So, Robert, what are we going to be talking about in today's episode?

1:45I'm so excited about today's episode, but I'm a little upset that you had to lead us in with Top 10 Business Podcast. Everyone, share the episodes. You gotta keep us in the top five. We need your help. We put all this work in, all this value to make all of you become financially free. So help us stay in the top five and we would love to see you there. Okay, so in today's episode, after my mini rant of the Rich Habits Podcast, we're gonna be sharing six of our favorite tax saving strategies for 2024. And I know six might sound a lot, but we will rapid fire and get through these because they're very important and we want all of you to take advantage of them.

2:26So considering we only have two months left in the year, we're hoping some of these strategies can serve as some last minute ideas for you all, allowing you to save thousands of dollars, if not tens of thousands of dollars on your tax bill come April of next year. And if you're anything like me, come October. Robert, this episode is gonna be so much fun, right? These tax strategies will help lower your tax bill if you're a W-2 employee, if you're a side hustler, if you're a full-time entrepreneur, somewhere in the middle. These are tons of ideas that anyone can implement that are really going to move the needle for you.

2:58So let's start with our first strategy. Number one, tax loss harvesting. This is a strategy we've talked about ad nauseum in the past, specifically when we spoke to the CEO of freck.com about the automation of it. But simply put, this is a tax strategy that involves selling your stock at a loss to offset capital gains that are realized from other investments. Here's how it works. So let's say that like me, you've been dollar cost averaging into Bitcoin since the beginning of 2023, and now you're up big on your investment. Let's pretend you sold that Bitcoin for a$20 ,000 capital gain and you realize that profit, you sold it, you now have $20 ,000 more in this account than you started with.

3:39You can offset some of that$20 ,000 profit with losses that you also incurred during the same calendar year. So for example, I know Super microcomputer stock is getting crushed right now because of all the fraud going on. It's down 75 % since the recent all-time highs. So if you got caught in the crossfire of that, you could sell your SMCI stock for a, for example, potential loss of let's say like$5 ,000, which means you can use that$5 ,000 loss that you incurred over here to offset a$20 ,000 gain that you incurred over there, So you made$20 ,000 with Bitcoin, you lost$5 ,000 with SMCI, and when you count up$20 ,000 minus$5 ,000, you really now only owe taxes on the 15.

4:24Now, what's really important about this is the timing, right? This only happens during the same calendar year. So if you sold your SMCI stock January 2nd of next year, you wouldn't be able to use that loss to offset the gain incurred in 2024. So make sure you have those timings figured out for the same calendar year. And a quick pro tip that I want to add to this, and that was a great breakdown, is that if you don't have capital gains to offset, you can still sell up to$3 ,000 of your losing stock and use those losses to offset your straight up taxable income. So that's a little pro tip that a lot of people don't know about that I wanted to get in there, but that is a great breakdown.

5:02So let's go into number two, and that is health savings accounts, and they are triple tax advantage. And this is essentially a savings account you create, but the money you spend out of it has to be specifically used on medical expenses. Think prescription meds, medicines, co-pays, and other medical expenses. Now, a few things to remember that are very important here is you can only contribute to an HSA if you're participating in a high deductible health plan. There are specific limits on what qualifies as that, so make sure you do the research there, but most people do qualify. Next, you can only contribute$4 ,150 per year towards this account in the year of 2024 as an individual and$8 ,300 as a family.

5:49Now, the cool thing is this$4 ,150 contribution is tax deductible, which means if your effective tax rate is 25%, like me, you're immediately saving$1 ,037 on your taxes for literally saving money for those inevitable health expenses. I love this plan, and it's just there's so many advantages to it. Now let's talk about that triple tax advantage. So Robert just laid out the first tax advantage, which means that you contribute this$41.50 into the account. You get to write that off your taxable income, so that's number one. The second way is once this money is in your HSA, you can now invest those contributions into the S &P 500, having it grow tax-free over time, right?

