157: Year-End Tax Planning Strategies

Welcome to The Invested Dads Podcast, simplifying financial topics so that you can take action and make your financial situation better. Helping you to understand the current world of financial planning and investments, here are your hosts, Josh Robb and Austin Wilson.

Austin Wilson:

All right. Hey, hey, hey. Welcome back to The Invested Dads Podcast, the podcast where we take you on a journey to better your financial future. I am Austin Wilson, Research Analyst at Hixon Zuercher Capital Management.

Josh Robb:

I’m Josh Robb, Director of Wealth Management at Hixon Zuercher Capital Management.

Austin Wilson:

That you are.

Josh Robb:

All right, Austin, how could people help us with our podcast?

Austin Wilson:

First of all, we would love it if you’d subscribe. If you’re not subscribed, hit that plus, follow, subscribe, whatever button is on your podcast player. Do that. Visit our website and sign up for our weekly newsletter where you can find out what we’re going to be talking about that week. Little show notes, little link to listen to it. It’s a beautiful thing.

Josh Robb:

Yes. That’s real nice.

Austin Wilson:

So, check that out. But today, it’s the end of the year.

Josh Robb:

End of the year.

Austin Wilson:

It’s not too late.

Josh Robb:

Not too late.

Austin Wilson:

To be talking about taxes.

Josh Robb:

That’s right.

Austin Wilson:

Tax planning and planning strategies that may help you save a buck or two on taxes here at the end of the year.

Josh Robb:

That’s right. For the record, we cannot take credit for this podcast.

Austin Wilson:

Not at all, no.

Josh Robb:

One of our coworkers, Jessica Hinks, who we’ve had on our podcast before …

Austin Wilson:

The Everyday Advisor.

Josh Robb:

That’s right. She hosted a webinar and talked about this topic in great length. She has graciously allowed us to use some of that on our podcast. So, we’re going to talk through some of those, but we really encourage you to check out her webinar, because it is great.

Austin Wilson:

It’s great.

Josh Robb:

There’s a lot more visual examples, kind of walk you through these things.

Austin Wilson:

We’ll link that in the show notes.

Josh Robb:

That’s one reason why you should subscribe and get those show notes.

Austin Wilson:

Absolutely.

Josh Robb:

All right. These are year-end tax planning strategies. There’s different times of year where you’re thinking about different pieces of tax planning. This is year end, seeing if you can do anything before the calendar year turns over.

Austin Wilson:

Just like when I’m talking about stocks.

Josh Robb:

Yes.

Austin Wilson:

Nothing we’re talking about today.

Josh Robb:

Yes.

Austin Wilson:

Compliance officer Josh Robb here …

Josh Robb:

Yes. Yes, yes.

Austin Wilson:

… is a recommendation. Now something may be beneficial, may fit your situation …

Josh Robb:

Yes.

Austin Wilson:

… we don’t know that though. So please discuss anything we talk about with a tax professional or your financial advisor before doing any of these strategies.

Josh Robb:

Yes. To make sure that it actually fits for your situation.

Austin Wilson:

Absolutely.

Josh Robb:

Because there’s a lot of little nuances to all these.

 

[2:11] – Tax Loss Harvesting Strategy

 Austin Wilson:

So, Josh, start us off. We got six.

Josh Robb:

Six.

Austin Wilson:

So, let’s talk about number one.

Josh Robb:

These are six tools that you could do between now and the end of the year to potentially help your tax situation?

Austin Wilson:

That’s so many things.

Josh Robb:

Yes. But it may not all apply.

Austin Wilson:

That’s true.

Josh Robb:

But it’s just six different ideas. All right. The first one is probably when a lot of people think about year-end tax planning. This is one of the things that come to mind, which is tax loss harvesting.

Austin Wilson:

Hey, guess what? I bet almost everyone has some losses this year.

Josh Robb:

Yeah, if you were invested in the stock market-

Austin Wilson:

Or bonds.

Josh Robb:

… and/or bond market, you may have-

Austin Wilson:

Or crypto.

Josh Robb:

… experienced … Yes. Cryptos especially … You may have experienced some losses. Now, the concept here is that you heard us talk about being long-term investors and not panicking when the market goes down. Don’t sell when you’re down, right?

Austin Wilson:

Oh, absolutely.

Josh Robb:

But yeah, I’m just telling you right now, you need to sell when things are down. What’s happening?

