Control How Much You Pay in Taxes

Pure’s Tax Planning Manager, Amanda Cook, CPA, Esq, teaches how to take advantage of tax-saving opportunities available to you.

Outline

• 00:00 Intro
• 1:04 Tax Terms
• 5:45 Tax Deduction vs Tax Credit Example
• 8:38 2025 Taxable Income Rates
• 10:19 2025 Capital Gain Rates
• 10:43 Tax Cuts and Jobs Act Set to Expire: Changes in 2026?
• 15:00 Q&A
  • Can a person claim both their standard deduction and any tax credits for which they’re eligible?
  • Is there any insight into what the reasoning was behind the complicated bracket approach to tax calculations?
• 16:55 Tax Diversification: Maximizing Control Over Taxes in the Future
• 25:10 401(k), 403(b), TSP, and 457
• 27:14 Traditional and Roth IRAs
• 27:28 Self-employed retirement plan options
• 30:45 Q&A
  • Where do health premiums fall?  Is that above the line credit or deduction and is there a threshold to qualify for the credit and/or deduction?
  • Are Simple IRA contributions counted towards the $31,000 maximum if you also contribute to a 401(k)?
  • Did you say taxes are generally higher for retirees?
  • Can you explain the requirement for Roth catch-up for a person making more than $142,000?
• 36:42 Backdoor Roth IRA
• 39:49 Roth Conversion Strategy
• 44:31 Q&A
  • I live off of my 401(k) account but this year I was hit with penalties because I have not paid estimated tax quarterly.  Can you address the best way to forecast estimated tax quarterly payments when withdrawing from multiple tax-deferred accounts?
• 49:45 Tax Loss Harvesting
• 51:21 Tax Gain Harvesting
• 51:57 New Unrealized Appreciation (NUA)
• 52:55 Donor Advised Fund
• 54:11 Q&A
  • If RMDs add more cash flow than needed, then is it better to place it in a Roth or a taxable account?
  • Can you give an example of how using an incremental approach to transferring assets from a 401(k) to a Roth IRA plan can help limit one’s taxes on RMDs?  Would you recommend any other strategies to reduce taxes on RMDs?

Transcript:

Andi:  Thank you all so much for joining us for this Tax Planning Webinar, with Amanda Cook, CPA. Thank you so much, Amanda, for taking the time today to help us as tax day approaches.

Amanda: Hi. Of course. I’m glad to be here.

Andi: Excellent. I will hand the floor over to you.

