10 Tax Moves Everyone Should Review Each Year

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25:53Go to shopify.com slash PFP. That's shopify.com slash PFP. All right, number four is to review Roth conversion opportunities. So what is a Roth conversion and how does this work? Well, a Roth conversion is one of the most powerful tax planning tools for a lot of folks out there. And because of this, a lot of people want to move money that is in a tax deferred account, something like a 401k or a traditional IRA, and they wanna move it over to a Roth account where it can grow tax-free forever. But if you do this strategically and you do this at the right time, you can save a lot of money on taxes.

26:27And so the way that this works is you take money, and let's say it's in a traditional IRA. You put money into that traditional IRA, then you convert that money to the Roth IRA. And when you convert that money to the Roth IRA, you're gonna pay taxes on those dollars. Because since it's in a traditional IRA, you have not paid taxes on those dollars yet because you got that tax deduction up front. And now you are paying taxes when you convert it to a Roth IRA. Well, why would you wanna do this? Why would you wanna pay taxes on something when you defer those taxes for future you? Well, here's the variables that are going to matter.

26:56Number one is your current marginal tax bracket. And then number two is your future tax bracket. Because if you think that in the future, you are going to be in a much higher tax bracket than you are right now, then converting that money when you're in the lower tax bracket could be beneficial for a lot of people. Number two is if you think there's going to be some expected law changes around taxes, then you can also do a Roth conversion during those given year. Or if you expect some big income in retirement, maybe you have some RMDs coming up or you have some big income events coming up in retirement, that could be a timeframe where you wanna do some Roth conversions and pay the taxes now, because in those future years, if you have to do conversions, you have to pay a lot more in tax than you would currently right now.

27:35Also, if you have required minimum distributions or RMDs coming up, you're turning age 73, for example, and you know those RMDs are coming up, that could be a time to pay taxes on some of that money and or state income tax changes like you're moving from state to state. That could be another reason. Let's say you're moving from Florida up to New York. If you were doing that and you're gonna pay more taxes in the future, then you may wanna do a conversion now to get some of those dollars out of that account. So when do these Roth conversions make sense? Well, first would be temporarily lower income years.

28:05So let's say, for example, you took a sabbatical and you decided, hey, I'm gonna go travel around the world for six months out of this specific year and I'm not gonna make as much money in this given year. Well, that would be a great time to do a Roth conversion because you're gonna be in a lower tax bracket. Or maybe your business income dipped in a given year, your business just didn't do as well in a specific year, but you know you got a lot of money coming the next year, that'd be a great time to do a Roth conversion. Or maybe you're doing a job transition and you know that in the future you, you're getting some additional education and you're gonna be making a lot more money with that job transition, then now may be the time to do a Roth conversion.

28:38Or you're looking at doing early retirement and you are early retiree. Before social security kicks in, you wanna make sure that you do this conversion and you don't wanna impact that social security. That could be a great time. or before RMDs like we talked about earlier. Now, another time to consider this is if you wanna reduce your required minimum distributions. So if you wanna make sure that the amount of RMDs that you have is lower, then you could do a Roth conversion. Another example is if the market declines. So this could be a timeframe where let's say, for example, you have a traditional IRA that's worth a million dollars.

29:08The market declined 20 % and now it's worth$800 ,000 and you decide, actually, I wanna do a Roth conversion now at this lower rate specifically because when the market rebounds, it will be inside of a Roth and I can reap the benefits of that tax-free growth. And so this is another cool way to take advantage of some of these Roth conversions when you do that. And so I really, really like this for a lot of folks to consider. When will Roth conversions not make sense? Well, number one is if you're already in a high tax bracket or you expect substantially low income in retirement, those are two reasons to not do a Roth conversion.

29:43Or if you don't have cash available to pay the taxes, then that would be another reason And if you're close to retirement and expect lower withdrawals, that's another reason to maybe not do Roth conversions. You do not want to do these at the wrong time because it can be a huge, huge monetary impact on your bottom line. You want to make sure you're talking to a CPA when you do Roth conversions. It's very, very important or have a really good understanding of how they work because I do not want you to do this the wrong way. And strategically, a CPA is going to help you tremendously when you do this.