Austin Wilson:

Explain, Josh.

Josh Robb:

Yes. So, this is a tax strategy only.

Austin Wilson:

Yes.

Josh Robb:

This is not a reaction to the volatility of the market. This is taking advantage of an opportunity when the market is down. As Jess put it in her webinar, it’s making lemonade when you have lemons, right?

Austin Wilson:

Right.

Josh Robb:

So, the market’s down, no one’s happy, but let’s just use this as an opportunity. So how it works is, if you have a position in, let’s say you bought it for $10,000, and it’s done well, and it’s grown, and now it’s worth $30,000. So, you’ve grown it by $20,000. That’s a gain.

Austin Wilson:

Yeah.

Josh Robb:

That’s great. Everybody’s happy. The other direction, if I bought it for $10,000, little while later, it’s now worth $5,000, I’ve lost half that value. That’s a loss. That’s what we’re focusing on in this topic. In that scenario, you could sell. You have $5,000 of cash because that was what it was worth when you sold it. You also are showing a loss. I lost $5,000 on that investment because I originally purchased it for 10. That counts towards your taxes. It offsets other things that have grown. That’s the first job of losses is to offset gains. Now, if it’s a long-term, if you’ve held this stock or investment, whatever it is, for more than a year. So, a year and one day or longer, it’s a long-term. If you held it for less than a year, it’s short-term. They offset each other the same thing first, and then they can offset the other one long-term, short-term after that.

The other plus thing is, if you have additional losses after you offset gains, anything left over, you could take 3,000 of those losses and apply it against your income on your tax return. So, you can actually reduce up to $3,000 of your income after you offset your gains. It’s a great thing. So what you’re doing here is, you’re selling, you’re holding to capture that loss. Now, the government knows that you’re getting a tax advantage here, and they know that you’re not selling because you need the cash or anything like that. You’re just selling for taxes. So, they made a rule. They call this the wash sale-

Austin Wilson:

So, it’s very clean.

Josh Robb:

… or the wash rule. Yes. Is that you cannot buy that same thing back until 30 plus days has happened. So, 31 days later you can buy that same thing back.

Austin Wilson:

Pause.

Josh Robb:

Now … Yes.

Austin Wilson:

Pause. This does not, by the way, apply to cryptocurrencies.

Josh Robb:

Cryptos are not considered in this same thing because they’re considered property.

Austin Wilson:

Property.

Josh Robb:

Yes. So, there’s a different rules there.

Austin Wilson:

So based on our understanding of the law, the wash sale rules do not apply to that. So you can sell and buy it right back, as of now. That may change in the future. Okay. That’s not what we’re here to talk about.

Josh Robb:

Yes.

Austin Wilson:

I did want to point that out.

Josh Robb:

So we’re talking real investments.

Austin Wilson:

Real investments.

Josh Robb:

Real investments, but actual regulated investments.

Austin Wilson:

Yes, absolutely.

Josh Robb:

Those stocks, bonds, those type of things. So, you have to wait 31 days to buy that same thing back or an equivalent to that thing. The government said if you held … I’m going to use an example, and again, not an investment recommendation, but if you had Apple stock and it was at a loss and you sold it, they don’t want you buying Apple stock back in those 30-day window. They also don’t want you buying a futures Apple holding or anything that’s related to Apple. Just don’t do it. That’s what they’re saying. But what you can do is buy something else. So a lot of times what people will do is they’ll sell, but they don’t want to sit out of the market for 30 days. Because again, they’re not panicking. They’re not selling because they’re worried.

Austin Wilson:

They want to remain invested.

Josh Robb:

They want to keep growing their money and maybe recover during those 30 days if the market’s going to turn around. So, what they’ll do is maybe if they’re selling a stock, they’ll buy back either a different stock or an index fund or something that’s tracking-

Austin Wilson:

Wait for ETF.

Josh Robb:

Yeah. Something that’s tracking the market that you can participate in while you’re waiting.

Austin Wilson:

Yeah. There’s a couple of different ways to do this. First of all, depending on what you’re holding. 30 days, maybe you may be okay with holding cash.

Josh Robb:

Yeah. Nothing is wrong. Yeah.