Amanda: So let’s get started ’cause there’s a lot to cover today. If you happen to have your tax return or a tax return draft available, we’re gonna start off talking about some basic tax terminology. The filing date is April 15th for most taxpayers, April 15^th. If you’re on extension, if you were affected by a natural disaster this year that has been presidentially declared, your date may be different. For example, I know, for the LA fires, their date is actually October 15th. That’s considered your original filing deadline, so all payments and everything are extended. Normally payments are due April 15th. So getting started just with the, with the terminology, you know, it’s important to know sort of what is going on, on your tax return, when you look at the front page of it. So first you’re gonna calculate what is your income just on a gross level. So your gross income, oops- Your gross income will be the total amount of income that you received during the year. The second thing that’s calculated is your adjustments. Adjustments are also called above the line deductions. This means that they will come directly off your gross income before you calculate your adjusted gross income. That adjusted gross income number is what’s often used for various phase outs for eligibility for things like Medicare, Roth IRA contributions, how much charitable contribution you can give, just different calculations like that. They’re often based on your adjusted gross income, AGI or sometimes your modified adjusted gross income, which is your AGI with some things added or subtracted from it. So this is a really important number. Anything that’s an adjustment comes off your income before you get to this number. Conversely, there’s deductions, right, that are below the line is what we call them. So that’s where you have either your standard deduction or your itemized deductions. Your standard deduction is based on your filing status and your age. There’s also an additional deduction if you’re blind. This is the amount that you sort of get for free, to deduct from your AGI before you reach your taxable income. Itemized deductions are usually things that you’ve paid out of your pocket during the course of the year, and if they’re more than your standard deduction, then you might wanna claim that instead, you’ll get a better deduction. Those itemized deductions include your state and local income tax, your mortgage interest, certain medical expenses, charitable contributions, and the important thing, that we’re gonna talk about as we talk about what might change, is all of these itemized deductions are limited. So for example, state and local income tax along with property tax is limited to only $10,000 per year for any filing status. It used to be that if you were paying more than $10,000, you would deduct as much as you’re paying, and that might make you itemize, where now you’re claiming the standard. Same thing for mortgage interest. It used to be $1,000,000 of purchase money, plus $100,000 of home equity debt that you could have used for anything as long as it was secured by your home. Now it’s based on mortgage interest of, on principle of $750,000, and it has to be acquisition debt only. So there’s a lot of limitations that came into the itemized deductions that are set to expire at the end of this year. When they, if they expire, then some people who have been claiming the standard are now gonna claim the itemized deductions. So. Really big changes potentially coming, right? So after we’ve figured out what your deductions are, we subtract that from your AGI and that gives us your taxable income. So, this is the amount that your tax bill is actually based on. So when we think about, you know, all of your income, there’s a certain portion of it that is not taxed at all, right? Because it’s either absorbed by the standard deduction or it’s absorbed by adjustments that you claimed on your return. But once you hit this taxable income line, this is where your tax brackets start to come in. After we’ve determined your taxable income and your tax, then you may be eligible for certain credits. One of the most popular is the child tax credit, for example, or the dependent credit. And these are better than deductions because they come dollar for dollar off your tax. So just to illustrate how that works, if we were thinking about somebody who has an AGI of $100,000 and they received a deduction of $10,000, we’ll pretend that’s the standard deduction, then their taxable income would be $90,000. With a 25% taxes is, you know, kind of for easy math, then their calculated tax would be $22,500. Conversely, if we had that same person, no deductions, and their tax rate was the same, but they received a credit of $10,000, they would actually save that full $10,000. So. For one of the changes that may come up, I mentioned the child tax credit. In the past you would get a deduction for personal exemptions. So each child on your tax return, you would receive a deduction, but only certain people in like relatively lower income would receive the credit. Under Tax Cuts and Jobs Act, we changed that so that now there’s no more personal exemption. The deduction is gone, but the credit got bigger. So we may see that change as well, at the end of this year. So I wanna talk about, you know, because this is a big year of change where so much of the, the tax code is set to expire at the end of this year, which, we’ll, you know, we’ll see if it does, but, just contextually, you know what’s been going on with taxes over time. You can see our highest marginal rate. These are your highest last dollar taxes have ranged all the way from 94% to where they are today, which is at 37%. Some of these like little pumps here in the last 25 years or so are because it’s gone back and forth between about 39% and 37%, and it is slated to go back to 39.6%. But when we ask people, you know, do you think that’s enough? Or do you think that’s the highest taxes will be? Most people think that in the future we’re gonna wind up at a higher level again. So, you know, that’ll be something that we remain- remains to be seen. But it’s definitely something that we wanna think about when we’re looking at what is our tax situation today? What’s it gonna be in the future, and is there anything that we can do to manage it? So here are the tax brackets for today, and these are, they’re marginal brackets. So what this means is that the first- if you’re single, the first $11,925 of taxable income, no matter what your income is, is taxed at 10%. Then the next portion up to $48,475 is taxable at 12%. So it’s a progressive tax rate. What you end up actually paying in real life on your taxable income is some combination of a blended rate between all of these different brackets. To make matters a little bit complicated, we have capital gains rates, which are separate and apart from the regular income tax rates. These go on top of your regular income. So you can see we were using single ss the example, the $48,350 for capital gains taxes is pretty close to the top of the 12% tax bracket for a single person. For married filing joint, the top of 12% is $96,950, for capital gains it’s $96,700, is that second tier. So right about the top of the 12% tax bracket is where you see capital gains tax start to kick in. So if your income is below those numbers, total income, then any capital gains style income that you have will be taxed at 0%. This will go on top. So if your other income brings you up to like $96,000, let’s say for married filing joint, then any capital gain style income that you have will be taxed at 15%. This year when the Tax Cuts and Jobs Act is set to expire, these are some of the changes that we’re expecting to see. For one thing, all of our tax brackets are gonna change. Okay? So we’re gonna go from the 10% will stay to 10%, but 12% is gonna go to 15%, 22% to 25%, 24% to 28%, and so on down that chart. So that’s just kind of by default. Another thing that’s important is that these, these tax brackets don’t line up exactly perfectly between the 2025 numbers and the 2026 numbers. So there are some instances where, for example, you may be in the 24% tax bracket, but if these 2026 numbers go back, then you’ll wind up in the 33% bracket ’cause it’s not perfectly symmetrical between the two years. So just understanding where that, where those brackets are is important. The standard deduction also will go down. So one of the ideas of the Tax Cuts and Jobs Act was to make fewer people itemize their deductions. That was achieved by limiting most of those deductions and making a higher standard deduction. So if this expires, the standard deduction will go back down to the level that it used to be, but personal exemptions will come back. So that was an automatic deduction that you would receive for yourself, your spouse, and any dependents that you claimed on your return. Together, they would equal pretty close to what is the current standard deduction. So it’s not a huge change, but just how it’s calculated will change a lot. I mentioned that the child tax credit was a big change under the Tax Cuts and Jobs Act. If you have a child under the age of 17, previously the credit was like $500, and then it was $1000. Right now it’s $2000 per child, and the phase out is up to $400,000 of AGI for married people. So the phase out also will decline significantly, so fewer and fewer people will be eligible for this credit. The qualified business income deduction for anybody who’s self-employed and has a pass-through entity, whether that’s a, an S corporation, a partnership, or a partnership. Currently there’s a deduction of 20% of your taxable income that you may be able to claim, that goes completely away. That was brand new under Tax Cuts and Jobs Act. Right now that is slated to be completely gone in 2026. And the estate gift tax exemption, currently it’s almost $14,000,000 per person, and that will be cut in half if the Tax Cut and Jobs Act completely expires. Which means that you may need to look at some of your estate planning, as well in order to make sure that you’re not implicating the estate tax, at death. That can be a 40% tax as well. These itemized deduction limits though are gonna go back up. So no limit on how much state and local tax you can pay, the mortgage interest will increase. So, so that’s favorable. And also, alternative minimum tax, if you have to pay that, you’ll be more likely to have to pay it. The exemption rates will go down and these itemized deductions will create a little bit more of a difference. So you can see the main takeaway here is that there’s a lot of changes that are potentially coming in 2026, and planning around those is gonna be really important as we watch what actually ends up happening.

