Real Examples of Tax Savings

Some of you might be entering the fall season with visions of pumpkin lattes, chunky scarves, or spooky décor.

For me, I enter the season of year-end tax planning. <3

Are you thinking, “Wait… I thought tax planning is when tax filing is due in April?” It can be, but not always for us financial planners. For a lot of tax planning topics, year-end is the perfect time to address them. Today, I am just going to share examples in two specific planning areas. Later this month I will share more!

I’ve found that talking about financial planning topics can just fly right over people’s heads until they hear about how it can impact their lives. Real dollars saved? Real opportunities? That brings a topic to life.

Today, we will cover examples of:

1. Tax Loss Harvesting

2. RMD and QCD planning

Next time, we will cover examples of:

3. Gains Harvesting

4. Roth Conversions

5. Gifting Appreciated Securities

Note: This blog is not to explain how to use these tools, but I will link to other sources if need be. This blog is simply for example purposes!

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Tax Loss Harvesting:

Tax loss harvesting has to be done before year-end, but it can be done now! Read a more detailed explanation of tax loss harvesting in my blog “Harvesting Losses – Making Lemonade Out of Lemons,” but here is a short example of why you might consider this planning tool:

That Stock A that you bought for $30,000 is now valued at $25,000, so you sell and harvest $5,000 of losses.

What does that actually mean?

For the average Joe, that is $750 less dollars of tax you owe in April ($5,000 * 15%).

OR

If you don’t have gains, you can offset $3,000 of ordinary income this year. Meaning….

For the average Joe, that is $660 less dollars of tax you owe in April ($3,000 * 22%).

WHY IT MATTERS: $750 of tax savings. That could be close to a month of groceries. Or, that $750 left to sit to invest at 8% for 30 years could be close to $7,500. My point is that tax savings matter!

RMD and QCD Planning:

RMD’s and QCD’s also have to be done by Dec 31. Learn more about Required Minimum Distributions and Qualified Charitable Distributions. How does a QCD Actually Work. Now here is your example (Yes, it’s the same example from the video):

You already have the habit of giving about $10,000 of charity a year. Your RMD is $40,000. If you give that money to charity from your IRA as a QCD instead, your RMD is now reduced to $30,000.

What does that mean?

The average Joe just saved $2,200 in taxes ($10,000 x 22%).

WHY IT MATTERS: $2,200 of tax savings. It would take a minimum wage worker in Ohio 218 hours to work enough to earn that. Agan,  my point is… tax savings matter.

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In the next blog, I will talk about those other planning topics you should consider before the year end.

In the meantime, enjoy that pumpkin latte! <3