6:34So let's say you're my age. You don't really have that many medical expenses. I don't have any prescriptions. I don't really spend that much on medical, but I could still be investing this 4 ,000 a year and the markets are up 55, 65 % over the last two years, Robert. I mean, let's call it$3 ,000 so far of profits that I would have realized in this HSA. That 3 ,000 of profits are tax-free and they stay tax-free assuming I spend those profits on medical expenses. So that is the three ways that the HSA is triple tax advantage, the contributions, the growth, and the spending are all tax advantage.

7:08Now, here's the best part, Robert. For people that are below the age of 65, they have to spend these profits and the contributions into this HSA on those medical expenses. But over the age of 65, this turns into essentially a traditional IRA. You can take the money out and spend it any which way you want. You do have to pay the taxes on those withdrawals like you do with another traditional IRA. So the HSA, if used correctly, triple tax advantage, it's one of our favorites. I love it. Yeah. And I don't think it's talked about enough. That's why I'm so excited about this episode. You know, we've been preaching to the mountaintops.

7:42It's not what you make, it's what you keep. And these strategies are exactly those little hacks that we talk about to our audience to really help them keep more of their money and pay their share of taxes, but do it the right way. Now, our third point is one that is kind of new to me, maybe not new to Robert, but it's a really interesting one, and that is donating your stock. Joining us to help break down this topic is Steve Latham, the CEO of DonateStock.com. It's a really, really interesting tax-saving strategy, so let's jump in and see what he has to say. Super, super excited that Steve is joining us for this section of the episode, so let's just jump right in, Steve.

8:19First and foremost, what is stock gifting, and how does it impact someone's taxable income? It is as it sounds. It's donating your appreciated shares directly to a nonprofit organization. It could be charity, a hospital, school, community organization, community foundation. Any 501c3, if you donate your appreciated stock, there's significant tax benefits and you can have more impact by giving a larger pre-tax gift. And so just we're on the same page, you keep saying appreciated stock. So let's say, for example, I took$10 ,000 two years ago, I bought Nvidia stock with it, and now it's worth$200 ,000, right?

8:52So my cost basis of cash out of pocket is$10 ,000, but it's now worth$200 ,000 in my brokerage account. You're saying I could take that$200 ,000 value of stock, gift it to a nonprofit 501c3 organization and write off that$200 ,000 against my taxable income? Yeah, it's effectively allows you to donate that stock. So if you've owned it for more than 12 months, you can deduct or itemize your deduction the full$200 ,000 in that case. That$190 ,000 gain, if you had sold the stock and then give the cash, you're going to get hit with a capital gains tax. depending on where you live and how much money you make, that can be anywhere from 18.8 % to 35%.

9:28So it also reduces the amount that you can then deduct. So you would, if that, let's say, let's round up$200 ,000 and say it's a 25 % tax, 50K would come off the top to capital gains. Instead of paying that in taxes, you can gift that directly to the nonprofit, the entire amount, they're tax exempt, so they don't pay tax on it. So they get a larger pre-tax gift, you avoid the capital gains tax, and then you get to write off the full fair market value of today's value, regardless of what you paid for it. So let's break down the tax benefits of this gifting. You know, who does this? What are the benefits to them?

9:59Because to me, it sounds a little bit confusing. If I made$190 ,000 on NVIDIA and I had a$10 ,000 cost basis, do I want to give it all away? Am I donating all of it to avoid taxes? Am I doing a portion of it just to offset my earnings for the year? Walk us through and the listeners through this so they understand that part of it of the tax benefits. Well, it starts with how much you're allowed to deduct. So the IRS allows you to deduct about 30 % of your adjusted gross income as an odd cash deduction. So if you, let's say your income for the year, you had a great year, let's say you made$200 ,000.

10:34You could in theory, donate up to$60 ,000 in stock and deduct that from your gross income, taxable income. So you want to start there with how much to give. Then the question is how much Nvidia do you own? If you own 2 million, yeah, 200 ,000 is probably in a reasonable amount. If that's all you own, you may not want to give all that away. You know, it's not all or nothing. Of course, you can donate as little or as much as you want. There's no real minimum, but it really boils down to how much do you want to donate in the aggregate to qualify for your AGI? But then secondly, how much of your stock do you want to give away?