Andi: I got a couple more questions for you. First of all, can a person claim both their standard deduction and any tax credits for which they’re eligible?

Amanda: Yes. You can claim the standard deduction. You can also claim any adjustments and any credits that you’re eligible. The only thing that you cannot claim when you’re claiming the standard deduction is itemized deductions, but otherwise adjustments the above the line deductions and also credits are both still claimable.

Andi: Okay. And this one might be more of a philosophical question, but is there any insight into what the reasoning was behind the complicated bracket approach to tax calculations?

Amanda: Yes, it is a little bit of a philosophical question, but the idea is that, you know, there’s a certain amount of money that you need to live, right? And as you have more money than that, you need less and less of it just to get by. So maybe, you know, you have a higher standard of living, because you have more income, but it’s not as necessary to you as lower income is. So the first amount that’s covered by your standard deduction has always been pretty close to the poverty line, and that part is taxed at 0%. Then you have the next segment at 10% and then progressively on until you’re higher income people are paying the highest tax. There’s some other reasons that, you know, I don’t, we don’t need to get into really that kind of go with, you know, who owes the money and things like that. But the main idea is that the poverty line starts off at being pretty much tax-free, and from there it’s incrementally more convenient to pay. All right, so let’s talk about how this works practically because there’s certain things that you can do as an individual to make your, to set yourself up in a way that’s going to, maximize your control over your taxes in the future. So one thing that you can do is you can save money into Roth accounts. There’s other tax-free pools, right, like HSAs are tax-free if they’re used for medical purposes. Muni bonds often belong up here. So there’s these tax-free pools of money. Usually how these work is you put in after-tax money, with the exception of a HSA, which is pre-tax money. And then when the money comes out, you pay 0% tax. The other place that you can save your money is what we call taxable accounts. These are your capital gains style accounts generally. So usually we’re thinking about your brokerage accounts, but you might be thinking about other assets as well, closely held businesses, rental properties, homes, things like that, that are gonna generate capital gain style income. These may kick off income that’s ordinary. So rents, interest, ordinary dividends. But for the most part, if they’re going to be giving you, long-term capital gains income, which as we looked at before, for most people, is gonna be at 15%, but can be as low as 0%, or can be as high as 20%. Also, depending on your adjusted gross income, there may be an additional 3.8% net investment income tax, that’s on top of usually either the 15% or the 20% bracket. So these are taxed at relatively favorable rates, but this is, follows that capital gains chart that we were talking about earlier. Then we have our tax-deferred pool, and this is our most common pool. When you’re saving your money, most people are putting it into their employer 401(k)s, Oh, let’s go here. 401(k), 403(b), TSP. Most of these accounts now have a Roth version. That’s relatively new. You know, simple IRAs are brand new to have Roth version, so almost nobody offers them, SEP IRAs and traditional IRAs. So these are all different types of retirement accounts where you put the money in with 0% tax, right? So you save the tax today. But when you take the money out, it’s gonna be taxed as ordinary income. And so that’s that 10% to 37% that we were looking at before and may go 10% to 39.6% in the future. Okay, so when we’re thinking about these different types of accounts, you actually can manage how you have balance your money between them. Okay, so you can save money up here in the Roth accounts. You can save money in your tax-deferred accounts, and you can save money just in a regular brokerage account. But as I mentioned, these Roth accounts are relatively new, so most of the time we see people have most of their assets and these two accounts. This one in particular, the tax-deferred account, this account is subject to required minimum distributions, which means at a certain age and they keep pushing the age back. It was 70 and a half for quite a long time. Now it’s as far back as 75 depending on the year that you were born. But at a certain point, you have to start taking these distributions out. And you don’t have really control over the amount, right? It’s gonna be based on charts that the IRS sets out, which are based on your age. So that’s the first thing that these are also, they’re called income in respect of a decedent. So these accounts are subject to tax even when they’re inherited. That’s different from, for example, the taxable account where everything that’s in the account receives what’s called a step-up in basis. So your beneficiaries pay no tax on the sale if they sell it right away. These accounts are going to be taxable to the beneficiary the same as they would’ve been to you, which means that they’re gonna be subject to ordinary income as well. And, under the SECURE Act, which came out a few years ago, about 5 years ago, the most beneficiaries have to completely empty this account in 10 years. And so this can be, depending on how much money is in this account, this can be a really big tax bill for your beneficiaries. So if you’re a person who has most of your money in the tax-deferred account, how can you manage