30:12Number five is you want to check your capital gains exposure. So if you have a big gain in a portfolio and you know that that is happening, you want to make sure that you are checking what your capital gains are every single year. So there are two types of capital gains. There are short term capital gains, which are stocks that you have held for a year or less. That is going to be a much higher tax rate than the long term capital gains. So your short term capital gains can be taxed as high as 37 percent. And they are taxed at your ordinary income rate, which is the same as your wage income. Whereas long-term capital gains has this preferential treatment where you're gonna either be 0%, 15%, or 20%, and this is all dependent on your taxable income.

30:50So why would you wanna review this? And when would you wanna review this overall? You wanna review any stocks or ETFs that you sold this year. You wanna make sure that you are looking at mutual fund capital gains distributions, which we'll talk about in a second. You wanna look at business sales, real estate sales, and crypto transactions. All of those are things that you definitely want to look at. Now, one big thing that happens is if you own mutual funds, many actively managed mutual funds will distribute capital gains at year end, even if you didn't sell anything. What that means is that you may owe taxes even if the fund went down in that given year because mutual funds at their core, they are buying and selling a lot and you are gonna have to pay taxes on those.

31:28One of the reasons why we like index funds over mutual funds is the tax benefits and that is one of them right there because some mutual funds can trigger some capital gains. Number six is to optimize your HSA strategy. So if you don't know what an HSA is, it's one of the most powerful tax advantage accounts that you have out there. In fact, it has triple tax advantages, meaning money goes in tax-free, it grows tax-free, and you can pull the money out tax-free as long as you have a qualified medical expense. Now, a couple key caveats with an HSA is one, you need to have a high deductible health plan.

32:02If you do not have a high deductible health plan, you cannot take advantage of an HSA. Two is if you are going to use the HSA to its tax advantages, you need to make sure that you have the system in place and know how to do this. So here's how this works. You contribute money to the HSA, and your goal is to get those dollars invested. My favorite place to open an HSA is Fidelity because it has the best investment options and it has the lowest fees. So Fidelity is by far my favorite right now as a place to open an HSA. Your employer may have an HSA option, and if they do, you need to look at the fees and need to look at the investment options.

32:32Those are the two keys overall. all. But getting money in your HSA is very powerful because a couple of things. One is you can withdraw money anytime completely tax-free. So your money can be invested, it can grow, and you can withdraw it tax-free as long as you have this qualified medical expense. What is a qualified medical expense? That means you are saving receipts for every single medical expense that you have. And you can even utilize receipts for a lot of other fitness items now. There's a lot of other personal care items that you can utilize with an HSA. And if you save all these receipts, there is no IRS limit as to when they had to happen.

33:06So you could break your leg at the age of 23 and reimburse yourself at the age of 55 for those medical receipts. And so because of this, you can build up a nice fund of tax-free money just from using the HSA. Now, let's say you overfund your HSA and you have too much money in there. Well, by the time you turn age 65, the HSA just turns into basically a traditional IRA. It's very similar to the rules around the traditional IRA, which is why it is such a powerful account. Now, what I do with an HSA is I have a system in place. So we have a spreadsheet called the HSA spreadsheet, which we will link up down below in the show notes, which helps you just track your receipts.

33:44And you can track your receipts throughout the entire year if you want access to that. Then I just throw all the receipts in a Google Drive so that I have them in place. And I just number them by year every single year. It is a really quick process and just allows me to stay on top of it. The reason why I have the spreadsheet, though, is I like to know the total amount that I have available to me in receipts. And so that is a really, really cool way. Now, there is a new AI-powered HSA receipt tracker that I just saw come out recently that we will link up in the show notes below, too, if you want to check that out.

34:12It is absolutely free right now and looks like another cool option if you are looking for a way to track your receipts. It is something I am going to be testing out over the course of the next couple of weeks, and I can report back on how that goes. Now, number seven is to review and optimize your charitable giving strategy. So if you are someone who gives to charity or you wanna give to more causes that you believe in, then I'm gonna show you the steps on how to think about this because you can do some really, really cool stuff with charitable giving that can help reduce your overall tax rate.