11:04If you want to harvest some gains now and take some off the top and reduce your concentration, stock gifting is an amazing tool for that because you can do it in a tax-free way. Otherwise, if you sell the stock, you're going to get hit with some pretty big taxes, especially if you own NVIDIA, Lily, Meta, some of these other high flyers the last recent few years. It's been a really amazing time to be in the market. It's great for investors and it's great for nonprofits that are out there introducing us to their donors and saying, hey, why don't you share your gains with us? Align your financial objectives with your philanthropic objectives.

11:33You save more when you give in a smarter way. I love it. And I talk about it all the time. It's not what you make, it's what you keep. And I think DonateStock.com really kind of fits right in that thesis for me and what I preach on my side of the world here. And so walk our listeners through the platform. How did you get here? What was the cause of creation of it? And why aren't everybody doing this and making it easier for people to be able to donate and utilize these tax strategies? It's the million dollar question, the billion dollar question, really, because stock giving has been around for decades.

12:06It's been very intelligently, aggressively used by the wealthiest households, often with the help of their financial advisors. But it's generally stayed one of the best kept secrets in personal finance because most people just are not aware of the benefits. When someone told me 15 years ago, a friend of mine who's an advisor told me about it. I thought, wow, wait, why am I writing checks when I own stock that's appreciated? That's kind of stupid. And then I went through the process of making a stock gift. It took me about three days, several hours. It was such a hassle. It just wasn't worth the effort.

12:34And so I was like, okay, I get it. That's beneficial. It's just too much of a hassle. Can't be bothered. 2020, I was thinking about, you know, it was during the pandemic and, you know, everyone's thinking, how can we help the world? And I thought about my experiences back in stock, back in those 15 years prior to that, or whatever it was, 12, 13 years prior. And I realized I want to solve the problem. It still was a very archaic, painstaking process. So that was really the inspiration to start DonateStock.com. Initially, it's kind of as just a project. And then it evolved actually into a commercial entity and something now that we're really excited about, to the mission of transforming charitable giving over time, given that two thirds of Americans now own stock.

13:09If you've been in the market more than a few years, five years, 10 years, you're sitting on significant gains. It's just, it's something that should be in everybody's arsenal as ways that they're, you know, giving smarter, saving on taxes, leaves you more money to invest, more money to enjoy your life. You can give generously without hitting your pocketbook too hard. So it's a great way. It's a great tool for everybody. So we're trying to, one, make people aware, two, make it easy. And that's really the two kind of primary objectives of Donate Stock. That's so cool, man. I'm just kind of looking at the website right now and it says, you know, five simple steps, right?

13:41If you guys do all the backend work as it relates to donating, it seems like the donor like myself or Robert in this instance, would just have to go in, find a nonprofit we like, and then send them the stock. Talk a little bit just real quick now, as we wrap things up about what if someone is looking to donate to a 501c3 that might not yet be listed on the side, or, you know, it's a very well-known nonprofit. Can someone still donate to a lesser known nonprofit organization in their maybe local small community? Absolutely. So we actually have 1.5 million nonprofit pages on our site. So if there are 501c3 in good standing with the IRS, we have a page for them.

14:13You can actually donate to them. Even if we don't know them, we'll actually process the gift. We'll sell the stock. We'll let the donor know your stock was received. It was sold. Here's your receipt. And then we send the cash to the nonprofit. So even if we don't know them, we can still get the cash to them. And that's actually how probably half of our 23, 2400 customers, nonprofits actually come to us because someone made a gift to them. And that's how we got started. That's so cool, man. Congratulations on building out this platform. And to our listeners, I know there's a ton of you who are sitting on perhaps hundreds of thousands of dollars of capital gains.