this? Right? We’ll talk more in depth about a few, a few strategies, but one is that you can move the money into your taxable account if you have employer stock. You can move your employer stock into your taxable account directly, and there’s some rules around that, but you’ll pay tax on only the basis, and then you’ll receive capital gains treatment on the rest. The other thing that you can do is you can move money from this account to the Roth account, which this is called a conversion, and you pay the tax now. All your growth will happen in this account tax-free. So these are two options that you can use to manage, manage your accounts If you’re already in a situation where you’re sort of overweight in the tax-deferred pool. But the other thing you can do if you’re still in saving mode is just focus your savings in the way that makes the most sense. Maybe Roth, maybe it’s here if your tax rate is really high right now, or maybe it’s in the taxable pool. So thinking about these different strategies when you’re saving. I have this chart here for, kind of where’s the average person at, right? So you can kind of see like how is your account compare to, to the average person in this country. When you see these account balances, you can see why for some people their tax bracket when they’re working is the highest it’s ever gonna be. For other people who have done a really effective job of saving, particularly in those tax-deferred accounts, they may have much higher balances than these, where their tax bracket in retirement will actually be higher. The different types of accounts that you can save into these days include, you know, your sort of common employer plans. So I have the 2025 limits up to date. Most of these types of plans now have a Roth option. So you can do all pre-tax, you can do all Roth, or you can do something in the middle. It just matters what is gonna be really the best for you and your family situation. If you’re married, you and your spouse each can contribute. If you have a 457(b) plan, you can actually do double this contribution. Most of the plans, if you have a, say you switch jobs in the middle of the year and you had a 401(k), and then you get a 403(b), your combined limit will be that $23,500. But for 457(b) plans, they’re calculated completely separately. So you can contribute to one of these and still the 457(b). Most of these will have an employer match also. So a lot of times, you know, even if they don’t have a Roth option or anything like that, we’ll, we’ll, say you at least want to make sure that you’re receiving your matching contribution, right? It’s sort of like free money from your employer. So it’s important to do that. There’s also traditional and Roth IRAs. So again, there’s both kinds. The limits are significantly lower. So if you have an employer plan, you can contribute a lot more to the employer plan than you can to the IRAs. But you can contribute to the IRAs in addition to your employer plan. So for those of you who are already maxing out on your employer plan, you can use the IRA to even save more. Roth IRAs are subject to income limitations, so we’ll talk about that a little bit more. Traditional Roth IRAs may not be deductible for certain people. So we’ll talk about that more too. There’s a strategy called, it’s kind of colloquially called a Backdoor Roth contribution, but what it really is a traditional IRA contribution and a conversion. For self-employed people, they can choose what is gonna be the best, the best plan for them and their business. An individual solo 401(k) allows you to maximize your own contributions, and a 401(k) is not included in certain calculations that are applied to IRA accounts. They’re called pro rata calculations. 401(k)s can be a little bit more difficult to manage, especially if you have employees when it’s not a solo 401(k). But even for just an individual account, you’ll still need to file the 5500EZs. SEP IRAs and simple IRAs are a little easier to manage. They’re just sort of individual accounts. SEP IRAs are employer contributions only. So that’s important to know. If you have employees, you are the only one that’s funding those retirement accounts. So oftentimes people would prefer that their employees put some money in on their own, in which case a simple or a 401(k) would be better. 401(k) plans when you have employees are subject to a bunch of different kinds of tests. So doing a safe harbor may be appropriate. It’s a match from the employer that allows you to avoid some of those different tests. And with SECURE 2.0, there’s been a number of new plans and new methods for funding that were added. So this is SECURE 2.0 of 2022. A lot of these rules have been phasing in over time and so new are starter plans, which is a little bit of a lower cost option. You’ll get a credit basically from the government to help you offset some of the costs of creating a plan. Pension length savings are kinda like a Roth style savings account inside of your retirement plan. It allows your employees to save for retirement, but if they really need it, they can withdraw from it without disqualifying your plan. And also student loan payment matching, is also new. That’s where your younger employees, if you have a lot of college age or recent graduate aged employees, they may not be able to save for retirement and pay their student loan bills. So this way you can match their student loan payments into their retirement plan. All of these are important to know, especially if you’re in California, because having some sort of a plan if you have employees is required as of this year in California. Other states are adopting similar rules as well. So if you own a business in another state, you’ll wanna check that out.