Austin Wilson:

Now, you could buy, “The market.” And just buy like an index ETF, like a SPY SP500 ETF. Not a recommendation, but that’s one that tracks the S&P 500. You’ll get market returns for a month. Or you can even if you sold a tech stock, you can buy a tech sector ETF.

Josh Robb:

Yeah. Still check that industry.

Austin Wilson:

Yeah. So, there are some options you can do. That is very low cost. They’re not considered the same as the company you’re holding. Even though there’s that company’s part of those sectors.

Josh Robb:

Opportunity there is that it does go up. But then when you sell that to rebuy back, you’d have some gains, so it reduces what you actually did. So again, think it through. Holding cash isn’t the end of the world if you just wait 30 days and buy back in.

Austin Wilson:

For a month. Yeah.

Josh Robb:

Whatever. But that’s tax loss harvest, have to do it before the end of the year because it’s for this calendar year.

Austin Wilson:

Correct.

Josh Robb:

So great idea. You don’t have to buy back by the end of the year. It’s just a sell that matters. So you could sell it on the 30th as long as the market’s open that day.

Austin Wilson:

Whenever you sell, you realize the loss.

 

[7:27] – Gains Harvesting Strategy

 Josh Robb:

That’s when you realize it. So that’s one. Tax loss harvesting. Strategy one. I’m going to flip it. Strategy two.

Austin Wilson:

Okay.

Josh Robb:

Gains harvesting.

Austin Wilson:

Well, the opposite sounds like.

Josh Robb:

Well, why would I want to create taxable gains? I just told you when you buy some for 10,000, grows a 30 $20,000 is gains. You’re taxed on those. If it’s in a taxable account, you’re taxed on those gains.

Austin Wilson:

Kind of.

Josh Robb:

Potentially.

Austin Wilson:

Exactly.

Josh Robb:

Well, you’re always taxed on them.

Austin Wilson:

Yeah.

Josh Robb:

What tax bracket you’re taxed at?

Austin Wilson:

That’s my question. Yes.

Josh Robb:

Yeah. So, this is very important for people who have low income years. So let’s say for instance, you’re someone who is retiring and you retire and in that first year retirement you have saved up cash in your savings account and you’re going to live off of that cash and not need any withdrawals or anything out of your portfolio. In that year, you’re really not going to show any income. Maybe social security or some little income, but partly anything. That would be a great year for this concept. What you’re doing here, it’s the reverse of what I just talked about. You’re now selling the things that have grown. What you’re going to do is you’re going to only sell the things that have grown until your income reaches a certain threshold.

Austin Wilson:

Yeah.

Josh Robb:

The reason why that’s important is capital gains are not taxed at your income brackets. They’re taxed at zero, 15, and 20% depending on where your income is. It’s a nice, fun, crazy calculation that they do. It’s roughly in this year, $41,675-

Austin Wilson:

Roughly.

Josh Robb:

For singles roughly and 83,350 for people who file married. If your income is below that, any capital gains until your income gets there is tax free. Instead of the 15 or 20%.

Austin Wilson:

You can play the game I want to get all the way up to that number without incurring any additional taxes.

Josh Robb:

Yeah. So, let’s say add $60,000 of income. It doesn’t mean you have to have zero. I just have $60,000 of income.

Austin Wilson:

If you’re married, you could incur 23 more.

Josh Robb:

I could then do another $23,000 of additional capital gains-

Austin Wilson:

Yeah. Without paying additional taxes.

Josh Robb:

Yes. Now there are some caveats to that. First, when you create other income, if you’re collecting social security, certain things, they may be taxed more. So, watch where your income adding additional capital gains may not charge any tax there, but it may cause other things to be taxed at a higher rate. So just keep that in mind. That plus side though is because you’re not selling for a wash, there is no wash sale rule. You’re not washing or turning your loss. This is a game, it’s a taxable event. Although your tax is zero because you’re staying in the bracket, it’s still a taxable event.

Austin Wilson:

So, if wash sale rule doesn’t apply-

Josh Robb:

You could buy it right back.

Austin Wilson:

Right away.

Josh Robb:

Sell it, wait for it to settle, usually takes a day to settle or two and then buy right back.

Austin Wilson:

Nice.

Josh Robb:

So, all you’re doing there is just zeroing or resetting the cost basis. So if I bought it for 10, grew to 30 and I have the flexibility, I could sell it at 30, buy it back, and now my new cost basis is 30. So I have zero gains going forward. That starting point. So now the great way. So there’s loss harvesting and gain harvesting. Those are the first two tax strategies. One or the other may apply depending on where you’re at in your tax situation.