14:41Maybe that's in a tax advantage account or not. But if you want to consider lowering your tax bill and making a nice charitable donation, find a nonprofit, a 501c3 that you align with and maybe do that through DonateStock.com. Yeah, if I could give a couple of data points too, it might be of interest to the audience. So one, it doesn't have to be a big gift. The average gift is about$5 ,000, but it ranges everywhere from$200 to several million dollars. It really depends on who you are, where you are, what you have. Historically, 80 plus percent of donors have been Gen X and older, but we're seeing more and more younger donors who they may not have the net dollars saved as maybe their parents do, but they're sharing their gains.

15:17It's a great way to say, hey, I got lucky. I bought this stock. It's up 10X. I'm going to give some of that to you. And it's a very fun, easy, benevolent way to unlock generosity. 60 % of stock gifts will take place in December. That's when people do their tax planning and their tax loss harvesting, which you guys have covered. And all the other tax advantage strategies take place there. Stock gifting should be part of your arsenal. Very cool, Steve. And yeah, I mean, right, it's early November now as people listen to this. So shot clock is there, right? You got two good months. If you want to make a cool donation, check out DonateStock.com.

15:47And can't wait to have you back, Steve, to talk more about this maybe in 2025. Thanks, Austin. Thanks, Robert. Thanks, Steve. That conversation was super insightful, Robert. I feel like every time we bring guests onto the show, not only do I get to learn something, but I get to now take what I learned and implement it myself into my own tax saving strategy. So I was super pumped about that. Yeah, and I think it goes along really well with everything that we do here in the Rich Habits Podcast and the Rich Habits Network is uncovering those nuggets, as we say, of just new ways to not only make more money and make more gains and invest better, but also be able to have really good tax strategies.

16:25So I'm really excited for people to read up and listen on this because I learned a bunch myself and as a high net worth guy, I can really utilize these as well as possible. So I'm really excited about it. So now let's jump into strategy number four, maxing out your retirement contributions. So if you're a W-2 employee, which means you get a paycheck, you work nine to five, right? You're on salary. we all know that contributing to your 401k at work is a tax deduction against your earned income, right? We've all known that. We've been doing that for a while. And if that's something you want to do, be our guest.

16:57But if you're an entrepreneur like Robert or myself, then knowing how to take advantage of the special retirement accounts only provided to entrepreneurs is a really smart thing to do. So you can actually contribute up to$69 ,000 to a solo 401k in the calendar year of 2024 as an entrepreneur and at a 25 % effective tax rate that I pay, that is$17 ,250 in tax savings. Literally, I paid$86 ,000 in taxes back on 2023's income. And so if I wanted to, theoretically now, I could contribute the$69 ,000 in 2024 to this account and that$17 ,250 would offset against that 86, right? Bringing that 86 down to like 70 grand, right?

17:45That's a lot of tax savings if you ask me. And the best part is this is money that you're investing. It's not money you're spending on a depreciating asset like a car or something crazy like that. This is money being invested into the stock market. And same goes for the SEP IRA, but there are some other stipulations that surround that. So be sure to consult with a professional when it comes to these sort of retirement accounts. Don't want to get yourself in trouble here by contributing too much to this account or not enough to this one or whatever's going on with your income. So definitely consult a professional.

18:14My professionals are over at carrie.com, C-A-R-R-Y.com. I pay to be one of their VIP clients and it's only a couple hundred dollars a year, but Caroline sits down with me, you know, once a quarter virtually, and we get to go through all the strategies and the planning there. So carrie.com is a really cool resource for people wanting to learn about these entrepreneur specific retirement accounts. I love this breakdown. And I think it's very important because you're always talking to the audience and reminding them that we like active management. We like to see people keeping an eye on the ball.

18:45And I think tax strategies are part of that in your personal growth towards financial freedom. And I love this. And there's just so many ways to do this. You know, there's the SEP IRA, there's the Solo 401k. There's just so many different ways. And just make sure you study up again, like Austin said, so you make the right contribution. you get it right, and you really take advantage of these plans because they are there for the taking. They're there for you to use and maximize your tax, you know, deductions each and every year. So I'm really excited about that. And let's go on to our next point.