Andi: Next up Michael says, “Where do healthcare premiums fall? Is that above the line credit or deduction? And is there a threshold to qualify for the credit and/or deduction?”

Amanda: That’s a, a much more complicated question than it seems like it. Because if you are an employee and you’re paying your health insurance through work, then it’s already deducted off of your pay. So there’s nothing for you to claim on your tax return. In that sense, it’s above the line because it’s before you receive your W2, but your W2 will already be reduced by your health insurance payments. If you are self-employed, then generally your health insurance is an above the line deduction. This is true for Schedule C partnerships and S corporations. You’ll pay your health insurance premiums will be an above the line deduction. Other medical costs like doctors, prescriptions, hospital stays, mileage to and from doctor appointments, all of those sorts of things, they’re itemized deductions. There’s a 7.5% of income threshold, so you have to be above 7.5% of your AGI before you actually receive any deduction for those expenses.

Andi: Okay. You’re right. That was much more complicated than you would think. Mark says, “Our simple IRA contributions counted towards the $31,000 maximum if you also contribute to a 401(k).”

Amanda: The simple IRA? No. So in the same business, you usually can’t have both. But, but if you have, say you have a, regular W2 employment, and you’re maxing out your contribution to your employer 401(k), but you also have a side business where either, you know, maybe you’re the only person who works there and you wanna set up a SEP IRA or a simple IRA, you can do that in your side business and you can max that plan out as well. The answer’s a little bit different if you have a 403(b), because there’s some calculations that they have to do at your regular job. But for the most part, yeah, if you have a completely separate W2 job and then you have a business that you control, you can contribute to both types of plans.

Andi: All right. And Shelly says, “Did you say that taxes are generally higher for retirees?”

Amanda: Taxes can be higher for retirees because for, for people who have saved a lot of money in their pre-tax accounts, so that’s going back, let me see, that’s going back to this slide, which has gotten a little bit messy here. But if you have a lot of money in your, tax-deferred account, your required minimum distributions will be based on your age. And the idea that they, of the, that distribution is that you’ll empty this account out by the time you’re about 120 years old. So it should last beyond your life expectancy, but you’re forced to take these distributions. So if you’ve really accumulated a lot of money in this account, then it’s possible that your required minimum distributions will be more when you add in your Social Security and maybe pensions and other sources of income that you have than what your income was when you were working. And if that happens, then your taxes will be higher in retirement.

Andi: Thank you for that. All right. We do have a number of other questions, but I’m gonna leave you with this one. Before I let you get into the rest of your presentation. Bill says, “Can you explain the requirement for Roth catchup for personnel making more than $142,000?”

Amanda: Sure. Yeah, that’s, that was supposed to go into effect in 2024. The idea is that higher income individuals, who are age 50 and older, so this only applies to the catchup contribution portion, make those contributions to Roth style employer accounts. So if you have a 401(k), 403(b), some sort of an account like that, you’re over age 50, you want to make the catch up contribution and your income is, is high, I think it’s gonna be inflation adjusted, but it was $142,000. Sounds about right in the statute. Then you must make that on a Roth basis. That was set to go into effect in 2024. And most people threw their hands up and said, I don’t, you know, we’re not ready to implement this. This is brand new. It’s never been a requirement before, some businesses didn’t have Roth style accounts as part of their plan. So all of their higher income individuals would not be able to make catch up contributions. There were some drafting errors, so all of this has been delayed now to 2026. So 2025, it’s not a requirement. For 2026 and going forward, higher income workers with their employer plan will have to make their catchup contributions only on a Roth basis.