34:40So step one is you need to understand the standard deduction threshold. So for single filers in 2026, it is gonna be$15 ,300. And for married filing jointly, it is going to be$30 ,600. So if your total itemized deductions are not as much as the standard deduction, then you're just going to go out and take that standard deduction. Let me give an example here. Let's say you have a couple itemized deductions and they add up to$20 ,000. Maybe you give it to charity, you have some daycare deductions, some other things. And so all of those things add up and it's$20 ,000. Well, you would most likely take the standard deduction instead, because that would be$30 ,600 that you could reduce your overall tax rate instead of having to reduce it by that$20 ,000.

35:21All right, number two is you can consider to bunch donations. So if you give consistently each year, but never exceed the standard deduction, you may benefit from bunching. So instead of giving$10 ,000 per year for three years, you can give$30 ,000 in one given year, and that is going to take you over that standard deduction. So maybe you put it aside into something like a high yield savings account, or you put it aside somewhere else. And then you get the standard deduction every year. And then three years later, then you can take and bunch that giving and make sure that it goes all in one spot.

35:52But number three is you can use something called donor advised funds. Now, if you've never heard of donor advised funds, we're gonna probably do an entire episode on these because there's a lot to talk about when it comes to donor advised funds. But basically what you do is you make a large charitable contribution in one given tax year. Then you take the full deduction immediately in that given year and you distribute the funds to charities over multiple future years. And so in a donor advised fund, you can do this for a number of different things, but it separates the tax deduction from the actual giving timeline, which is what I really like about this.

36:25So this is especially helpful in really high income years, years where you have big business sales, for example, and you wanna give to charity, years with large capital gains and you wanna reduce your overall taxable events or your bonus heavy compensation years. And so you can use a donor advised fund to do that. There are tools out there like Daffy that make this very easy that can help you open a donor advised fund. You can also donate appreciated investments instead of cash. So let's say you had a really good year in the stock market and you have all these appreciated investments and you know you're gonna have to pay a ton of money in taxes on that.

36:58You can actually donate those appreciated investments instead of donating cash throughout the entire year, which is gonna help you reduce your overall tax rate. So if you bought a stock for$10 ,000 and now it's worth$40 ,000. If you sell it, you're gonna own capital gains tax on$30 ,000. But if you donate it directly, you can avoid that tax if you are already gonna donate the money anyway. So that is another one that you can look at and see if you wanna do that. Number five is understand the AGI deduction limits. So charitable contributions are based on your adjusted gross income. So cash donations to public charities, for example, are deductible up to 60 % of your AGI and appreciated assets are typically limited to 30 % of your AGI.

37:39So you need to understand how that works when you do this. Now, step six is you can also look for qualified charitable distributions after the age of 70 and a half. Now, if you're over the age of 70 and a half, you can make a qualified charitable distribution directly from your IRA. So up to$100 ,000 per year can come directly from your IRA to charity. And this distribution counts toward your RMD. So if you are required to take RMDs out of your IRA, for example, you can donate a portion of that money as well after the age of 70 and a half so that you do not have to if you are going to give to those causes you believe in anyways.

38:14And so that's another great way to look at this. So here are some strategic questions to ask yourself, and you can screenshot this if you want to to make sure you are looking at this. Am I exceeding the standard deduction? If you are, then charitable contributions could be a great tax strategy for you. Should you bunch those deductions if you are not exceeding the standard deduction? That's number two. Do you have appreciated assets that you can donate instead of cash? Is that gonna be better off for you? And are you in a higher than normal income year? If you are, this can help reduce some of the taxes that you pay that given year.

38:43And are you eligible for qualified charitable distributions or QCDs? That is the next one. And then should I fund a donor advised fund this year? And again, we're gonna do an entire episode on donor advised funds because they are really fantastic. Now, number eight is to review your business deductions. So business deductions are gonna be the fastest way to reduce your overall tax rate for those of you who have an LLC or are business owners. If you have a side hustle, you own real estate, if you are someone who owns a business, you should have an LLC and you should have business deductions. And the way that you should set this up is going to be having your business check-in account, which is only business transactions, having your business credit card, which is only business transactions and making sure it's paid off every single month, having your business savings where it's only business transactions do not start to commingle personal and business together.