 

[10:20] – Qualified Charitable Distributions Strategy

 Austin Wilson:

Right. Kind of opposite ends of the spectrum.

Josh Robb:

That’s right. Third one, QCDs.

Austin Wilson:

Oh, I love acronyms.

Josh Robb:

We’ve talked about these before.

Austin Wilson:

Yeah.

Josh Robb:

Qualified Charitable Distributions.

Austin Wilson:

Questionable Charitable Distributions.

Josh Robb:

Yes, but depends on where you’re putting it. Yeah. So qualified charitable distributions. We’ve talked about that again in our old episodes. We’ve talked about IRAs, and we talked about distributions. This is a distribution that comes out of an IRA and goes straight to a charity. They’re great. There’s some rules to that. You can only do up to a hundred thousand dollars in QCDs. You could do it any time after you turn 70 and a half. It’s not in the year. You turn 70 and a half by the way, you have to actually cross the 70 and a half birthday, plus six month plus one day, then you can start doing QCDs. Right? Not confusing at all.

Austin Wilson:

Not all.

Josh Robb:

Don’t worry about it.

Austin Wilson:

No, no, no.

Josh Robb:

The government likes nice simple things.

Austin Wilson:

What? Why the heck?

Josh Robb:

I know, right?

Austin Wilson:

A half year is just ridiculous.

Josh Robb:

Yeah, who knows, but 70 and a half is when you can start this. The biggest value though comes at 72 when you have required distributions. RMDs, Required Minimum Distribution.

Austin Wilson:

Another great acronym.

Josh Robb:

Yes. There was actually a bill that came out, had nothing to do with it. That was RMD if you remember that.

Austin Wilson:

I thought that was IRA?

Josh Robb:

Oh, that was an IRA. Never mind. Still, it is everything between that.

Austin Wilson:

Our government does terrible with acronyms.

Josh Robb:

So the RMD is saying if you have an IRA or a 401k or any account that’s been tax deferred, meaning you’ve put off the tax at 72, they’re going to have a calculation based on your life expectancy to say you have to take out a certain amount of dollars each year so we can get some tax. That’s what they do. That’s part of this whole IRA 401k structure. Now, they just tell you how much has to come out of that account each year. You could take more than that, but that’s the minimum amount that has to come out. They give you flexibility to do whatever you want with that. You could take it and spend it. You could put it into an investment account that’s taxable and then do those tax loss harvesting.

Austin Wilson:

They just want their harvesting.

Josh Robb:

They just want their taxes. Now, they allow you up to a hundred thousand dollars to give your money straight from the IRA to a charity. Has to be a qualified charity. A 501C3 charity.

Austin Wilson:

Yeah, nonprofit.

Josh Robb:

Yeah. If you do that without taking possession of the money, you do not owe tax on that distribution. But it counts as part of your required distribution. It’s great. So, where’s the benefit in that? Well, if I have a $20,000 required distribution, I have to take $20,000 out in this year and let’s say I only need $10,000 to live on, that’s all I really need out of my IRA. So what am I going to do with the other 10,000? Well, if I took the whole $20,000, I would owe tax. I could give to charity after tax what I have. Okay?

Austin Wilson:

You can.

Josh Robb:

Yeah. Maybe I get a deduction, maybe not. But the bigger bank for my buck, because I’m actually saving tax dollars on that income is, I take that $10,000 I don’t need and I give it directly to charity. In doing so, the charity gets that tax because I don’t owe it anymore. So they’re going to get more money to them. It’s great if you’re giving after age 72, you should be giving out of your IRA accounts.

Austin Wilson:

Directly.

Josh Robb:

Directly out of your IRA accounts.

Austin Wilson:

Yeah.

Josh Robb:

Because you will not owe tax on that income.

Austin Wilson:

That’s a really good thought, Josh.

Josh Robb:

Yeah.

Austin Wilson:

All right. So I’m going to interrupt.

Josh Robb:

Please do.

Austin Wilson:

I’m going to say we’ve been through three.

Josh Robb:

Three?

Austin Wilson:

We got three more.

Josh Robb:

Three more.