Andi: Thank you very much. Once again, very complicated. As I mentioned, we do have a number of other questions. I’ll hold them until we get a little bit further into the presentation. So back to you, Amanda.

Amanda: Sure. All right. So I mentioned the backdoor Roth contribution before, and, this comes up when your, when your income is above the Roth IRA limits. So that varies by filing status. But if you are too high of income in order to make a direct Roth IRA contribution, you can make it your contribution to your traditional IRA and then just convert it in the same year. This is most effective if you’re contributing to an employer plan and so your Roth, or I mean your traditional IRA contribution is not deductible. It creates basis and it turns that into a tax-free conversion. But the reason that I wanna point this out on, on this level is because if you have any other IRA style account, that’s not a beneficiary account, but it’s your own account, it’s either a traditional IRA, maybe it’s a SEP IRA, maybe it’s a rollover IRA or a simple IRA, the value of all of those accounts has to be included into a calculation to determine how much of this is non-taxable. So just to kind of illustrate what I mean, if you contribute $7000 to a traditional IRA and you don’t have any other balance in your IRA, and this was, you know, if this was not deductible, then you can convert it. Your tax is zero. Okay? If you put a non-deductible contribution into your, into your traditional IRA or, in order to accomplish this, but let’s say you have $93,000 in a, another IRA, either a rollover from, you know, a former 401(k) or a SEP or something like that. Now only 7% of your distribution is basis. So if you were to do a conversion of $7000, then 7% times $7000 is how much of your conversion would be tax-free. The rest of it would be taxable. So really important to be paying attention when you have other IRA accounts, so that this does not happen, right? You don’t want to be paying the tax on this $7000 twice in the same year. Related to that, you can do a conversion of any amount, at any time out of your pre-tax accounts. If you find that you have too much in these other IRA accounts, you can convert more of this at once, so you can do, you can look at what your income is for the current year and what you’re expecting your income to be in the future. Use this conversion strategy to convert more of your pre-tax dollars. If you have basis, it will allow you to use more of your basis. And one of the strategies that’s really common is to fill out the bucket, right? So if you’re in the 22% bracket, that first portion is taxed at 10% no matter what. The next portion at 12%, no matter what, now you’re in 22%, and you could fill that up, if you are overweight in that pre-tax account so that you can hopefully save yourself, maybe this is 24%, or as we discussed earlier, maybe this is 25%, 28% or 33% depending on how the brackets shake out if the Tax Cuts and Jobs Act expires, so you know, maybe you can save yourself from ever getting into this bucket by filling up this bucket sooner. And then that also reduces your required minimum distribution requirement later, because that’s based on your account balance and you’ll have less of an account balance in those styles of accounts. Roth accounts are not subject to required minimum distributions. That’s also new. Previously, 401(k)s that were Roth accounts were subject to required minimum distributions, but that has gone away. That 0% capital gains rate, it will get pushed up if you do a conversion, so you’ll wanna make sure that you preserve that sometimes if it makes sense. It may change your qualified business income deduction since this may be the last year that you can claim that deduction. You may wanna preserve that. It will affect your Medicare premiums. So if you are age 63 or older. You’ll wanna be paying attention to where you’re gonna be on the Medicare premiums, why 63 and not 65? Because Medicare looks at your tax return from two years ago in order to determine what your premiums are for this year. So if you’re gonna enroll at age 65, they’re gonna be looking at the tax return from when you were 63. So that’s when you wanna start thinking about where you’re gonna land on that Medicare payment tier, and then just understanding if you have other IRA style accounts. You may not wanna do a Roth conversion in that year, or at least plan around it.

Andi: I got a few more questions let’s jump into real quick while we have the opportunity. On the, you had mentioned the QBI, somebody asked the question and they said QB one, but I think they mean QBI. “Does QBI phase out if, increase the contributions to the SEP plan and QBI deductions slowly becomes more relevant so basically getting two increased deductions?”

Amanda: That happens in a very limited number of circumstances, but it does happen because yes, there’s qualified business income deduction phases out, for people who are in certain trades and businesses. Basically anything that I am affiliated with, right? Lawyers, CPAs, financial planners, all of those kinds of businesses, will phase completely out if they’re higher income. Also any kind of business will have a limitation phased in based on what they pay their employees, and what kinds of assets they use in their business. So depending on the type of business and how the business is structured, there may or may not be a QBI available. If you’re kind of in that phase out or right in that range, then it’s possible that certain deductions will bring you below that phase out. So then that’s where you get that double deduction because you’re bringing your income down to a level where you’re below the phase out, which is then allowing you to get that deduction in addition.