19:22And it's one of my favorites. And I think it's overlooked too much. And that is point number five, the home office deduction. You can work from home on your job or your side hustle, and you might as well act like it and so many people don't do that. So if you're someone who does work from home, you can write off a portion of your at-home expenses that directly tie to your day-to-day work. Think about the expenses that go into maintaining your home office. And a simplified way to do this is to calculate the square footage of your home office and multiply that by$5 and that is the amount of money you can deduct from your taxable income for that home office expense.

20:01So what you would do is you could take up to 300 square feet and that would cap you at a$1 ,500 per year deduction. However, if you want to drill into the details, just make sure you consult with a professional. Take a look at what you can do with other expenses, a portion of your internet, office equipment expenses, memorializing that side hustle into an LLC and migrating your cell phone over to the LLC and having a business account so you can write off the portion of the cell phone bill as well. So just always keep an eye on these home office expenses because they can really add up to$10 ,000,$15 ,000 a year if you play it right and you know what you can legally deduct based on your current situation.

20:44And back to this idea of like being capped with the simplified calculation of$1 ,500 a year. One, if you have a side hustle and you're just kind of doing it from home or you work from home, that's probably the best way to go about it. Just super simple, cut and dry. But again, if you have the autonomy to hire a professional CPA that can come in and really help you navigate this, right? To Robert's point, you could write off thousands, if not more than$10 ,000, depending on how large or what kind of operation you have going on. But even if it's just the$1 ,500, I mean, again, at this effective tax rate of 25%, I mean, that's nearly$400 of tax savings.

21:18I can think of a ton of different things I can go spend$400 on to go build my business, to go enjoy a vacation, like whatever's going on, heck, invest it in the Roth IRA, right? Just make sure that you're taking advantage of these specific tax saving strategies, no matter where you are as a W-2 employee, a side hustler, or a full-time entrepreneur like Robert and myself. Yeah, I think that's a great point to make, Austin. And I think one of the top things that I'd like to get out there as a message is so many people that are new to money and building wealth, maybe it's their first company, they've got their side hustle, their W-2 job, they always look at the IRS as the devil, the bad guy.

21:54And actually that's just not the case. The reason wealthy people in the ultra rich don't mind and actually enjoy the IRS rules is because they are there for us to use them to our advantage because they want us investing our money. It is the playbook for you to use. So don't look at the IRS and the tax man as a bad thing. Look at it as a playbook for you to build wealth within the framework. I love that perspective, Robert. And speaking of playbooks, I think this is the easiest play that anyone can do to save on taxes and the entire tax saving playbook out there, which is to adjust your federal withholdings at your employer.

22:33Here's what's going on, right? Let's say that you are on salary, you're making 80, 90, 100, $120 ,000 a year. Well, every single time you get that paycheck, that direct deposit to your checking account, your employer withholds some of your taxes right on your behalf so that whenever the taxman comes knocking, they just have that to give to the federal government. Now, the mistake some people make is they allow their employer to withhold too much money during every single pay cycle, which means if you're someone who's getting a$1 ,000,$2 ,000,$3 ,000 refund check in April every single year, too much of your money is being withheld in these accounts.

23:11So here's how to solve that. You go to your HR department, you go to whoever you can talk to about your payroll at your employer and say, hey, I want to bring my withholdings down by$100 a month,$200 a month, $300 a month, depending on how much of a refund you got during the prior year. Now, if you get a $2 ,000 refund, and everything stays the same during the calendar year of 2024 as it did for 2023, and you got a$2 ,000 refund in 23, and now you're trying to figure out 24, well, that means your employer is probably still withholding that extra$2 ,000 from you. You deserve that money, right? This isn't a loan you wanna give to anybody.

23:46You're not giving this loan to the government every year. You need to take that$2 ,000 and invest it in the markets. Markets are up 25 % this year, Robert. Imagine if someone had invested that money instead of letting it sit idle with the government. So go talk to your payroll advisor. Go talk to the person in the human resources department about adjusting your withholdings every single pay period, allowing you to really utilize more of your hard-earned money. With tens of thousands of people each and every week following along and listening to these episodes and hopefully taking notes and taking action, it's just game-changing, these little nuggets.