 

[13:41] – Dad Joke of the Week: Tax Edition

 Austin Wilson:

Because there’s six. But I have a dad joke of the week and it’s about taxes. You’re going to laugh.

Josh Robb:

I’m ready.

Austin Wilson:

Glad you took a sip of water.

Josh Robb:

Just swallowed the water and not going to spit it everywhere.

Austin Wilson:

Why was the seafood restaurant being investigated by the IRS?

Josh Robb:

I don’t know.

Austin Wilson:

They were suspected of being a shell company in some fishy business.

Josh Robb:

Oh, man. I like it.

Austin Wilson:

So that’s a good IRS tax joke for you in between talking about ways to save money. But we have three more ways to potentially save money on your taxes-

Josh Robb:

Stay awake.

 

[14:11] – Roth Conversion Strategy

 Austin Wilson:

So, stay awake. Number four, Josh. Give me number four.

Josh Robb:

Yes. All right. So Roth conversions, let’s stick with those IRAs. So, another thing you can do with your IRA money is take it from a pretax traditional IRA 401k, pretax is their default, anything that’s not been taxed yet. You can move it into an after-tax Roth IRA. Now anytime you do that, that becomes a taxable event because you’re taking money out of that IRA. Now because you’re moving it straight into the Roth. That’s great. You’re going to never pay tax on that growth for the rest of your life. But because you moved it, that’s taxable event.

Austin Wilson:

So, it’s income?

Josh Robb:

It’s income. So, a Roth conversion is moving that money and creating income. So what you’re really trying to do is saying, “Okay, if I’m in the 12% tax bracket, I’m there, there’s nothing I can do to get down to the 10. I’m comfortable in the 12 and for the foreseeable future, I’m either in the 12 or moving up to the 22. I may want to move some of that money now locking in that guaranteed tax rate of 12% or whatever my effective rate is for that money.” So you’re paying tax, you’re not avoiding any tax. What you are doing is moving that money to never be taxed again. That’s the key. So whether you get taxed on that distribution now or you wait till later, it’s still going to be taxed at your income. The difference is once I move that over to the Roth, any additional growth going forward is not taxed.

Austin Wilson:

So, it’s really all about your tax bracket now that matters.

Josh Robb:

Yes. It’s really- now versus later. Yes.

Austin Wilson:

Right. Right.

Josh Robb:

Because if I’m in the 24% now and I’m only going to be in the 12, I don’t want to do a Roth conversion.

Austin Wilson:

Oh, yeah. You should theoretically always do it when your tax is going to be lowest.

Josh Robb:

Yes.

Austin Wilson:

Also known as when your income is lowest.

Josh Robb:

Yes. Or if you anticipate higher tax rates in the future, that’s the other reason why you might want to move some money. So if you say this 12% tax bracket, the government’s going to be moving that up to 14. Well, then you could start moving some money over just because you anticipate a higher tax rate. The other way or reason to think about this too is if I am, let’s say an older parent and I’m in the later stages and I have enough money where I’m comfortable with my retirement and I say, “You know what? I am planning on using this as a legacy. I’m going to be giving it to my kids or grandkids or whoever. Man, I’m in a low tax bracket because I’m retired, I just have little income, not much. My kids are successful, they’re in a higher tax bracket than me.” A Roth conversion is actually a way to prepay the inheritance tax.

Austin Wilson:

Oh, yeah.

Josh Robb:

Not inheritance as in the death tax, but the tax that they next people will have to pay because if I inherit an IRA, I pay tax with my income brackets when I take the distributions. If I inherit a Roth IRA, I do not owe tax. I still have to take distributions. But it’s non-taxed.

Austin Wilson:

That’s beautiful.

Josh Robb:

I’ve seen and experienced and been a part of meetings where parents have in a sense, prepaid that tax for their kids. Saying, “I’m 12, they’re 24%, I’ll pay it.” I’ve even had the conversation where sometimes the kids have suggested, “Hey, if you do this, I’ll gift you the tax money.”

Austin Wilson:

Okay.

Josh Robb:

I’ll pay at 12 for you in a sense. So, the parents do the Roth-

Austin Wilson:

Everyone saves money there.

Josh Robb:

Yeah. The parents do a Roth conversion. They say, “In doing so, I created $8,000 of additional tax.” The kid says, “Thank you, I would’ve had to pay twice that 16,000.”

Austin Wilson:

So, here’s $8,000.