Andi: Okay, we’ve got two questions on the topic of estimated quarterly tax payments, so I’m gonna just merge them together. Isabel says “I live off my 401(k) account, but this year I was hit with penalties because I have not paid estimated tax quarterly.” Somebody else says, “Can you address the best way to forecast estimated quarterly tax payments when withdrawing from multiple tax-deferred accounts? Thank you.”

Amanda: I love this question. I just did a class on this earlier for our advisors.

Andi: Perfect.

Amanda: So I’m gonna draw on this slide actually because, I think it will help. So there’s a couple of things that happen when we’re looking at estimated taxes. The first is that the IRS is gonna assume that your income was even throughout the year. That your taxes were paid evenly throughout the year, and if you fail to make a payment, any of these quarters, that’s sufficient under that calculation, then you are charged interest. The current interest rate is 7%. So what will happen is like, let’s say for example, that you didn’t make a Q1 payment, but you paid it in Q2. You’ll be charged a penalty that is equal to 7% interest during this timeframe. So the easiest thing to do is to look at your tax return from the prior year. So right now we’re doing 2025 estimated tax payments. So you would use your 2024 tax return and find that line that says total tax. And find your AGI. For most taxpayers other than married, filing separately, if AGI is more than $150,000, then you need to pay 110% of this tax. If it’s less than $150,000, then you can pay 100% of this tax. So you just take that number, divide it by 4, and pay that every quarter. That’s the easiest, most straightforward way. But if you’re pulling money from different accounts and you’re trying to, to do withholding, you can also just do a distribution that is withholding from any one of those accounts for this amount. Your withholding will automatically be applied equally to each quarter, so that one doesn’t matter when it happens. So that’s the other easiest way to figure it out. If you had a major event in the prior year that made your income extra high where you couldn’t possibly pay these 100% or 110% amounts, it would just be unreasonable. The other way to do it is 90% of your current year tax, but that’s a little bit more complicated to figure out. You sort of need to do like a tax projection to see what your tax will be for 2025 and divide 90% of that by 4 to make your payment.

Andi: Excellent. Thank you for that. We are coming up towards the time on this event, so I wanna put a link in the chat right now to schedule your free tax reduction analysis and Amanda still has more of a presentation to go, but obviously we wanna be respectful of your time. If Amanda does not have a chance to answer your question and you are a client of Pure Financial Advisors, please contact your advisor and they will work directly with Amanda to make sure you get the answers that you need. And if one of the experienced professionals at Pure is not yet helping you to make the most of your finances, now is the perfect time to schedule your free tax reduction analysis because armed with the right information, you can control how much tax you pay now and in retirement, and to begin implementing the tax strategies that Amanda has been talking about and will continue to talk about, sign up for that free tax reduction analysis. You’ll learn some of the things that are coming up shortly. How to legally pay fewer taxes than ever before. The benefits of a Roth IRA and tax myths and mistakes to avoid. You’ll learn tax loss harvesting techniques, tips for reducing taxes on your investments, and how to generate tax efficient income in retirement. It’s a no-cost, no obligation, one-on-one tax reduction analysis tailored specifically to you, your needs, your financial situation. Pure Financial Advisors has 10 offices around the country. But you can meet with one of our experienced professionals from anywhere online via Zoom, just like we’re doing right now. Click the link that I just put in the chat. You’ll be able to schedule that one-on-one at a day and time that works best for you. Now, I know that a number of you have questions that were not answered yet, and we are gonna try and get to as many of those as we can, but otherwise, please schedule that tax reduction analysis. And Amanda, back to you.

Amanda: So for capital gains, that taxable account, one of the really important strategies to keep in mind is to make sure that you’re always realizing losses when you have them. And I know that for a lot of people, they think, well, my, my goal is not to have losses. But the stock market, you know, even though it tends to go and to the right, as they say, it often does this along the way. So invariably you’re going to wind up with circumstances where you have these sort of, dips in the market, and you can take advantage of those dips by realizing these losses and creating a little bit of a pool for yourself where you can realize gains at some other point or on some other positions and offset them. So it’s really important anytime that you have losses in your account to evaluate whether or not it makes sense to claim them. There is a rule called a wash sale rule, which means you cannot buy that same security within 30 days, otherwise your loss is disallowed. So what you’ll wanna do in order to stay invested in the market is sell something here and buy something else.