39:33But there are tons of deductions that you can take if you have a business. Things like software subscriptions, office supplies, professional services like your CPA or an attorney, business insurance, advertising and marketing, website ads and leads, continuing education, but there are other tax breaks that you can do and tax strategies. Things like the home office deduction So you can deduct your entire home office and check out the square footage. You put it in that calculation and the IRS calculates that. The simplified method is$5 per square foot up to 300 square feet. But if you work in a couple different areas in your house, you can do your home office deduction in a couple of those different areas.

40:12Step three is if you drive a lot for work, make sure you're getting your miles. You can download the app like MileIQ. If you use QuickBooks, QuickBooks now has a way for you to track those mileages as well because you can deduct things like gas. You can deduct things like insurance, repairs, depreciation. So if you're driving a lot for your business or your LLC, that is another thing that you can do. Number four is looking at depreciation or section 179. Large purchases may not need to be deducted slowly over years. You may be able to expense them immediately. And section 179 deduction allows you to do that.

40:43So talk to your CPA about that. But this is about buying equipment or purchasing computers or outfitting an office or even buying certain business vehicles. all these may be able to be depreciated over that timeframe. Step five is retirement contributions to the business. So any retirement contributions to the business, you can deduct, or if you have health insurance to the business, you can deduct stuff like that as well. So any of that stuff is a big deal. Step six is you need to look at your estimated quarterly payments. So business owners do not have money taken out of their checks like your WT.

41:10You gotta make sure that you're making your quarterly payments. And so typically I look at this every single year with my CPA, we figure out exactly how much we're gonna pay and we adjust it throughout the year if we think the year is going to do better. Also, doing an entity structural review. Should you be an LLC? Should you be an S-Corp? Should you be a C-Corp? Making sure you're reviewing that with your CPA. When I moved to an S-Corp originally, years ago, it made a huge difference in my taxes. And so looking at the way that you're gonna be structured can be really, really important. Also doing your documentation audit and confirming that your receipts are saved, confirming that your logs are documented, confirming everything is on hand is really, really important.

41:46But those of you who have a business, the bottom line is that you have so many different deductions available to you. Things like the Augusta rule, where you can rent your house back to your business and save a ton of money there. There's so many different things that you can do when it comes to tax strategy. So it's very important to have a good CPA in your corner who also understands tax strategy. That is the overall thing that you are looking for when you're interviewing your CPA. Now, number nine is to revisit 529 plans and education tax benefits. So if you have kids and you want to save for their college, you need to revisit 529 plans and understand how a 529 plan works because this can help you with your taxes as well and can be a huge benefit to you.

42:23And so if you wanna say for your kid's college, a 529 plan can help you because contributions are made with after-tax dollars. Investments grow tax-free. And then when you pull the money out, it is tax-free as long as you use it for qualified education expenses. So things like tuition, books, all those different things. But you can also use this now for trade school, K-12. There's a lot more benefits there. So if you know your kid's gonna go to private school or anything like that, a 529 plan could be beneficial for you. While there is no federal deductions for 529 contributions, there could be some state deductions.

42:52So each state has different rules for the annual deduction limit and all those different areas. So you got to look at your state specifically to see what is happening there. Now, also you want to look at some education credits. Do you have education credits that are available to you? There are things like the American Opportunity Tax Credit. This is worth up to$2 ,500 per eligible student per year and applies to the first four years of higher education and it phases out at higher income levels. So if you do have a high income, this will get phased out. Or there's the lifetime learning credit, which is worth up to$2 ,000 per tax return and can apply to undergraduate, graduate, and continuing education.

43:27Now, this is also subject to income phase outs and is not refundable. So there are a lot of things that you can look for here when it comes to some education credits. Now, some newer 529 considerations is up to$10 ,000 per year, can be used for K-12 tuition, and federal and state rules are still gonna apply, and funds may be used towards qualified apprenticeship programs. The flexibility of a 529 is getting better and better. And again, if your kids do not go to college or they do not use the 529 plan, at the end of that timeframe, as long as you've had this open for a specific period of time, you can roll that money into a custodial Roth IRA.