Josh Robb:

Here’s $8,000 I’m gifting it to you within the gift limits.

Austin Wilson:

Oh, yeah.

Josh Robb:

So, there’s nothing weird about it, but gifting you back that tax burden.

Austin Wilson:

Wow.

Josh Robb:

Everybody’s happy.

Austin Wilson:

Everybody’s happy.

Josh Robb:

So there’s some tax planning you can do there. Pretty neat. A lot of thought. Everybody has to be understanding that. Because if your kid’s not understanding on board and you call up and say, “Hey, I just created 8,000 tax, can you pay me back?” They’ll say, “What’s happening?” But this was really driven by the kids saying, “Hey, I know I’m going to be in a higher tax break than you are. I would be more than happy to pay now for that to happen.” So anyway, long story short, that’s a interesting caveat. Number five.

 

[18:07] – Appreciated-Stock Gifting Strategy

 Austin Wilson:

Number five.

Josh Robb:

Gifting. Gifting is important. The last two actually involve gifting.

Austin Wilson:

Sure.

Josh Robb:

This is the first one. So gifting appreciated stock. So going back to the gains harvesting, if you don’t want to or don’t have room in your tax brackets at that 0%, and let’s say you’re even in a high income, you’re going to be paying 20% plus. I say plus because there’s actually an additional 3.8% tax a tack on top of that. If you’re in the highest tax brackets, if you say, “You know what? I will get more bang for my buck if I give away those gains.” Instead of realizing them, you can actually gift your stock straight to a charity and you could say, “Okay, I bought this share of stock for $5. It’s now worth $50.” $45 per share of these gains. I don’t want to pay the tax on. I don’t need to. I’m going to give it. So then you give them the shares directly. Don’t sell them.

Austin Wilson:

No.

Josh Robb:

You send the shares to that charity. They receive it, they can do whatever they want with it. Once again, they don’t get taxed. So they can sell it right away and they don’t have to pay a tax on that gain. So you get to forego the $45 of gains you would’ve paid tax on at 15, 20 whatever percent. It’s a deduction because you just made a charitable gift. As long as it fits in all your standard deduction versus itemized, all that fun stuff. Now. That’s awesome. So gifting appreciated stock is pretty cool. The other thing is, let’s say I was going to write a check for $10,000 to the charity of my choice. I could instead gift appreciated stock up to $10,000 and then deposit that $10,000 into my account and rebuy that stuff.

Austin Wilson:

Oh, really?

Josh Robb:

I reset my cost basis.

Austin Wilson:

Yeah, that’s true.

Josh Robb:

There’s no wash sale. I didn’t sell anything.

Austin Wilson:

No, you just gave it away.

Josh Robb:

I still gave $10,000. I’m out … Whoops. I hit my microphone. I’m out-

Austin Wilson:

He’s getting excited.

Josh Robb:

I get excited about taxes. I’m still giving $10,000.

Austin Wilson:

It’s viewed the same way.

Josh Robb:

Yeah, if you looked at my balance sheet, I gave $10,000. But what I did was reset my cost basis a lot-

Austin Wilson:

At a higher basis.

Josh Robb:

Yes.

Austin Wilson:

So you have less taxes in the future.

Josh Robb:

I did. So that’s a interesting and fun way of doing it is if you’re thinking through and you have appreciated stock to say, “Hey, if I was already going to be giving some money and it was just after tax money that I have in my checking account, I might as well give this stock and then replenish and rebuy it. So great way of doing it. Now if let’s say it’s a big amount. Let’s say I had this big thing going on the share, sold a business or something. I have a lot of tax burden and I’m looking for the best way to reduce some of that because I’m in a very high tax bracket. It’s not going to be fun. I know this is just kind of an anomaly. This is a great thing to do.

 

[20:42] – Donor Advised Fund Strategy

 Josh Robb:

You can lump future years giving to today to get a higher deduction in this big tax year. You do that by using a donor advised fund.

Austin Wilson:

So, this is number six.

Josh Robb:

This is number six. It goes along with five because you can put gifted appreciated stock into a Donor Advised Fund.

Austin Wilson:

DAF.

Josh Robb:

Yeah. DAF is the short for Donor Advised Fund.

Austin Wilson:

Another great acronym.