That also makes sense, in order to take advantage of the loss while staying invested. Similarly, tax gain harvesting. If you’re in that 0% bracket, then it may make sense to go ahead and realize gains that raises your basis so you never pay tax on that money again. And it creates a little bit of a pool, some more flexibility for you within that taxable account from one year to the next. So if you need to pull money from that account, you’re not suddenly blowing up a huge capital gains tax bill. You have a higher basis because you paid 0% on gains in prior years. I mentioned this briefly before, but if you have company stock in your 401(k) or other employer plan, and that’s that plan, paid something for that stock, you can distribute the stock directly and only pay tax on the basis. This portion, all the gain is called net unrealized appreciation. So anyway, this will be taxed at capital gains rates, which is 0%, 15%, or 20% instead of ordinary income tax rates, even though it came from your retirement account, your pre-tax account. So this can be really powerful for people who had a long career at a particular business and have stock in that business in order to lower their taxes. And finally, just taking advantage of the fact that we have such a high standard deduction right now. You can, you can maximize your itemized deductions if you’re charitable by putting money into a donor advised fund. This allows you to put a large amount of money into a fund, take the entire deduction in that year and then distribute the money over time to charity. So if you, for example, say you regularly, donate $10,000 to your place of worship per year. Right now you might not be itemizing because you might be below the standard deduction. But if you put $30,000 into this fund in one year, you could claim that deduction, and then out of the fund, you could still do $10,000, $10,000, and $10,000 over the next 3 years. So it’s a way for you to bunch your deduction for yourself without necessarily bunching it for the charity. So this is a really powerful tool. And with that, I can take any, remaining questions.

Andi: Oh, there are a bunch. So please do use that, that link to schedule a tax reduction analysis if your question does not get answered in the next 3 minutes while we still have time. Pamela says, “If RMDs add more cash flow than needed, is it better to place it into a Roth or a taxable account?”

Amanda: For required minimum distributions, they’re not eligible to be rolled over into another retirement account, so they can’t go into a Roth. They’ll have to go into the taxable account.

Andi: Thank you for that. Doug says, “Can you give an example of how using an incremental approach to transferring assets from a 401(k) plan to a Roth IRA can help limit one’s taxes on required minimum distributions? Are there any other strategies you would recommend for reducing taxes on RMDs?”

Amanda: Sure. So, So when you think about this, it takes a lot of different assumptions. So we’re thinking about what is your future tax rate gonna be? What are your future RMDs gonna be? What’s the growth in your account going to be? So all of these things are gonna be very specific to the person. But that’s where we talked about earlier, sort of like filling up that bucket. If you were to just do the whole Roth conversion in one year. You might end up paying 37% and higher on, well, I guess not higher, but 37%, maybe higher in the future, on your distribution. Where by doing it incrementally, you’re keeping yourself in those more reasonable tax brackets, maybe the 22%, maybe the 24%. And you’re just doing that each year and that way it’s sort of, it’s leveling out your taxes over time instead of having, you know, major spikes or a huge incline once you hit RMD Age.

Andi: Thank you very much for that, Amanda. I think that we are out of time. If you did not get your question answered, as I mentioned, you can go ahead and contact us at the information that you see on screen. You can send us an email, you can give us a call, or you can schedule your tax reduction analysis. I just put the link in the chat once again. And thank you all so much for being here. Thank you for your time. And Amanda, thank you for all the great information. We really appreciate it.

Subscribe to our YouTube channel.

IMPORTANT DISCLOSURES:

• Neither Pure Financial Advisors nor the presenter is affiliated or endorsed by the Internal Revenue Service (IRS) or affiliated with the United States government or any other governmental agency.

• This material is for information purposes only and is not intended as tax, legal, or investment recommendations.

• Consult your tax advisor for guidance. Tax laws and regulations are complex and subject to change.

• Investment Advisory and Financial Planning Services are offered through Pure Financial Advisors, LLC an SEC Registered Investment Advisor.

• All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy.

• Neither Pure Financial Advisors nor the presenter is affiliated or endorsed by the Internal Revenue Service (IRS) or affiliated with the United States government or any other governmental agency. This material is for information purposes only and is not intended as tax, legal, or investment recommendations.

Esquire (Esq.) is an honorary title that is placed after a practicing lawyer’s name. Practicing lawyers are those who have passed a state’s (or Washington, D.C.’s) bar exam and have been licensed by that jurisdiction’s bar association.

CPA – Certified Public Accountant is a license set by the American Institute of Certified Public Accountants and administered by the National Association of State Boards of Accountancy. Eligibility to sit for the Uniform CPA Exam is determined by individual State Boards of Accountancy. Typically, the requirement is a U.S. bachelor’s degree which includes a minimum number of qualifying credit hours in accounting and business administration with an additional one-year study. All CPA candidates must pass the Uniform CPA Examination to qualify for a CPA certificate and license (i.e., permit to practice) to practice public accounting. CPAs are required to take continuing education courses to renew their license, and most states require CPAs to complete an ethics course during every renewal period.