44:03So there is an exit plan for those dollars, so you do not have to pay the penalty if you are looking for this. Now, number 10, the last thing that you should do, especially if you have a CPA, is run a forward-looking tax projection. So most people treat taxes as historical. They gather documents in March, they file them in April, and then they react. High earners and wealth builders, they treat taxes as a forecasting exercise. And so what I do is every single year, I do what we call a tax plan with my CPA, where we go through and figure out, okay, well, what are we gonna do this year to make sure we reduce our overall taxable income so that we do not get to the end of the year and panic that we do not have enough deductions in that given year.

44:41And so step one, I want you to estimate this year's total income. Look at this year's total income from W-2 income or business income, investment income, look at capital gains or rental income, add it all up and tell yourself and write down how much you have in income throughout the given year. Number two is identify what your marginal tax bracket is. You should figure out what this number is and understand what this number is. If you're running it through TurboTax or Tax Act or some of these other tools that are out there, then you can absolutely figure out what this number is because they help you do that.

45:11If you have a CPA, just ask them what your marginal tax bracket is, but you can get this information pretty quickly from using a lot of those tools. Now, if you file manually, that is gonna be a lot of math and calculations, and most of you most likely are not doing that. Number three, then ask yourself a number of these questions, okay? Should I increase my 401k contributions to reduce my overall tax rate? Should I fund or maximize my HSA? Should I harvest losses? Should I convert to a Roth this year? Should I donate some money this year? Should I accelerate business purchases into this year?

45:40I know a lot of people that have done that over the course of last year, for example. And should I delay income into January if I made too much this year? Step four is then adjust your withholding. So once you figure all this stuff out, you can adjust that withholding with form W-4 and you can make an additional estimated tax payment if you need to and or adjust your Q4 quarterly payment. So if you're W-2, adjust your W-4 withholding. If you are a business owner, adjust your quarterly tax payment and adjust your Q4 quarterly payment as well. Step five is I want you to plan for next year and not just this year.

46:10So will your income increase next year? Are you gonna make more money? Are you gonna get a bonus? Is your business gonna grow? Those types of things. And when will your social security begin? If you're getting close to retirement age, this is another consideration that you wanna make sure that you have. But every single year, you need to make sure that you are projecting and planning for the next year. This is what real wealth builders do is they think about taxes and ways to reduce those taxes overall. So let me know down in the comments below. I wanna hear from you. What are some of the things that you're gonna do this year to reduce your overall tax rate?

46:38How are you gonna do that? How are you going to make sure that you reduce your taxes? I wanna hear from each and every single one of you. Now, if any of you are looking to learn more about how to reduce your taxes, learning about how to get a step-by-step financial plan and learning how to reduce your stress and anxiety around money, making sure that you know that you have a plan in place of what to do with every single dollar, then I highly encourage you to join us in Master Money Academy. Master Money Academy is the place to help you with a step-by-step financial plan. I am so proud of what we've been doing in Master Money Academy and the feedback has been absolutely amazing.

47:11So I really wanna invite each and every single one of you to join us inside Master Money Academy. You shouldn't be stressed about money. You should feel hope. You should have an understanding that you know what your financial future is gonna look like. You know that you're gonna be able to retire one day. You know that you're gonna be able to do this. You can do this. You can get your finances together. You can be the first person in your family to build wealth, to grow your family tree, to actually be the first person to retire in your family comfortably. And Master Money Academy teaches you how to get there.

47:37And so I'm really, really excited for all of our members there. We are doing some really cool stuff. And again, if you get stuck during any step whatsoever, I do live coaching calls every single week where I answer all of your questions and really get to know each and every single one of you. So I can't wait to see you inside Master Money Academy. We're gonna link it up down below in the show notes. And I am going to give podcast listeners a special trial down below. And so I want you to check that out. It's for podcast listeners only. Again, thank you so much for being here and listening to this podcast episode.

48:05I truly appreciate each and every single one of you. And we'll see you on the next episode. Success isn't just about what you achieve. It's about how you achieve it. In the Notre Dame MBA program, you'll learn to look beyond quarterly results and build organizations that grow the good in the world through disciplined leadership, strong judgment, and a community that expects more from business. That's how Notre Dame graduates launch impactful careers at top companies across industries. Lead with purpose. Lead with a Notre Dame MBA. Tap now to learn more.