Josh Robb:

So this concept is saying, “Okay the donor vice fund is not your money. Once it goes in there, you’ve given it out of your estate, it’s no longer your asset. Now you still control it in that you get to pick where it goes, it has to go to a charity,” but you’re not limited to a timeframe. You can put a bunch of money in this year and pay out to charities over the next 10, 15, however long you want. There’s no rule. You can leave money in there and give it out over time. So that’s where this strategy comes in. One, I could give appreciated sucks. So drop it right in. I could sell it, reinvest it. Because again now it’s inside this –

Austin Wilson:

Tax free vehicle. Yeah.

Josh Robb:

It’s in a tax free vehicle because it’s going to charity. You already got your deduction is gone. So then I can sell a reinvestment or whatever I want to do with it. I still get all the fun tax benefits of gifting. Then I get to decide when and how much I give out. Now if I’m doing that in one year and I move $5,000 in, well, the itemized deduction versus the standard deduction becomes a problem. Most people claim the standard deduction because you’re married, filing like 25 plus thousand dollars, right?

Austin Wilson:

It just moved up a handful of years ago and it’s now-

Josh Robb:

Yeah, it’s huge.

Austin Wilson:

For sure.

Josh Robb:

So most people just don’t have enough deductions to itemize it. So one thing you could do is say, well if I give $10,000 a year normally to charity, if I do five years’ worth of that, that’s $50,000. I could put all that in this year. I would then itemize because I have a big enough deduction, I would bring my taxes down and then in the next five years when I’m not going to be doing that, I’m going to take the standard deduction like I normally do. But I have this big chunk of money that I’m giving out of, I’ve already, in a sense, set aside five years’ worth of giving that’s in an account that I can then use to distribute.

Austin Wilson:

Yeah.

Josh Robb:

That’s a great tax strategy if you have the cash available in one year to give a future years’ worth of giving. So, I’ve seen that done a lot. It’s very useful. The other nice thing is you can invest in donor advised funds if you want to and if you have a long enough timeframe and you’re comfortable with the risk to actually grow it and maybe even give more to charities than you input in there.

Austin Wilson:

Absolutely.

Josh Robb:

You don’t get any additional deduction for that.

Austin Wilson:

No.

Josh Robb:

It’s just a benefit for the charities.

Austin Wilson:

Yeah. Wow. Josh, that is some great information.

Josh Robb:

Yes.

Austin Wilson:

Hopefully we gave some ideas to start some wheels turn in.

Josh Robb:

Yes.

Austin Wilson:

It’s still not too late. You can still talk with your CPA or your advisor. But those are some great ideas to get those thoughts going now. Jessica Hinks, her colleague put on this webinar, great webinar. Again, we’re going to link that in the show notes. She has a lot of great resources on her website.

Josh Robb:

There is more in that webinar.

Austin Wilson:

Oh, yeah.

Josh Robb:

We just took one piece of her whole webinar.

Austin Wilson:

We skimmed it. But you should totally visit her website theeverydayadvisor.com and we’ll link that in the show notes as well. You can subscribe to her blog because she has a great blog that she writes for that. We would love it if you would do that. But anyway, thank you for being here this week. Thank you for listening. Please share this episode if you enjoyed it with friends and family. Maybe they had someone asking about how to save money on taxes because everyone wants to save money on taxes. Again, would also love it if you’d subscribe and maybe review on Apple podcast for Spotify. Save money on taxes.

Josh Robb:

Yeah.

Austin Wilson:

Until next week, have a great week.

Josh Robb:

Talk to you later. Bye.

Thank you for listening to The Invested Dads Podcast. This episode has ended, but your journey towards a better financial future doesn’t have to. Head over to theinvesteddads.com to access all the links and resources mentioned in today’s show. If you enjoyed this episode and we had a positive impact on your life, leave us a review, click subscribe and don’t miss the next episode.

Josh Robb and Austin Wilson work for Hixon Zuercher Capital Management. All opinions expressed by Josh, Austin, or any podcast guest are solely their own opinions and do not reflect the opinions of Hixon Zuercher Capital Management. This podcast is for informational purposes only and should not be relied upon for investment decisions. Clients of Hixon Zuercher Capital Management may maintain positions in the securities discussed in this podcast. There is no guarantee that the statements, opinions, or forecast provided herein will prove to be correct. Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns. Securities investing involves risk including the potential for loss of principle. There is no assurance that any investment plan or strategy will be successful.